Owning a freehold property gives the pharmacist the reassurance that he or she can continue to trade from the same site for as long as they choose. In contrast a lease is an asset which reduces in time and value. Failure to renew or extend a lease could be disastrous. Relocation will be a significant issue for the majority of pharmacists but it can be especially problematic if the existing pharmacy is located within close proximity to a medical centre or doctor’s surgery. Pharmacists must ensure that they can get the best protection to keep their pharmacy in the location their business requires to be profitable.

Right of first refusal

If the freehold of the pharmacy is not for sale and the landlord is not prepared to sell it to you, you could ask the landlord for a right of first refusal should he ever decide to sell. The advantage of having this right is that the landlord will have to offer the freehold to you before he offers to sell it to anyone else. Once such a right has been formalised an entry would be made on the landlord’s title preventing any sale without the pharmacist’s knowledge or consent.

While the obvious time to approach your landlord to request a right of first refusal would be when you take a new lease or acquire an existing pharmacy business there is no reason why an approach cannot be made at any time, although the landlord may ask for some payment for this right.

The down side of such an agreement is that the landlord may never choose to sell leaving you without an opportunity to buy the freehold.

Option Agreements

An alternative to this is an “Option” where you would have a right to ask the landlord to sell its freehold interest to you within an agreed period of time. Your landlord is likely to be reluctant to enter into such an agreement (particularly without an option fee being paid) as the pharmacist could require him to sell the property at any time and this would be out of the landlord’s control.

If you are able to negotiate an Option to purchase the freehold this option would then be available at any time during the “Option Period”. This period could be anything from a few weeks to a number of years. It would be up to the parties to negotiate the timeframe they were happy with. During the option period you could call on your landlord to sell his freehold interest and he would not be able to refuse.

Negotiating the documentation

Any right of first refusal or option agreement needs to be carefully drawn up to protect your position and legal advice should always be sought. The documentation will need to clearly set out:

• The price payable or, if based on the property’s value, how the value of the property will be calculated should the option or right be exercised

• give details of timing including when notices are to be served and payments made

• set out how long the agreement is valid for

• in the case of a right of first refusal a provision to ensure that the landlord cannot sell on any terms which are better than those offered to the pharmacist, and if no such sale takes place within a given time period, the pharmacist’s right of first refusal will continue to apply on any future sale

Other Issues to consider

Buying the freehold under either route will involve a one-off payment and other costs such as Stamp Duty Land Tax and valuation and other professional fees rather than the potentially more cash flow friendly alternative of rent. The choice which is right for you needs to be carefully balanced looking at both long and short term considerations.

It is important that you know the full picture before entering into such an agreement. If there are residential flats above your premises which are let separately to your pharmacy, you could find yourself becoming a landlord of the upper floors if you buy the freehold. If there are two or more flats there could also be issues surrounding the seller being legally required to offer the right of first refusal to the flat tenants first and any option or right of first refusal may not be capable of being granted.

Given that the rights we have discussed may not always result in you being able to buy the freehold or be a cost efficient option, it is very important your lease contains suitable rights to renew. This could either be a statutory right to renew (set out in the Landlord and Tenant Act 1954) or a specific contractual right to renew at the end of the lease.

The above is a general overview and we recommend that independent legal advice is sought for your specific concerns. For guidance, please contact Kate Wheeler, a solicitor in the Pharmacy Real Estate Team at Charles Russell LLP on kate.wheeler@charlesrussell.co.uk