UK: Avoiding A No Deal Scenario When Selling Your Pharmacy

Last Updated: 23 July 2019
Article by Aidan Welton

At the Charles Russell Speechlys LLP Pharmacy Law conference in March, Claire Timmings and I spoke on the key areas from a property perspective that can hold up or prevent a pharmacy business sale. This article sets out some of the key areas which we discussed.  The article to be published next month looks at delays from a corporate transactional perspective.

Is your documentation in order?

Often a lot of time is spent chasing after documents that could be avoided by good record keeping. Keeping copies or originals of key documents will save time and costs down the line for both buyer and seller.

Key documents include:

  • Title deeds – leases, transfers
  • Rent review memoranda
  • SDLT payment records
  • Landlord concessions i.e. side letters etc.
  • Utility and Rates bills
  • Planning documentation
  • Licences to assign, alter, underlet, charge etc.
  • Service Charge budgets and historic accounts
  • Rent and Service Charge invoices

Lease compliance

Where you are selling a leasehold pharmacy, buyers and their lenders will expect to see compliance with the various tenant obligations, covenants and restrictions within the lease. Examples are:

Assignments and Underlettings

Landlord's consents to any previous property sales or underlettings, and evidence of registration of the change of ownership and underlease should be kept.  Where these are unavailable the landlord's consent may be required retrospectively and this can take some time to obtain.

Alterations

Alterations carried out at a property will usually require landlord's consent (although the extent that consent is required will differ from lease to lease).  If you have undertaken any alterations you should ensure that you have obtained the landlord's consent, where consent is required.

Permitted Use

The use of the property must be that permitted by the lease. If it is not, you will need evidence of the landlord's consent to the change. 

 

If the landlord's consents have not been obtained to dealings, alterations etc., the landlord could potentially take action against the tenant of the lease, which could include taking steps to forfeit (terminate) the lease.  A buyer would want to ensure that there is no risk of this happening.

Rent Review

Where rent review dates have passed in a lease, a buyer will want evidence that the rent reviews have been completed, in the form of a rent review memorandum.  Buyers will want certainty as to the liabilities of the business. They cannot do this accurately if there is an outstanding review.  This is because once a rent uplift is decided, the increase in rent will be backdated to the rent review date together with interest.  Buyers could therefore be responsible for rent for a period before their purchase.

Statutory compliance

Buyers (and lenders) will want to see evidence of compliance with the various statutory obligations that apply to pharmacy tenants/properties. This is to ensure that there is no outstanding or potential liability.  For example, the punishment for not having either asbestos survey or fire risk assessment is an unlimited fine and/or up to two years' imprisonment.  Examples of documents that buyers will want handed over to them are:

Asbestos surveys

Surveys or plans showing management of any asbestos or evidence that no asbestos exists.

Air conditioning reports

Inspection reports for air conditioning.  This is because legislation requires inspection every 5 years if the unit is over a certain size.

Fire risk assessments

Assessments showing compliance with fire safety legislation.

Planning authorisations

Planning permissions and building regulations certificates showing that the use of the pharmacy and any alterations made are legally authorised – a buyer may accept indemnity insurance where these cannot be obtained.

The sale process

Once heads of terms have been agreed for the sale of a pharmacy business, there are two main areas on the property side of things that cause delays:

  1. Landlord's consent - this may be required to transfer the property to the buyer if you are not selling the shares in the pharmacy company.  Alternatively, the property may not be registered to the correct entity and as a result, consent may be required to transfer the property to the pharmacy company being sold (usually from the pharmacist's individual name) before the transaction can be completed.  This can take some time to obtain.
  2. Guarantees - personal guarantees given by directors in support of the tenant pharmacy company on a lease do not automatically release when the company is sold.  As a result, you may wish to negotiate a release of any guarantees given with the landlord, who may insist on a replacement guarantor being provided.  As with obtaining landlord's consent, this can take some time. 

Looking to sell?

This is just a brief overview of some of the general issues that tend to arise in the sale of a pharmacy business.  It should give you a flavour of the sorts of areas to focus on before you look to sell your business.  However, if you are thinking of selling, you should seek legal advice as early as possible in order to try and pre-empt any issues and delays which could arise to ensure that you reach completion of the transaction within the time frame envisaged.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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