Is Your Lease Watertight? Don’t take chances with your livelihood

Graeme Burn is the Senior Partner of Burn & Company, Solicitors, North Yorkshire. He has specialist knowledge of dentistry, having advised dentists throughout England and Wales for the last fifteen years. He is a member of the Association of Specialist Providers for Dentists.

ASPD members offer professional, objective and practical advice and services, based on experience within the industry, to dental practices and other businesses within the dental sector. ASPD members include solicitors, accountants, banks, financial advisers, valuers and sales agencies, insurance brokers and leasing and finance companies.

Woe betide the dentist who fails to complete a risk assessment on the practice’s window catches or the non-slip surface of the doorstep! But when was the last time anybody checked on the details of the practice lease? How safe is the tenure? Will you be found out when the time comes to sell?

In the last year alone I’ve encountered three situations where neither tenant nor landlord had noticed there had been no rent review for over ten years; a practice where two of the three co-principals, who were also the freeholders, had failed to renew or update the lease; several practices where the freehold was jointly owned by the principal and his or her spouse with no formal agreement with the non-practising partner; practices whose tenure arrangements with a PCT had actually expired; and even cases of long standing occupation with no lease agreement of any kind!

Many dental practices are long established businesses and the freehold or a proportion of it resides with former principals or partners now retired. However amicable their relations may be with the present practitioners, todays incumbents need to remember that landlords can dispose of their property, without reference to the tenant, at any time and to anyone they choose. In the event of a death, for example, even the surviving spouse of an old friend may take a much more commercial view of the rent being paid.

While you may be fairly relaxed about an existing casual understanding, if you have no legal security of tenure any prospective buyer, his finance provider and especially his solicitor, will not be impressed. Nobody is going to invest in a business which can be closed at any time on a whim of the landlord; can you absolutely guarantee that he won’t suddenly decide to redevelop the building, or remarry and require the premises for his new wife’s hairdressing salon?

Any practice purchaser needs to be confident that the lease he or she is acquiring is legally valid and clearly indicates the remaining duration. Rent reviews should be up to date, and even if there has been no recent change this fact should have been recorded between the parties, or annotated on the lease itself. Maintenance obligations, service charges or other stipulated conditions on either side should be shown to have been fulfilled. In the event that any or all of these aspects of the practices security of tenure have been neglected, when it comes to a transfer of ownership delays will ensue and you, the vendor, will inevitably incur additional legal costs.

Finance providers normally stipulate a fifteen year lease period for incoming commercial tenants as a condition of the loan, but the current volatility in the business sector has created a demand for nine or even six year leases where there is some doubt over the continuing viability of the enterprise. Commonly included in these agreements are three year break clauses, allowing for rent reviews or for the tenant to quit the premises without incurring further liability. Landlords protect their interests in these cases by inserting a condition that the agreement is outside the Landlord and Tenant Act, which allows them to arbitrarily reset the rent or take possession of the premises at the conclusion of the lease regardless of the tenants wishes, whose recourse to law under the Landlord & Tenant Act (Part II 1954) is forfeited.

With NHS dentistry now subject to competitive tendering, these shorter leases have become a factor in relations or negotiations between a number of dental practices and their host PCTs. In 2006, many practitioners who won the initial GDS or PDS contracts, uncertain of their future after 2009, may have entered into leases outside the Landlord & Tenant Act. They should now be assessing their respective situations and considering whether to seek to amend their leases to improve their security, or conversely considering the advisability of giving notice of an intention to take advantage of a break clause.

However confident you are with regard to your own practice, prudent tenants regularly take steps to ensure that the conditions of their lease are being fulfilled, and their ability to continue practising from their existing premises for as long as they wish is properly safeguarded. Equally, when the time comes to move on, if the lease is not in proper order then selling will be problematic.

Departing tenants often seek to sell their practices to coincide with the end of their lease. It’s appears neat and tidy, particularly for those taking retirement, and absolves them absolutely of any further responsibility for the premises when they leave. However, this obliges the incoming tenant to negotiate a new lease in his own behalf, which is bound to take time and will possibly involve conditions attached to the agreement by his finance provider which may not be acceptable to the landlord, causing further delays to the transfer of the business. In these circumstances it may be preferable for the seller to arrange a new lease prior to marketing the practice, or at least to have prepared the ground with the landlord in advance.

As a postscript, it’s worth remembering that in most lease agreements the tenant is made liable for the landlords legal and surveyors costs, which can vary hugely. Within the last twelve months I have personally encountered variations from £350 to £2,500, and it’s a wise precaution for the outgoing and incoming tenants to agree beforehand who will pay these costs. One common problem in this regard is where partners or co-principals have retired or left the practice but omitted to have their names removed from the lease agreement, and who now are reluctant to become re-involved and liable for a proportion of these costs, not to mention the costs of their own legal representatives acting in what for them is a dead issue.

To avoid risk and minimise expense, keep your lease up to date! – and don’t hesitate to take legal advice if you have any doubts from either your own lawyer or a solicitor member of the Association of Specialist Providers to Dentists.

Peace of mind is priceless!

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