My pharmacy lease is ending soon – can the landlord make me leave?17 March, 2015
Nick Austen and Gemma Mintram, pharmacy solicitors in the healthcare team at Cripps LLP discuss whether a landlord is able to make a pharmacy owner leave the pharmacy premises at the end of the lease term?
The answer to this question is not straightforward – so it’s a “maybe/maybe not”, depending on the circumstances in each individual case. Most high street pharmacy leases are granted for a term of around 10 to 15 years. Health centre leases are often for a longer period of time. Due to the fact that the NHS contract is granted in respect of particular premises, a relocation is subject to legal and competitor scrutiny and sometimes is not possible or desirable to relocate due to suitable premises not being available, whether the tenant has a legal right to a new lease on the expiry of its current lease has always been an important matter for pharmacists to consider when taking a lease of pharmacy premises. The tenant generally has a legal right to renewal at the end of a lease under the Landlord and Tenant Act 1954 (“LTA”) and the landlord can only oppose renewal on certain limited grounds. However, the problem faced by some pharmacists is that this legal right can be removed if the landlord and the tenant agree to “contract out” of the provisions of the LTA.
If the provisions of the LTA are “contracted out” this will mean that the tenant will have no right to remain at the premises at the end of the lease unless the landlord offers a new lease, the tenant has no right to compensation from the landlord on leaving the premises and the tenant has no right to ask the court to fix the rent if the landlord offers a new lease.
When buying or opening a pharmacy a pharmacy contractor may be granted a new lease or take a transfer of an existing lease. Because the statutory procedure described above only applies on the grant of a new lease, an unwary pharmacist could be caught out when taking a transfer of an existing lease from a seller if it doesn’t spot that the lease has already been “contracted out”. This is why it is sensible that this question is addressed very early in the negotiations for the new premises to ensure that time and costs are not wasted and should be one of the first things that your legal adviser checks when reviewing the terms of the lease. The worst scenario would be that a pharmacist takes occupation (perhaps through the purchase of a pharmacy or a relocation) thinking that it has a right of renewal at the end of the lease but finds out at a later stage that it doesn’t. Be aware that lending banks may also make it a condition of their loan facilities that the lease is protected if it only has a number of years left which closely match the capital repayment schedule of the loan (e.g. often 5 to 10 years).
A lease premium is frequently negotiated in relation to a “prime location” lease, e.g. on the grant by a GP practice landlord of pharmacy premises within a health centre. If the pharmacist has paid a lease premium to the landlord, does this change the position? Unfortunately for the pharmacy contractor, the fact that it has paid a hefty lease premium doesn’t itself give a right of lease renewal. If the lease is not protected then the tenant could find itself the subject of a lease bid exercise with its competitors in the future, with the value of the lease premium demanded next time around created by the pharmacist’s own hard work in developing a successful and profitable pharmacy at that location.
Finally, pharmacist tenants should be cautious of their landlords promising to convert the lease from its current contracted out form into a protected tenancy (perhaps for a significant fee). There is legal uncertainty about certain routes to achieve this and expert advice should be taken before any decision is made.