If a pharmacist purchases a pharmacy there are some important points to consider before signing on the dotted line as Charlotte Boyd from Charles Russell Speechlys explains…
Pharmacy buyers must ensure that any premises that they are taking are in a fit state as they will inherit obligations to maintain the property.
Common lease repair provisions
What are the extent of the premises you are taking on?
Is it a lease of the whole building (roof, foundations and outdoor areas included) or is it the internal shell of part of a building? If the latter, the landlord is also likely to have repairing obligations in relation to the remainder of the building. Unfortunately, it is often not clear what the premises comprises (for example, the property may be described only as ‘ground floor at x address’ or ‘lock up shop at x address’). In these instances, further enquiries should be raised on who has done what in the past.
After establishing who is responsible for what the next question is is it a full repair liability or it is limited?
A lease of a pharmacy premises is likely to be what is called ‘a full repairing and insuring’ lease. This means that, if the lease is of the whole property, the tenant is responsible for repairing and insuring the whole or, if the lease is of part of a building, the tenant is directly responsible for repairing their property but also reimburses the landlord the cost of insuring the building and repairing the rest of the building. These costs may be shared if there is more than one tenant in the building.
Occasionally, a lease will limit the repair liability by reference to a schedule of condition, which will mean that the tenant will only need to keep the property in the state as shown in the schedule of condition.
The schedule of condition is a photographic and written record of the state of the property as at a specific date and should be attached to the lease. Annexing a schedule of condition is favourable to a tenant as it will limit the cost of the necessary repairs to the pharmacy, but this is only really an option at the beginning of the lease.
Investigation of the property before completion
The current condition of the property should be considered when looking to buy a pharmacy lease. You should have a full structural survey of the property done to establish any immediate and impending repairs that require attention.
This will give you a good idea of the costs they are likely to incur under the repairing obligations in the lease.
Even if the extent of the property is just an internal shell, it is a good idea for a buyer to have a survey of the whole building. This will help identify areas that the landlord may need to repair during the lease term, as it is likely that the tenant will be liable to pay a proportion of the cost of these works via the service charge.
The buyer tenant does not want to have any nasty surprises from the landlord when the service charge demand arrives!
Options if the property is in disrepair
If the property is in disrepair, it is likely that the seller (the current tenant) is in breach of their lease. Therefore, if the buyer does nothing, when the lease is transferred to them, they will inherit those liabilities.
A buyer should therefore ask the seller to put the property in repair before completion of the purchase. This is not always achievable within the timeframe. A buyer will assess the cost of the required repairs and ask the seller to pay this sum or reduce the price, so that the buyer can carry out the required works.
Either way, the buyer will want to ensure that they will not incur unexpected costs following completion of the purchase in remedying the seller’s breach of the repair obligations.
At the end of the lease, the landlord can serve a schedule of dilapidations on the tenant outlining all the areas of disrepair. The tenant must then either carry out the required works or pay the landlord a sum in lieu to enable the landlord to make the repairs.
As a result, even if a buyer pharmacist is not asked to put the property into repair by the landlord soon after the pharmacy purchase, the cost of such works will be the buyer’s responsibility at the end of the lease. This cost could also include the reinstatement of any alterations that the seller has made during the term, which can be significant.
The state of the property and the potential costs of any disrepair should always be borne in mind when purchasing a pharmacy lease. Entering into negotiations and clarifying your liability early on can avoid unexpected problems going forwards.
The above is a general overview and we recommend that independent legal advice is sought for your specific concerns. If you require further information in relation to the points raised in this article you should contact Charlotte Boyd, a solicitor in the pharmacy transaction team at Charles Russell Speechlys LLP. Charlotte can be contacted on [email protected]