GP practice leases: how to ensure your lease is ICB compliant

In our previous GP practice leases article, we looked at why a GP practice should make sure that they have a lease in place, and recommended that a lease be granted wherever the owners and occupiers of a building are not exactly the same people.

In this second article, we look at those particular clauses that are needed in such a lease to ensure that it becomes a ‘GP Lease’ i.e. one that the ICB is happy to approve, and one that the ICB will use as a basis for awarding rent reimbursement.

A GP lease will be based on a standard commercial lease, but will have the following key differences.

Rent and rent reimbursement

A standard commercial lease will provide for the rent to be reviewed during the term of the lease, often at five yearly intervals.

A GP lease, however, will provide for rent reviews that will take place every three years. This is because the district valuer assesses the rent in a three-yearly pattern.

It is crucial for a GP lease to provide that the rent will never exceed the amount of rent that is fixed by the district valuer.

GP leases therefore have two sets of rent review provisions. One set will apply where the tenant is not entitled to rent reimbursement (for example if the doctors have assigned their lease to a tenant that does not benefit from rent reimbursement, e.g. to a dental practice). In such circumstances, the rent will be reviewed every five years in the usual way.

The second set of rent review clauses (and these must be in a particular form to be approved by the ICB) will provide for the rent to be reviewed every three years, and will provide that the rent will in no circumstances exceed the amount fixed by the district valuer.

This set of clauses will apply for as long at the tenant is a GP practice.

Term

The length of term of the lease is normally a matter for negotiation between a landlord and tenant. The ICB however, currently prefers to see leases that are at least 10 years long.

Armageddon Clause

It is common for landlords and tenants to negotiate break clauses, i.e. clauses in the lease that allow either of them to bring the lease to an end before the end of the term, by giving notice to the other.

Such clauses can also appear in a GP lease, but in addition, every GP lease should have an Armageddon clause. This clause provides that should rent reimbursement cease, the GPs should be able to bring the lease to an end.

Assignments, and underletting (sub-letting)

Standard commercial leases contain clauses dealing with each of these. An assignment is where the tenant transfers its leasehold interest to a third party, and at that point ceases to be liable to pay the rent and to comply with the other terms of the lease. Instead, these responsibilities become those of the person receiving the assignment (the assignee) who will become the new tenant.

A commercial lease will, however, provide that should the new tenant fail in these responsibilities then the previous tenant will act as a guarantor, and if necessary, step in to pay the rent and once again take up the responsibilities of being a tenant. This is the case as standard commercial leases require the tenant to guarantee the performance of the assignee by entering into a document known as an authorised guarantee agreement.

A GP lease should not have any requirement for a tenant to enter into an authorised guarantee agreement. The rationale behind this is that the rent is ultimately paid through rent reimbursement, and it should therefore make no difference to a landlord which particular set of doctors happen to be the tenant at any given time.

This is also the rationale for making assignments easier in the case of a GP lease.

In a commercial lease to a partnership, changes in the people that constitute the partnership from time to time means that the lease must be assigned from the old partners to the new partners, even if there is only a minor change.

For example, if there is a partnership consisting of AB and C, and a new partner, D, wishes to join, then the lease must be assigned by the ‘old partnership’ i.e. partners AB and C to the ‘new partnership’ consisting of ABC&D.

As well as a deed of assignment, this process requires the landlord to give its consent in the form of a document known as a licence to assign, and the lease will govern the way in which this consent may be given or withheld.

A GP lease this should simplify this process, by providing that wherever there is a change in the partnership, and rent reimbursement is not affected, there should be no need to obtain a landlord’s licence to assign.

Commercial leases often allow tenants to underlet the whole of the area covered by the lease to a third party. Such an underlease will be for shorter a period of time than the term of the lease to the tenant. This is known as ‘an underletting the whole’.

Leases often also permit underletting parts of the property to a third party, for example, a discrete floor or set of rooms. This is known as an ‘underletting of part’.

In each case, the tenant will be required to obtain the landlord’s licence to underlet to permit this to take place.

As underletting may have an impact on rent reimbursement (i.e. if the under tenant is not going to be entitled to rent reimbursement), particular clauses are incorporated into a GP lease to cover this.

Sharing occupation

Landlords of commercial leases are reluctant to allow tenants simply to share occupation with other tenants, without putting in place an underlease as set out above.

At most, where the tenant is a limited company, the tenant may be permitted to share occupation with other companies that fall within the same group of companies.

The NHS is of course keen to see that primary care premises are used to the fullest possible extent, and therefore GP leases should contain particular clauses allowing sharing of occupation with other healthcare providers such as physiotherapists, other members of a PCN, and other providers of primary and social care. A GP lease will therefore have clauses to cover this.

There are, of course, other clauses that are particular to a GP lease, touching on the importance of maintenance of the core contract, be that a GMs, PMS, or a PMS contract, and there are also ways of maximising the use of a property to provide, for example out of hours care.

These are outside the scope of this article, but we do hope that the list of GP specific clauses we have provided above will make clear that when occupies of primary care premises enter into leases, they must obtain appropriate advice to ensure that the lease is a GP lease, and one which the ICB will approve as a basis for rent reinvestment.

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