Shopping centres, particularly the larger ones, traditionally prefer to have the larger corporate pharmacies but if there is an opportunity for a pharmacist to open in a shopping centre, what are the key issues?
With the potential for an increase in customers in an attractive centre, the pharmacist might wish to sell other products and provide different services so as to attract more business. The permitted use clause might need to be extended to cover this and to allow for a much wider retail offering.
If the unit is large enough, it might be a good idea to have provision for sub-letting and licensing other service providers such as chiropodists, beauticians, chiropractors and others, especially if that will help cover what might be a fairly large rent and service charge liability.
Shopping centre owners traditionally like to control the tenant mix and so the permitted use clause and the alienation provisions dealing with assignment and sub-letting can be quite stringent. These would need to be carefully negotiated so that the pharmacist is able to expand the business to cover potentially non-traditional pharmacy retail sales and services but it might be that the landlord will resist this.
Often landlords of centres require tenants to first offer to surrender back their leases to the landlord if they want to assign or sub-let the property. This is so the landlord can let the unit to a different tenant, perhaps change the use or do some works, and frequently to try and achieve a higher rent than the pharmacist is paying. The wording of these provisions, if agreed, must be very carefully negotiated so the terms of any surrender back of the lease are clearly set out.
Rent and Rent Review
Rent review clauses are usually standard across the whole centre so that there can be a proper comparison of rents at rent review time. This might not work for a pharmacist and the pharmacist may have to pay as much as more profitable tenants at the centre. However, the landlord may not agree to any pharmacy specific exclusions in the lease.
Service charges can be quite extensive and expensive in shopping centres as it is the price to be paid for a well kept and serviced centre. The impact of this on a pharmacist’s business profits should be carefully thought through.
Many centres require a basic rent to be paid together with a turnover rent based on the business turnover at the unit. This might not be appropriate for a pharmacy business and expert financial advice should be obtained.
Landlords of centres also wish to strictly control the appearance of the unit as it is seen from the common walkways and so there might be greater restriction on the shop front and internal alterations. A pharmacist needs to check out the requirements in the centre to see whether the business can operate within these requirements and that any security provisions necessary for a pharmacy meet the landlord’s requirements.
Landlords also wish to retain strict controls over signage to ensure the ‘look and feel’ of the pharmacy is harmonious with nearby units and the centre as a whole. A pharmacist should obtain approval to the signage before the lease is granted. Ideally, changes are permitted if the pharmacist’s corporate signage changes, without the need for landlord’s consent.
Opening hours of the centre are often specified by the landlord and require trading for seven days a week and for long hours. The pharmacist must have the necessary consents and licenses to do this and check the additional costs involved in operating the business this way. There is often a positive covenant to trade during centre opening hours, but the landlord is usually unable to enforce the obligation.
Deliveries may be restricted during certain times so that they are not taking place during peak hours of shopping. The pharmacist must fit around these rules and check that the delivery access works for the pharmacy business.
This is just a short summary of some of the matters to be considered when a pharmacist takes a pharmacy lease in a shopping centre and there is certainly a price to be paid for what might be an ideal location.
This article was written by Debra Kent, first published by Pharmacy Business Magazine in October 2016.