Can I sell my pharmacy if the lease is short?

Q: What else in the lease can hold up the sale?

Three things, and better you find them first: A rent review falling due. An outstanding review is an open-ended number, and buyers discount open-ended numbers. Dilapidations. A schedule is an opening position, not a bill: damages for breach of a repairing covenant cannot exceed the amount by which the value of the landlord's reversion is diminished by the breach (section 18(1), Landlord and Tenant Act 1927). Alterations made without consent. The consultation room, the shopfront, the air conditioning. A retrospective licence is another consent application, on the landlord's timetable. A problem you raise is a term; a problem they find is a discount. Where the landlord is a relative, a family trust or your own pension scheme, that is a reason for more diligence, not less: a lender will want a documented lease at a market rent, and a rent kept low as a family arrangement flatters the accounts and is normalised in the valuation. If the pharmacy sits in a health centre or a GP surgery, establish what you hold before you market - some are short, some are poorly documented, and

rajkamalbhatti

Sep 25

6 min read

Updated: Oct 1

Yes. A short lease does not stop a sale; it narrows the field of buyers who can fund it, and it moves the price. Much of what makes a short lease a problem is fixable before you market, and it is cheaper to fix as a sitting tenant than as a seller who has already accepted an offer.

Can a pharmacy with a short lease actually be sold?

It can. A short lease is a funding problem and a pricing problem, not a bar to a sale. What changes is who can buy: a cash buyer or an established group can take a view on a short term, while a first-time buyer borrowing most of the price often cannot.

The lease matters more in pharmacy than in ordinary retail because of the NHS listing. Your entry on the pharmaceutical list is an entry for particular premises, and the buyer applies under regulation 26 of the NHS (Pharmaceutical and Local Pharmaceutical Services) Regulations 2013 to be listed at or from those premises in your place. Lose the premises and you are into a relocation application on someone else's timetable. What happens to the NHS contract when a pharmacy changes hands sets out the mechanics.

How many years does a buyer's lender want to see?

There is no published rule, and anyone giving you a single number is guessing. What a lender tests is whether the unexpired term, plus any renewal right the buyer can rely on, covers the term of the loan with something to spare.

Put the lease in front of the buyer's broker with the accounts, not after the offer; the funding sequence is in how to buy a pharmacy in England.

Does my lease have security of tenure, or is it contracted out?

Establish this before anything else. Part II of the Landlord and Tenant Act 1954 gives security of tenure to a tenant who occupies the premises for the purposes of a business carried on there: the tenancy does not end on the contractual expiry date; it continues until ended by one of the Act's methods, and the tenant may apply for a new tenancy.

Contracting out is permitted but procedural. Under section 38A the agreement to exclude sections 24 to 28 is void unless the landlord served the warning notice in the form set out in Schedule 1 to the Regulatory Reform (Business Tenancies) (England and Wales) Order 2003 and the requirements of Schedule 2 to that Order were met - the notice at least 14 days before the tenant became contractually bound, with a declaration from the tenant: a simple declaration, or a statutory declaration where those 14 days were not given. Ask your solicitor to produce the notice and the declaration. A recital in the lease is not evidence that the procedure was followed.

Security of tenure is not a guaranteed renewal: the landlord can still oppose one, but only on one of the seven grounds in section 30(1), among them disrepair, persistent delay in paying rent, an intention to demolish or reconstruct, and an intention to occupy.

What does a short lease take off the price?

There is no fixed deduction. The money comes off two ways: less competition, and the cost, time and risk the buyer prices in for sorting the lease out after completion. It is the renewal right, not the years on the page, that a buyer and a lender are looking for.

Should I renew before I go to market, or leave it to the buyer?

Usually renew, or at least start the conversation, before you market. If your lease was granted for a fixed term of more than a year, you can request a new tenancy under section 26 of the 1954 Act - a periodic tenant cannot, and has to wait for the landlord's section 25 notice. The request specifies a start date not more than twelve months and not less than six months after it is made, and no earlier than the date the current term would itself have ended, so the route opens about a year out and not before. The landlord then has two months to serve a counter-notice saying which section 30 ground is relied on. You negotiate from a better position now than once the landlord knows a sale depends on him.

