Whether you are looking to buy a veterinary surgery, relocate your veterinary practice or expand your business. There are many important decisions to be made before the deal is done. To help focus your options in relation to the property aspects this article sets out our "top ten" issues to consider before signing up to your new veterinary lease.
Counting down from ten – Rent review
With most veterinary leases granted for ten years or more landlords will want to include provisions for the rent to be reviewed – usually every 5 years. This may be in line with market rent, assessed by a rent review surveyor or calculated in accordance with a formula referring to a measure of inflation such as the Retail Prices Index.
It is very unusual for leases to provide for rent to go down even if current rental levels are lower but a well drafted clause will allow it to remain at the current level if there has been no increase in market rents or inflation.
Nine - Will you need any specific rights?
It is important to consider your proposed use of the property as well as its location to identify if you need any specific rights. For example will you require parking spaces for staff and/ or customers? Other rights which are important to consider are rights to put up signage, a right of escape in the case of emergency and rights to access to the property especially if it is within a shopping or medical centre.
Eight - Selling your lease
The assignment provisions in the lease are extremely important if you want to sell your business. The terms which the landlord can refuse consent to assign should be fair and reasonable and not include any onerous conditions which a potential buyer cannot meet, especially in the current economic climate. Having too restrictive assignment provisions could put potential buyers off from buying the practice and effect the number of offers made.
If rent is reviewed to "market rent" it is worth considering the link between these clauses and the rent review provisions, a flexible lease from a tenant's perspective could attract a higher rent than one which is more restrictive.
Seven – sub-letting/ sharing
If the space lends itself to it you may want to sublet to a group company or even another specialist. If the lease does not permit sub-letting of part or sharing occupation it will be entirely at the landlord's discretion if he allows this. Without careful drafting, the landlord can act unreasonably and delay giving a decision causing you to lose your sale
Six – Non-competition
You might want to include a covenant by the landlord not to permit another veterinary surgery to be operated within the centre or his parade of shops. It is possible to register such a restriction at the Land Registry which prevents the landlord of disposing of the premises or grant further leases without a statement from you confirming your consent.
Five – Opening hours
If you are located in a health centre or a pet warehouse centre the landlord may require the veterinary surgery to be open for a minimum number of hours. It is important that these are negotiated and you are able to service any commitment in the lease. If the practice is within a multi let centre it is important to consider access arrangement outside the hours of the centre and any additional costs it may involve.
Four – Any works required?
It is important to consider if the property is workable as a veterinary surgery. The landlord will usually control the alterations you may carry out to the interior of the property and external and structural alterations are often prohibited. Consent should be obtained for any proposed works before the lease is granted and incorporated within the lease as "permitted works" especially if they involve any structural or external works or signage.
Three – Limitations on the use of the property
The lease will restrict what types of business can be run from the property. The landlord will want to include such a clause to maintain control on his investment and if he owns a number of neighbouring units to avoid competition between tenants. From a tenants perspective you want this clause to be as wide as possible. Firstly to enable you to underlet or share occupation with other healthcare providers but also should you wish to relocate, the lease will be more attractive to other business if there is flexibility.
Two – Option to buy the freehold
Consider negotiating a right of first refusal should your landlord offer the freehold for sale at a later date. This gives you the opportunity to own the property outright should the landlord ever offer to sell the freehold.
And at number one – The term and contracting out
When negotiating the lease term you need to be confident that it is long enough for you to set up your business and potentially sold during the term. If the lease is too short or has little of the term left to run it will be unattractive to a prospective buyer.
The Landlord & Tenant Act 1954 gives tenants occupying premises for business purposes a statutory right to renew their lease when the term comes to an end. The landlord is only able to oppose a new lease on certain limited grounds. While the Act grants this right to tenants it can be excluded by agreement. As a tenant it is important you maintain the right to renew your tenancy at the end of the lease term. The location of a veterinary surgery is of key importance and you will want to be reassured you can stay beyond the initial term.
As you can see there are a number of important considerations when you are looking to take a lease of veterinary surgery premises.
Your "top ten" issue may vary given your individual circumstances and the location of your veterinary surgery. However, these should give you a good starting point to think about your needs and how these tie in with negotiations for your lease.
Whatever your situation it is important to plan ahead and consider how your business may change or evolve. Leases can be varied after completion or applications made for consent where an activity may be prohibited in the lease but this will be more costly than getting it agreed at the outset. It is important your advisors understand your practical needs from the property to enable them to give you the best professional advice.
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.
