Subletting accommodation within a surgery environment can be an important way of generating additional income for medical centres and provides a positive contribution to the overall running costs of a practice. Subletting also significantly improves the annual income of the equity Partners where the building is owner occupied and can contribute to the overall value of a building.
Specialist healthcare property consultants Aitchison Raffety provides an important reminder to GP Partners and Practice Managers that all too often subleases can be overlooked to ensure that surgeries are not losing out on valuable rent or missing an important lease date.
Subletting in a surgery environment ranges from leasing larger self-contained space to for example a pharmacy tenant, an opticians or a dental practice. But equally, subletting can be letting just a single or multiple rooms within the surgery itself sharing services such as waiting areas and toilet facilities and examples include community NHS services, or a physiotherapist or even certain alternative therapies that may occupy accommodation on either a permeant or an infrequent basis.
As specialists of primary healthcare property, Aitchison Raffety regularly sees instances where practices provide sublease information that is outdated, non-existent, or where rent reviews have been missed or have not been initiated. The following points highlight just some of the more important parts of a lease that often get overlooked in surgery environments:-
The tenant – It is vital that the person or organisation that occupies the space and pays the rent is named as the tenant on the lease. Often occupiers assign or under-let the accommodation, so it is especially important to know who is actually occupying the space and ensure that they are bound by the terms of the lease. Surgeries that lease their building and are looking to under-let space must obtain appropriate permission from the property owner prior to agreeing an under-lease.
Lease dates – Is the existing lease up to date and does the Managing Partner or Practice Manager have a reminder diarised to action any important lease events or notice dates. This is essential and considered good practice to ensure that the occupier has the right to occupy the space and to safeguard against a tenant obtaining certain occupier rights that may have unknowingly been created by missing a particular date.
The rent – Is the practice invoicing the correct agreed rental amount and on the correct frequency. Leases often contain additional payments such as contributions to the landlords insurance costs or to service charge payments for the running of the building and grounds as a whole. It is therefore necessary to review the terms of the lease and ensure the practice is receiving all the agreed contributions in addition to the rent.
Rent reviews – Longer leases generally incorporate rent reviews. The rent in a lease is reviewed in numerous ways but mainly by open market rent reviews (negotiated by parties or agents based on similar rental evidence), or by reference to the Retail Price Index (RPI) or by fixed uplifts on a certain date. We regularly see instances where practices have not instigated a rent review (or several reviews) when they have the legal right to do so. Not only is a practice potentially missing out on additional income, but perhaps more importantly to the owning Partners, this can have a significant impact on Partnership valuations.
Repairs – Leases also establish how an occupier is to return the accommodation at the end of the lease and look after premises during the tenancy. Whilst it is important to maintain a good landlord and tenant relationship, it is vital for a practice to ensure they are up to date with subtenants repairing obligations and if required have served any appropriate schedule of dilapidations to safeguard the Partners and the practice from any surprise repair bills or remedial works when an occupier vacates the property.
Leases cover many more obligations for both the landlord and tenant, and the above list provides a small example of ways that practices can miss out on important income or might find themselves liable for costs that could have been reclaimed through a subtenant due to mismanagement of a lease. Surgeries should also be aware that any sublet space is not eligible for rent reimbursement or notional rent, and therefore, if looking to sublet accommodation at a surgery, practices should always try and agree a lease term and a rent in excess of the loss of the equivalent reimbursement.
It is important that practices seek professional advice on such matters. The above information is provided for general information purposes only and it not specific to one particular practice or scenario.
This information is also applicable to surgeries that lease their building and underlet space.
To talk to us about lease advisory for the healthcare sector, please contact Dom Rosenbaum, Associate Director at Aitchison Raffety on 07815 483427 or email firstname.lastname@example.org.