Two cautions:

A renewal is a rent review in all but name. Find out the market rent before you ask for anything - if you are paying under it, you may be buying term with rent.
Interim rent. Once a section 25 notice has been given or a section 26 request made, either party can apply under section 24A for an interim rent covering the continuation period. The old rent is not guaranteed to hold.

Can the landlord refuse consent to assign the lease?

Usually not unreasonably, but what counts as reasonable may already have been settled in writing. Where the lease permits assignment with consent, section 19(1) of the Landlord and Tenant Act 1927 deems it subject to a proviso that consent is not to be unreasonably withheld. For a lease granted on or after 1 January 1996, section 19(1A) allows the landlord and tenant to have agreed the circumstances in which consent may be withheld and the conditions attached to it; where they have, applying them is not unreasonable.

Once you apply in writing, the Landlord and Tenant Act 1988 puts the landlord under a duty, within a reasonable time, to give consent unless it is reasonable not to, and in either case to serve written notice of his decision, specifying the conditions attached or the reasons for refusing; any conditions must be reasonable. Section 1(6) puts the burden of proving that on him, and section 4 makes a breach actionable as a breach of statutory duty. There is no statutory 28-day clock, so your protection is practical: apply early, in writing, with everything the landlord could reasonably want about the buyer. Consent sits on the same critical path as the regulation 26 application. See how long it takes to sell a pharmacy.

Am I still liable after the lease is assigned?

It depends on when your lease was granted. If it is a new tenancy under the Landlord and Tenant (Covenants) Act 1995 - broadly, one granted on or after 1 January 1996 - section 5 releases you from the tenant covenants when you lawfully assign the whole of the premises. Assign without a consent the lease requires and section 11 makes it an excluded assignment, postponing the release to the next proper assignment: the shortcut leaves you liable. Section 16 then lets the landlord make consent conditional on an authorised guarantee agreement (AGA), where that condition is lawfully imposed - reasonable, or agreed in advance under section 19(1A): you guarantee your buyer's performance. An AGA covers that buyer, not whoever buys from him later.

If the lease predates 1996, privity of contract may leave you liable for the rest of the term whoever is in occupation - subject to section 17 of the 1995 Act, which applies to old and new tenancies alike: a landlord cannot recover a fixed charge such as rent from a former tenant unless he serves notice within six months of it falling due. Find out which regime you are in before heads of terms: it decides whether "sold" means finished.

On an asset sale the lease must be assigned, putting the landlord inside the deal. On a share sale the tenant company does not change, so usually there is no assignment - but a change of control clause can turn one into a consent transaction anyway.

What else in the lease can hold up the sale?

Three things, and better you find them first:

A rent review falling due. An outstanding review is an open-ended number, and buyers discount open-ended numbers.
Dilapidations. A schedule is an opening position, not a bill: damages for breach of a repairing covenant cannot exceed the amount by which the value of the landlord's reversion is diminished by the breach (section 18(1), Landlord and Tenant Act 1927).
Alterations made without consent. The consultation room, the shopfront, the air conditioning. A retrospective licence is another consent application, on the landlord's timetable.

A problem you raise is a term; a problem they find is a discount.

Where the landlord is a relative, a family trust or your own pension scheme, that is a reason for more diligence, not less: a lender will want a documented lease at a market rent, and a rent kept low as a family arrangement flatters the accounts and is normalised in the valuation. If the pharmacy sits in a health centre or a GP surgery, establish what you hold before you market - some are short, some are poorly documented, and occasionally what everyone calls a lease turns out to be a licence.

This is general information about the law of England and Wales and about NHS pharmacy practice in England, not legal, tax or financial advice; your solicitor and accountant should confirm the legal and tax points for your own sale. If your lease is short and you are deciding whether to renew first or market now, tell us what you hold and we will tell you how it affects the sale.

Rajkamal Singh Bhatti MPharm is a practising pharmacist (GPhC registration 2230365) and a former Superintendent Pharmacist of a national group of 120 branches, which he took through insolvency and sale. He founded RSB Consulting.