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It is crucial for GPs to consider lease risks in order to avoid any pitfalls
Whether it be a retail shop on the high street or an office block for employees, often the most valuable asset held by any business is its buildings. The same can be said of general practitioners (GPs) and the surgeries out of which they work. Like all other tenants, GPs are not immune to the pitfalls associated with being a tenant under a lease.
Despite GPs providing a vital public service and having the ability to recover some of the rents paid under a lease, there are still a number of instances in which the partners will be liable for any shortfall or capital expenditure.
Like all other businesses, a GP partnership needs to consider its cash flow. Whilst a tenant is looking to minimise its cost exposure, a landlord is looking to recover all that it can from the tenant.
A modern lease typically includes a ‘compliance with statute’ clause and albeit the wording in such a clause is fairly standard, its implications are not. In short, this clause requires the tenant to adhere to any laws and regulations affecting the property - even those which are not on the statute book at the date of the lease.
An example of this is the Minimum Energy Efficiency Standard (or MEES) Regulations. Introduced on 1 April 2018, the MEES Regulations place an onus on landlords to enhance the energy efficiency of the properties they let in England and Wales. Although the Regulations are specifically aimed at landlords, there is an argument that the compliance clause requires the tenant to undertake such works. This could put the tenant in the position whereby they materially improve the property for the landlord at their own cost whilst continuing to pay rent. Even if the landlord undertakes the works required themselves, they may still look to recover such costs through the service charge provisions.
The potential challenges
As GPs may not be able to recover such expenditure, it is vital that the lease is drafted in such a way that those costs cannot be passed down to the tenant, nor can the tenant be required to undertake such works in the first place. With further MEES provisions taking effect in April 2023 affecting both new and existing leases, we will likely see an increase in landlords looking to recoup costs of works or pass them to tenants in their entirety.
GPs should consider this amongst the risks they encounter when taking a lease of a new surgery. It is essential to take proper professional advice to mitigate your risk and understand your obligations.
If your practice needs help with negotiating a robust lease suitable for general practice, talk to our expert and dedicated primary care solicitors. The team can assist on matters ranging from leases, premises finance regulations, service charge issues, property litigation, and a wide array of general partnership and employment advice for providers of primary care services.
Additionally, you may also benefit from up to twenty minutes' free advice through our GP Advice Line. This service is available to GPs to receive guidance and legal advice regarding a wide variety of common issues faced in the primary care industry.