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Checklist when moving to a new premises

I visited a practice recently, and after the usual chat about the practice accounts they brought up the idea of their intended move to new premises. It turns out they are virtually ready to sign the lease. The partners seemed quite relaxed about this and wanted to know my thoughts.

I asked them about the break clauses – they told me there are no break clauses in the 25 year lease. Are they confident that the practice (and the NHS) will be here reimbursing rent for the next 25 years? What if they lose their contract? What happens if another provider opens up and they lose their patients (a possibility looking ahead).

Clearly the developer needs to have the assurance that he has a tenant who will be paying the rent, but no breaks for 25 years? I told them that what they would be signing was a legally binding commitment to pay the rent for 25 years regardless what happens to themselves or the practice. They did not appreciate this. Clearly, I said, the developer is going to need some reassurance that the practice will pay rent to cover his development costs but  25 years with no break clauses is too long. Ask for a break after 10 years and then every five thereafter.

What about Stamp Duty? I asked. They looked blank. Stamp Duty is payable on the value of the lease which is basically the annual rental by the number of years of the lease. The actual Stamp Duty payable can be quite shocking. HMRC have an online Stamp Duty calculator at: http://ldccalculator.hmrc.gov.uk/LDC01.aspx.

The PCT will often pay the Stamp Duty as part of the deal to move the practice into the new premises, but if you don’t ask, or ask too late they will probably refuse.

What about dilapidations?  I asked. This is obligation to return the building at the end of the lease in the same condition that it was supplied? How are you going to ensure that the burden of maintaining the building falls fairly over the various partners that are using it? If you do nothing and wait for the lease to come to an end, those partners there who are on the lease will have to pay the full burden of the dilapidations. How can this be done fairly?

I went on... have you ensured you won’t be paying any more in rent than the PCT will reimburse? The PCT will only pay the rent that the district valuer approves, so if the landlord wants a higher rent, are the practice prepared to pay the difference? Of course not, so the lease needs to limit the rent payable to the reimbursement. And then there’s service charges etc etc.

Watch out for leases, and get good independent advice!

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