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Moving premises, what do you need to know? Mira Qerasaj and Chloe Benson have provided their guidance to Dentistry Magazine
Chloe Benson, Senior Associate in our Real Estate Dispute Resolution team, and Mira Qerasaj, Associate in our Real Estate team, have been published in Private Dentistry, the leading magazine in the dental industry. They have provided their top tips on how to move your dental practice.
2020 and the start of 2021 has been a challenge for many within the healthcare sector, with the dental industry being forced to close during the first lockdown. Fortunately, the government has recognised the importance of keeping dental practices open during lockdown 2.0 and lockdown 3.0 and no doubt this came as a relief to all those working in the profession and to patients needing dental care.
There has been a drastic shift in people working from home over the past year which has meant a significant drop in commuters into city centres. For many people, working from home will be here to stay, at least for part of the week. Working from home has enabled people to rediscover the their local area and high streets and it is unsurprising to hear that some dental practices may be looking to move away from the city centre in order to relocate to where their patients live (and now work). If a relocation is on the cards, it is possible that you will need to exercise the break clause within your lease.
Exercising a Break Clause
Exercising a break clause is not as straightforward as one might expect and there are plenty of traps for tenants to fall into. Often, it is only after the event when a tenant realises that the one line email which it sent to the landlord does not constitute valid written notice under the lease. By that stage it could be too late resulting in potentially disastrous consequences and the risk of being tied into the lease for the remainder of the term.
If you are proposing to exercise the break, it is crucial to check the terms of your lease from an early stage to ascertain:
- Is it a rolling break or a one-off break?
- How much notice needs to be given and how?
- Who is the landlord and where are they based? Has there been a change in ownership?
- Are there specific service provisions under the lease?
A further crucial point to check is whether there are any preconditions which need to be satisfied in order to validly exercise the break. Most commonly, a break clause is conditional upon the tenant giving vacant possession on the break date. Three key points are to ensure that:
- the landlord is able to enjoy immediate and exclusive possession on the break date – it may sound simple, but make sure that all sets of keys are returned and all your stock has been removed;
- there are no people on the premises at the break date (this includes trespassers, subtenants and any workmen carrying out repairs); and
- the premises are empty of chattels which substantially prevent or interfere with the enjoyment of the landlord’s right to possession.
Another common pre-condition is payment of all rent, service charge and other sums up to the break date. It is therefore advisable to check:
- that all payments have been made on time;
- whether there is interest or VAT outstanding;
- whether the break date falls in the middle of a quarter. If so, is there an apportionment clause? If not, you will need to pay the full quarter’s rent;
- whether there a break clause penalty which needs to be paid.
Taking a new lease
The forecast and expectation for the remainder of 2021 is that Covid-19 is here to stay. However with the vaccine rollout, it is hoped that society will begin to return to some sort of normality. Whether you are planning to close or underlet your City Centre practice and relocate to a residential area, one thing is certain. When taking a new lease during these uncertain times, flexibility is key.
Here are a few pointers to consider when negotiating the Heads of Terms with a new Landlord:
- Break Clause A break clause is an option to determine a lease at an agreed point, before the end date of the lease. This may be exercisable only on one specific date, or it might be that it can be used on any date after a certain period. The latter option is becoming the norm during these uncertain times for tenants and landlords. For example when taking a new lease for a term of three years, you and the landlord may agree that the break clause cannot be exercised in the first year of the term but from thereon the break can be exercised on a rolling basis provided that three months prior written notice is given to the other party. This will give you and your landlord certainty of occupation for 12 months but flexibility to end the lease after this period should your practice require it. An even better position would be to agree a tenant only break clause meaning that you are in a position to exercise the break, but not the Landlord.
- Covid Rent Suspension Rent suspension clauses in leases will not normally be engaged as a result of forced closure due to government restrictions. When negotiating the terms of a new lease with the Landlord, it is prudent to agree for the rent to be suspended in its entirety (or partly) should your practice be forced to close by government restrictions. Tenants can be reassured that, if the rent liability is theirs, the pressure to pay immediately is alleviated by the Coronavirus Act 2020. The Act prevents landlords from forfeiting for non-payment of rent until 30 June 2021 (a date which could be extended). However, it does not release tenants from the obligation to pay.
- Keep Open Some modern commercial leases (particularly in the high street) contain ‘keep open’ clauses and/or ‘operating/opening hours’ clauses. Where a tenant is obliged to “keep open” the premises it is likely that the Regulations will provide a defence to the requirement to “keep open” especially if it can be established that by keeping the Premises open will be unlawful. To avoid any grey areas or a potential dispute, it is better practice to agree that closures due to Covid-19 government restrictions are excluded from the obligation of the ‘keep open’ clause.
- Concessions It may be that during these uncertain times you may want to have the flexibility to grant a trading concession in relation to part only of the Property to assist with payment of rent. For example dentistry and aesthetic surgery can go hand in hand. Subject to the permitted use of the Property, it is a good idea to agree this commercial point with the Landlord from the outset.
Chloe Benson specialises in property litigation work, advising on a wide range of commercial and residential property issues. Chloe acts for clients including private individuals, retailers, institutional landlords and landed estates.
Mira Qerasaj advises on all non-contentious real estate transaction areas including acquisitions, disposals and estate management for corporate occupier landlords and tenants.
Goodman Derrick – Real Estate & Real Estate Dispute Resolution
Goodman Derrick has a strong cross-departmental Real Estate Group that provides contentious and non-contentious advice to property owners, developers, contractors and consultants, the group:
- provides a comprehensive real estate law service, from project beginning to end
- takes pride in its ability to offer practical and commercially sound solutions
- advises commercial clients on every type of landlord and tenant dispute in relation to both freehold and leasehold property
- routinely assist with resolving disputes concerning service charges, covenants, agreements, and forfeiture
Goodman Derrick - A London law firm focused on delivering an exceptional service to ambitious businesses and entrepreneurs.
This guide is for general information and interest only and should not be relied upon as providing specific legal advice. If you require any further information about the issues raised in this article please contact the author or call 0207 404 0606 and ask to speak to your usual Goodman Derrick contact.