• In this two-part article, we address these questions, both because they are asked so frequently, and because we spend so much time helping practices deal with difficulties that could have been avoided had they had put a lease in place.

    Part one of this article will deal with where and why a lease is needed, and part two will cover the particular clauses that are needed to make a lease compliant with ICB guidelines, and fit for purpose as a GP lease.

    Normally, where the freehold of a GP building is owned by the partners, the job of property management falls to the practice manager (PM).

    The PM will ensure that the notional rent is duly credited to the partners, and deal with any repairs and other costs associated with the maintenance of the building.

    Do partners in such a position need a lease at all?

    The answer depends on whether or not there is a difference between the doctors that own the building, and the doctors that practise from the building.

    Where all of the partners in the practice are also owners of the building, it isn’t in fact possible to put a lease in place as the same person cannot be both landlord and tenant.
    No lease is needed, or indeed possible, in such circumstances.

    In reality, however, it is very rare to find a practice where all of the partners in the practice are also building owners, and it is much more common to see a divergence between the property-owning partners and those partners who are practising from the building.

    This tends to happen in two ways: where some or all of the building owners retire from the practice, but remain property owners, or where new doctors join the practice but do not buy a share of the property. This means that some doctors will be just owners of the property, some will be just occupiers, and some may be both.

    We therefore end up with two sets of doctors – the owners on the one hand, and the occupiers on the other. It is here (even where there is some overlap between the two groups) that the need for a lease becomes very clear.

    Why should this be the case?

    The answer is of course that owners and occupiers want very different things from a property.

    A property owner is interested only in the rent, and in trying, as far as possible, to minimize costs associated with the property.

    A property occupier will be happy to pay a rent, but will want the owner to bear as many property costs as possible.

    This conflict of expectations between owners and occupiers means that they will give very different answers to the following questions:

    • What should the rent be, and how often should it be reviewed?
    • How much of the property should the occupier have to repair, and how much should be the owner’s responsibility?
    • Who should arrange for the insurance of the building, and who should pay for it?
    • Who should decorate what, and how often?
    • Are there parts of the building for which no rent reimbursement is available, for example any external parts shared with neighbours, and if so, who should pay for their upkeep?
    • Can the occupier make alterations to the property?
    • Can the occupier transfer its interest to another?
    • Can the occupier share occupation with another?
    • Can the occupier grant a property interest of part of the property to another person, and receive rent from them?
    • Are there limitations on what the property can be used for?

    The owner will want to maximise the rent, minimize the costs that it has to meet, and maximise control over the way in which the occupier can use and alter the property.

    The occupier, on the other hand, will accept that it must pay a rent, but will want to make the owner responsible for property costs, and will want to be at liberty to use the property as freely as possible.

    The way to balance these competing interests is, of course, to make sure that there is a lease in place between the owners (i.e. the landlord) and the occupiers (i.e. the tenant.)

    A lease will put all of these questions (and others) beyond doubt by allocating responsibility for each of them between the landlord and the tenant.

    Exactly where these responsibilities will fall, will ultimately be a matter for negotiation between the parties, but the following is a good example of what would be covered by a fair, standard form of lease.

    In a typical lease:

    1. The landlord and the tenant will be clearly identified.
    2. The length of the term of the lease will be set out, as well as any rights of either party to bring the lease to an end before the end of the term (a break clause).
    3. The rent will be recorded and a mechanism put in place for the rent to be reviewed during the term.
    4. The extent of the property to be enjoyed by the tenant (the demise) will be set out clearly, with the aid of a plan if necessary. Often, the tenant will be responsible for the interior only, with the landlord retaining ownership of the main structure, i.e. the roof, the exterior and the foundations, and any other external parts such as a car park. In such a case, the landlord will charge the tenant a service charge to cover the costs of maintenance of the main structure. This is a ‘lease of part’ or an ‘interior only lease.’ Alternatively, the tenant may wish to take a lease of the whole of the building, and bear the responsibility of repairing it all. In this case there will be no service charge, and the tenant will not have to keep chasing the landlord to carry out necessary repairs. This is a ‘lease of whole.’
    5. The landlord will normally be responsible for insuring the building, and will recover the insurance premium from the tenant.
    6. Where the there is an interior only lease, the tenant will be required to decorate the interior. For a lease of whole, the tenant will be required to decorate the interior as well as the exterior, and the lease may set out the dates on which decoration should take place. A modern lease may simply require decoration as often as reasonably necessary, and always in the last three months.
    7. A lease will often forbid the tenant from carrying out any structural alterations, but permit internal alterations with the consent of the landlord (which must not be unreasonably withheld), and allow the installation of demountable internal partitions without the need of the landlord’s consent.
    8. A tenant will typically be allowed to transfer its interest to another party – i.e. cease being the tenant in favour of another party. This is an ‘assignment’ and leases will normally permit this, with the consent of the landlord. Specific clauses will be included that govern the landlord’s consent in such circumstances.
    9. Underletting (also called subletting) may be permitted, so that the tenant can itself let part or all of the property to a third party, and itself collect a rent. This will, also be subject to the landlord’s consent as set out in the lease.
    10. The lease will also provide the use to which the property may be put, and set out clauses dealing with any alternative use that the landlord may permit.

    In short, a lease will provide certainty to both the landlord and the tenant, and indeed to interested third parties such as the ICB (which will set the level of rent reimbursement) and to a bank that may be lending money to a new partner wishing to join the practice.

    So many of the disputes we see between owners and occupiers of GP practices would have been avoided by the simple solution of the owners granting a lease to the occupiers.

    We recommend that, whenever there is a difference between the owners and occupiers of the property, you put your practice in the best position by ensuring the owners grant a lease to the occupiers.

    In the next part of this article, we will consider those specific clauses that should appear in a lease of primary care premises, and so answer the question of whether a lease that exists between a landlord and tenant of GP property is, in fact, fit for purpose.

    Our Primary Care sector team provides pragmatic, timely and commercial advice. If you require any assistance with the topics covered in this article, please contact Ash Jilani or Sophie Spellman and they will be happy to help with any questions you may have.

    The information contained in this document provides background information only. The document may be misleading if relied upon as an exhaustive list of the legal issues involved. If any matter referred to in this document is sought to be relied upon, further information should be sought.

    This content is correct at time of publication

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