Beware of pitfalls in negotiating GP practice leases

Careful attention to the negotiation of a practice lease must be a high priority for GPs, to ensure it is ‘fit for purpose’ and addresses potential risks and opportunities for successful practice development and ensure liabilities are limited and costs are kept to a minimum.

The options in negotiating a lease for health care premises range widely. Do GPs assume the landlord or the tenant role? GPs may act also as lead tenants who sub-let to other tenants, perhaps sharing the premises with other health practitioners, such as dentists, pharmacists and physiotherapists. Premises may be leased from different sources, from an independent property developer to a health care trust.

Negotiation of the heads of terms for the lease may take place when moving to new premises, renewing an existing lease, or as part of a third party development project. Similar questions apply. How many years should the lease last? Can the lease be renewed, and if so, on what grounds? Can the lease be broken, for example, if the GP practice contract is lost. How are service charges calculated? What is the rent review process? What are the repair obligations? Is there a dispute resolution process? More widely, the lease must be approved by NHS England before signing by the GP partners. This secures NHS reimbursement of the practice.

When drafting a lease, the tenant must consider not only their current aims and interests but also how they might develop in the future. For example, if shared occupation is a future aim it is best spelled out in the lease. Otherwise, it will require subsequent negotiation and agreement with the landlord, whose consent may be linked to further demands, for example payment obligations and costs.

Termination or expiry of a GP contract does not necessarily bring a lease to an end. The tenant(s) named in the lease will continue to be liable for payment of rent, service charges, insurance premiums and all other payments due under the lease until the lease expires or is otherwise ended, which could be many years later.

Consideration must also be given to a change in GP partners, as with a retirement or new appointment. As a rule, a GP lease should allow for its assignment between current partners without requiring the landlord’s consent. Nevertheless, if a minimum number of GP tenants are specified for holding a lease, the departure of a partner would allow the landlord to withhold their consent to the lease. Equally, a retiring partner would have to be indemnified by the continuing partners for any outstanding tenant financial obligations under the terms of the lease.

Long term leases can therefore represent a major concern. A number of strategies might limit a GP’s exposure to risk – most obviously by inserting break clauses. Careful negotiation will be needed in respect of any pre-conditions which will need to be met in order to exercise such a break.

Debenhams Ottaway’s commercial property team can advise on asset management ranging from the grant of leases (whether by landlords or tenants) of GP offices and wider health centre developments, from lease renewals, rent and service charge disputes, and break notices. The team have a proven track record in advising clients/GP practices on leases and their goal is to draft documents and agreements to maximise client benefits and protections. If you require further advice, please contact senior lawyer, Neil Mercer from our commercial property team.