Breaking a pharmacy lease
Lauren Kelly provides an insight into the legal factors pharmacists need to consider…
In light of the current economic climate, some pharmacists occupying leasehold premises may wish to rely on break rights (to the extent one is included within their lease) in order to terminate their lease before the contractual end date. Such rights can be invaluable where it appears that an alternative premises might be available at a more competitive price, or the unit is not profitable.
Regardless of the reasons for wanting to exercise a break clause, it is very important any conditions attached to the right are strictly complied with. Such conditions could include, for example, that the tenant has paid all rent/other sums due under the lease up to and including the break date or that the tenant hands back the property to the landlord with vacant possession/free from occupation.
Careful consideration should be given to the wording of the conditions, as a failure to comply with the terms could result in the tenant losing the right to exercise the break altogether. We consider below some of the most common break conditions and matters for pharmacists, in particular, to keep in mind.
Payment of rent or all sums due
Commonly clauses will contain a condition that the tenant must have either paid the landlord a) the rent, or b) all sums due under the lease, up to and including the break date.
The distinction between “all rent” and “all sums due” is an important one. Rent is defined in the lease and therefore, in most circumstances, can be easily determined. Unless the lease expressly provides otherwise, payment of the rent should be in full (for the relevant month/quarter) and not apportioned up to the break date. Whether there is any ability to recover an overpayment will itself be determined by the provisions of the lease.
Conversely, a requirement to pay all sums due can include not only the rent but any service charge, insurance premium and/or unpaid interest on any late payments etc. (whether or not the same has been formally demanded). In these circumstances it would be prudent to ask the landlord for confirmation as to whether there are any amounts outstanding under the lease and have the same recorded in writing.
If in any doubt, it is recommended that tenants take legal advice and consider paying any amounts in dispute on a without prejudice basis as any underpayment could result in the break right being lost.
Vacant possession or free from occupation
An obligation can be placed on a tenant in the lease to hand back the property with vacant possession or free from occupation.
Whilst to hand back the property free from occupation would impose an obligation on the tenant simply to ensure that they did not continue to occupy (or allow others to occupy) the property, an obligation to hand back the property with vacant possession is much more onerous.
To comply, a tenant would need to ensure that the property was unoccupied, free from all items belonging to the property, that all rubbish had removed and, if required by the lease, that the property had been reinstated so as to remove any tenant alterations. Essentially, the property is to be handed back to the landlord on or before the break date, in a condition such that the landlord can take immediate occupation, and it can be easy to get into a dispute about the same.
Other points to note
Whilst the most common break conditions are listed above, other conditions may have been imposed and consideration should be given to the break clause in its entirety. It could be, for example, that a premium is payable on exercising a break or that there must be no material breach of tenant covenant.
Further, tenants will need to have regard to the notice provisions in the lease to ensure that any notice is served correctly. This could include the method by which the break notice can be delivered (e.g. by recorded delivery or first class post) and the notice that should be given of the tenant’s intention to break the lease (e.g. there may be an obligation to provide not less than 6 months written notice of the intention to terminate).
Finally, it is vital that consideration is given to the position of the pharmacy’s NHS contract and any steps that might be required ahead of any determination of the lease (for instance ensuring any new premises are appropriately registered and giving relevant notice of the ceasing of activities at the old premises). Pharmacies will usually have controlled drugs at the premises, and great care needs to be taken when vacating premises that the relevant legislation is complied with.
Given the often onerous break conditions which must first be satisfied, it is recommended that tenants take legal advice as early as possible in the event they wish to exercise their right to terminate the lease. This will assist a pharmacy tenant in understanding what rights they have to terminate the lease and the timescales within which a break clause must be served.
The above is a general overview and we recommend independent legal advice is sought for your specific concerns. If you require further information in relation to the points raised in this article, contact Lauren Kelly who is an associate at Charles Russell Speechlys LLP. She can be contacted on Lauren.Kelly@crsblaw.com