Taking a Lease of a Practice – Matters to Consider

When considering the purchase of a dental practice, part of the acquisition may be your taking a new lease of premises from the seller or a third party Landlord. You may also be considering taking a new lease to start a practice.  The taking of a lease is a serious step. You will be entering into a long term liability that you cannot easily exit. The liabilities will extend beyond paying the rent and rates, to include such things as keeping the property maintained and decorated and complying with any requirements imposed by the landlord or by statute.

You may be uncertain as to how long you want to use the property and may try and negotiate the right to end it early – a break clause. You may want to use the property for a new or additional purposes, or carry out alterations to it. The length of term could be determined by your lenders requirements who may be funding you and therefore require security over the lease by way of a Charge (Mortgage).

The landlord is also entering into a long term relationship and may require reassurance that you will look after their property and are capable of paying the rent. 

Your landlord may hold the property under a lease and you may both have to persuade their own landlord that you are going to look after the property and be a good tenant.

Both landlords may want proof that you can pay the rent and may require rent deposits or guarantees. They may want to be certain that your new/additional use of the property or alterations to it will not affect the value of the property adversely. If there are mortgages on the property their banks may also be concerned about the effect on the security.

This is why leases are much more complex than purchasing land outright, and why the documents are so long and complex.

It is very usual for buyers to face a lot of pressure by the seller/landlord to simply agree what will be presented to them as a “standard leases” especially when other aspects of the acquisition have concluded far more swiftly. However it is unwise to jump into something as complex as a lease without a proper assessment of the risks. Despite the pressure that will be brought to bear on you, in our experience you must consider carefully this long term commitment. It will cost you far more and take more time to extricate yourself from hasty decisions that it will to sort it out properly in the first place.

 You should consider the following :

How much is the rent? Is it payable monthly or quarterly?
How long do I want to be there and is the proposed lease length acceptable?
Do I want ‘security of tenure’ or am I happy being forced to move out at the end of the lease, perhaps against my wishes?
Do I want to be able to give the lease back before the end – a break clause?
If do not need the lease any more and I can’t break it, will I be able to assign it to someone else easily?
Does the lease allow me to share the premises with other dental associates and self employed dental services/companies?
Can I use it for the proposed use – does it have the right planning permission and permitted use in the lease?
What am I taking a lease of – the whole building or just the inside of it?
If just the inside of it, what does this mean in practice e.g. walls, windows, frames, floor coverings, heating, etc.?
Will I need to alter it before I can use it?
Do I want to get in to ‘fit out’ before the lease starts?
Where will I park, and will I need any other shared facilities such as service yards, signboards, etc.?
How much is the service charge going to be and are there any caps on the amount?
Will I have to pay VAT on the rent and as a dental practitioner I will not be able to recover it. Will the Landlord promise not to charge VAT while I am in occupation?
Will I need to pay Stamp Duty Land Tax on the transaction?
Can I persuade the landlord to carry out works for me or agree some incentives such as a rent free period or reduction in purchase price?
Am I happy with the rent review period? (If the lease is more than say 3 or 4 years there will usually be a rent review)
Am I happy with being responsible for the repairs to the building and should the landlord be responsible for part of them too?
Should I limit my repairing responsibility by agreeing that I will not have to put it into a better state than the condition described in an agreed ‘Schedule of Condition’ and how much will it  cost me to have such a Schedule prepared?
Do I want the landlord to agree to provide heating, or water or shared facilities such as W.C.’s etc?
Who pays the costs of the landlord, or of obtaining any necessary approvals from a superior landlord? Superior landlords often demand payment of their fees up front (or undertakings from your solicitor to pay these) before they consider anything and a lot of time and money can be wasted arguing over this.
Should I agree with the landlord’s demands that I provide a guarantor or rent deposit?

Heads of Terms

Agents may produce ‘Heads of Terms’ and this can sometimes include the main terms of the lease. Quite often in the sale acquisition such terms are missed, leading to lengthy and costly negotiations via solicitors at a much later stage which delays the business acquisition upon which main terms have undoubtedly have been agreed. If you know that part of your acquisition is agreeing a lease you should ensure main terms are agreed as quickly as possible at the outset with the terms of the acquisition.

We can advise you before the Heads of Term are prepared as to what should appear in them.  Another aide is the Royal Institution of Chartered Surveyors who have produced a model form. We may suggest amending the Heads to restructure the transaction in a way that will protect your position or even mitigate your liabilities in some cases. Obtaining early advice is essential.

Our Role

Our experienced property team can help you with all of your lease related issues, from structuring new lease agreements through to approving and completing a lease on your behalf.

For further information please contact Ifath Khan.

 

 

 

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