Buying a pharmacy | Overcoming pharmacy property issues
16 October 2019
When considering pharmacy property matters you are likely to be facing one of two situations. Some will be freehold and others leasehold. Below I will explain the differences with some key areas for you to think about and help you overcome any sticking points.
Freehold
Freehold simply means that once your purchase is completed you will own the property as an asset. The thing to remember is that on top of the purchase price for the pharmacy business there will be an additional amount to pay for the pharmacy property. There are some great points about freehold and some less attractive ones.
The advantages are:
- No rent to pay
- No unexpected rent reviews in the future
- You can do what you like with property without having to ask the Landlords permission
The disadvantages are:
- You are liable for all repairs
- Additional building insurance will be required
- More money to find to complete the purchase
Some people like to hold property as an asset or put it into a trust fund for their children or a pension fund – speak to your accountant / financial advisor about the advantages of this approach.
Some property may come with accommodation above the pharmacy – you could let this for an additional income or use it more creatively to support your pharmacy with added capacity but please look at the law regarding rental properties and the obligations of Landlords towards their tenants.
Some people don’t want to keep the property and will do a “Sale & Leaseback” where you sell on the property and then agree a lease with the new owner and pay an annual rent to them. Make sure you have a full dilapidations schedule agreed in this case at the start of your lease.
Either way you will need to have a valuation of the property early on in the process for your lender to agree a mortgage on the property, much the same as buying a house. Remember to allow for additional legal costs for this process.
Leasehold
A much simpler process is to take over the lease for the pharmacy property from the former owner. Ensure you (and your solicitor) read the lease from front to back to make sure you are aware of what is involved in the lease and can tackle any difficult issues before completion. Particular clauses to look out for are:
- Rent Reviews – frequency and how they are calculated
- Obligations for repairs/decorations
- Break Clauses in the lease for Landlord or tenant
- Security of tenure when the lease expires (Landlords & Tenants Act 1954)
- Permissions for fit out changes (normally none for non-structural but Landlords permission required for structural)
- Permissions / restrictions for signage
- Permissions / restrictions to amend trading hours
- Ensure the Landlords Insurance for disaster recovery is adequate for your needs
- Agree a dilapidations schedule for when the lease expires or you vacate
- No Keep Open clauses in the lease
- No Authorised Guarantee Agreement (AGA) in place should you ever wish to re-assign the lease
The current lease holder will need to submit a request to the Landlord for a re-assignment of the lease to yourself / Company. Depending how your financial situation differs from the current lease holder this should not be a problem. Sometimes if you are seen as more of a risk they may require a bond payment of x number of months rent.
Once the lease is assigned to you then you are then responsible for rent and rates, even if you move out / stop trading, until either the tenant break clause (if you have one) or the lease expires.
There will be further short articles on particular aspects of the pharmacy purchasing process in future blogs but if you need some informal advice now about overcoming pharmacy property issues then contact steve@pharmacyseekers.com or chris@pharmacyseekers.com