Best practice for managing your GP premise lease

How to set out the rights, obligations and restrictions which benefit and bind you in your use of a premises through your lease

CREDIT: This is an edited version of an article that originally appeared on the British Medical Association

Why is a lease important?

A lease is a crucial contractual document where the owner of a property or land grants exclusive possession of that property or land to another person (the tenant or lessee) for a fixed or periodic term, at a specific rent. The terms of your lease are what will be considered if you have a dispute with your landlord. There are three fundamental aspects of a lease:

• The tenant must have exclusive possession of the premises (the right to use a premises to the exclusion of all others, including the landlord).
• It must be for either a fixed or periodic term (this is usually in line with how often you pay rent).
• The payment of rent.

Format

There is no particular format for a lease; however, a lease that is over seven years in length needs to have an opening ‘prescribed clauses’ section. This is in a format set by the Land Registry and generally gives an overview of the lease provisions. 

What a lease should always contain

The demise 

The extent of the premises to be let by the tenant. This is crucial, and is usually done by

reference to a plan, which must comply with Land Registry requirements concerning

scale.

Term

This is the period of time during which a tenant will be able to occupy the premises.

Rent

This refers to the annual sum that a tenant pays for occupying the premises. All leases should state the amount of rent payable, the payment frequency, and whether it is payable in advance or arrears.

Rent review

Reviews are usually done by reference to the open market. Rents are reviewed in comparison to changes in the rental market or a defined index, such as the retail price index. 

Rights granted 

Any rights that a tenant needs in order to use the premises must be expressly identified in the lease. The sort of rights you can expect include: 

• rights of way over roads, paths, corridors and other communal areas;
• rights to use communal facilities, such as toilets and lifts;
• rights to park cars in parking spaces;
• rights to connect into service media serving the premises which are located in the wider ‘estate’;
• rights to gain access to neighbouring premises when carrying out repairs and maintenance to the property.

Rights reserved 

These are any rights that a landlord anticipates they, or any neighbouring occupiers or tenants, require over a premises that are to be let; they must be expressly identified in the lease. Care should be taken when considering the extent to which the landlord may be looking to reserve rights – if they are excessive, they may undermine a tenant’s use of the premises. 

Repair and maintenance obligations 

The tenant’s responsibilities for repairing and maintaining the premises, and the plant and machinery therein, such as air-conditioning units and radiators, should be identified in the lease.

Depending on whether the premises are new or old, the lease may refer to a schedule of condition or a ‘snagging list’; this identifies items that the tenant is not responsible for addressing.

Service charges

These are payments that a tenant will be required to make to their landlord in return for the provision of services, or maintenance to the premises, or the wider ‘estate’ or building in which it is located. Where such services are provided, the lease commonly identifies:

• the services to be supplied;
• how the tenant’s proportion of such costs will be calculated;
• whether there is a cap on these charges;
• when and how the service charges are to be paid;
• how disputes over the sums being charged will be resolved.

Specific considerations for GPs

If you lose your core contract you will lose your entitlement to claim reimbursement. If this happens, you should have the option to break your lease.

What is payable under your lease may not mirror what you can get reimbursement for.

Ensure the sums you are required to pay reflect reimbursement – and be clear on the shortfalls. Where shortfalls exist, consider the need for financial caps.

You should take account of changes in the hours or ways in which you may decide or be required to operate your practice in the future. Consider the need for flexibility if mergers, networks, vanguards or other new ways of working might become a possibility.

Registering at land registry

If you are granted a lease for a term of more than seven years the lease must be registered at land registry. On registering the lease, you will be allocated a land registry title number which is unique to the leasehold interest you have been granted. 

The associated details of your leasehold interest, in particular the lease itself, will be stored centrally and available for public inspection. The process of registration will involve you or your professional adviser completing the appropriate land registry form. 

Stamp duty

Subject to the exemptions below, when you are granted a lease you are required to submit a stamp duty land tax return (known as form SDLT 1) and pay the tax required. The rate of tax depends on the value of the rent you pay over the term of the lease (known as the ‘net present value’) and the premium or consideration you pay for it. You can use the online calculation tool to work out how much you will pay.

Where the terms of a lease provide for a rent review within the first five years, the rent is, for the purposes of HMRC and the calculation of SDLT, deemed to be variable and uncertain at the date of grant. Once the review has taken place it may be necessary to submit a further SDLT return and pay a top-up amount.

Exemptions from stamp duty

Two main exemptions apply to leasehold premises:

• When you take a lease for a term of seven years or more and the premium paid for the lease is less than £40,000, and the rent is less than £100 per annum.

• When you take a lease for a term of less than seven years where the chargeable consideration* is less than the SDLT threshold, which is currently £150,000 for non-residential premises.

*Chargeable consideration includes any premium and the net present value of any rent payable in respect of the lease. 

What else to consider       

Always take advice from professional advisers to ensure the proposed lease covers all of the sector-specific intricacies, as well as your requirements, before you enter into it. As well as negotiating and agreeing the lease, professional advisers can, where appropriate, carry out checks and searches against the premises that you are seeking to let.