Leases in primary care: ten top tips when negotiating heads of terms

For those renting in the primary care setting, having a robust lease is important but having a sector specific lease could be crucial for two reasons. Firstly, it ensures there is certainty over the terms agreed and secondly it ensures the terms unite the unique circumstances and rules for primary care contractors (whether under their core contracts, the Premises Cost Directions or otherwise).

Here are our top ten tips for agreeing lease terms in the primary care sector.

1. The demise: be clear on the extent of the space being let

This sounds obvious but its importance cannot be understated. It will not only identify the space that can be used, but is likely to prove essential in understanding who pays for what, when it comes to repairs and maintenance. This is particularly true of leases of part (such as a lease of a floor) where, through the combination of plans and a definition of what’s included and excluded, the “property” is clarified.

2. The term: consider the length of lease that is likely to be needed

Most primary care contractors will (unless they hold time limited PMS or ancillary contracts) hold an indefinite core NHS contract. As a result, they are likely to want to have the comfort and security of a reasonable lease, not least, as their NHS commissioners and the District Valuer will insist on a sensible term (usually no less than 10 years) as part of assessing whether the lease represents value for money from a rent reimbursement perspective.

While security is one thing, remember that as the term and rent increases so too will the amount of stamp duty land tax that the tenant will need to pay when the lease completes.

3. Rent: how much?

Being clear on the rent is important as will be the frequency of payments (monthly, quarterly etc).

From a primary care contractors’ perspective, they will need to ensure that their NHS commissioner agrees the suggested rent, along with any VAT, for rent reimbursement purposes before the lease completes. A failure to do so may result in a shortfall in the sums paid and the amount reimbursed. 

4. Rent review: understand how the rent reviews work and how often they happen

Usually rent reviews occur every three years (although the option to exercise may vest with the landlord only) but how they work can vary to cover (among other possibilities): 

• Upward only open market rent reviews. Where the rent will be reviewed by reference to the market rental value at the date of the review but will never reduce (so a drop in the market rental value from the rent already paid by the tenant will not result in a lower revised rent).
• Straight open market rent reviews. As above but the revised rent can rise or fall depending on changes in the rental market.
• Index-linked rent reviews. Where the rent is reviewed by reference to changes in a specified index (such as RPI).

Whichever method is used, NHS contractors will usually seek comfort of knowing that while they hold an NHS contract and are entitled to rent reimbursement that rents will track their level of rent reimbursement.

5. Be clear on your service charges

If services are being provided by or on behalf of the landlord (or the wider building or location in which it is situated), be clear on what these services will be.

A few thoughts:

• Are these services suitable or excessive?
• How will the landlord provide the services?
• What service charge costs (and proportion of total costs) are recoverable from the tenant?
• Will any caps apply on the service costs (for instance, and in the case of NHS primary care contractors, there may be a cap on non-reimbursed service charge costs)?
• Is there a method for resolving disputes?

6. Break clauses: be clear on the terms

While they can be one of the most contentious points, be clear on whether you can break the lease early.

This will be a point of negotiation as landlords generally try to resist break clauses (as they can undermine the value of the premises) while tenants generally try to insist on them. Not least as NHS contractors may want the comfort of knowing that when their core NHS contract ceases, meaning their access to rent reimbursement ends, they can bring an end to the contractual liabilities under the lease.

If breaks are agreed, be clear on the following:

• When they will apply (ie fixed dates or on the happening of certain events)
• What length of notice needs to be given
• What (if any) conditions must be met before they will take affect

7. ​Repairs and maintenance: who is responsible?

Ensure it is clear who is responsible for what when it comes to repairs and maintenance.

Will the tenants be responsible for fully repairing the premises or just the internal parts? If the premises are not new, will the tenants’ responsibility be limited by reference to a condition schedule, identifying anything that needs to be repaired at the time the property is first let?

These are just a few of the questions to ask and agree.

8. Dealings: be clear on the level of flexibility

Make sure that the lease identifies the level of flexibility that exists when it comes to the tenant being able to assign the lease, sublet the property they let and share space.

Generally, primary care contractors will want the flexibility to assign the lease to take account of changes in those individuals running their practice but also to take account of the possibility of an assignment to an NHS body.

Given the agenda for integration, they will also want the flexibility of being able to share space with others delivering health services.

9. Know your rights and reservations

Be clear on the rights that benefit tenant and the rights that benefit the landlord. Examples that are likely to be important to tenants are parking rights, rights over communal areas and rights to communal bins.

10. Securing NHS commissioner approval

Where the tenant is a primary care contractor holding a core NHS contract (GMS, PMS or APMS), the final but most important top tip is to ensure that the NHS commissioner / District Valuer approves the lease and the rent for reimbursement purposes before the lease completes.    

We can help

This is not an exhaustive list, but hopefully it gives an idea of the core elements that need to be discussed when agreeing a lease.

When it comes to negotiating and agreeing a lease we have the experience and expertise to help. Do get in touch with our primary care team.