Pharmacists with a lease of a pharmacy will find that it provides for a number of situations where the landlord's prior consent is required. This can include obtaining landlord's consent to transferring ownership of the lease to approving proposed alterations to the pharmacy. The pharmacist will usually be required to pay the landlord's costs in respect of any application for consent required under the lease.
Here we explore some of the more common landlord consent provisions in pharmacy leases.
The landlord's consent to transfer a pharmacy lease to a purchaser is a usual prerequisite. Such consent is generally not to be unreasonably withheld or delayed. This imposes an obligation on the landlord to act "reasonably" when deciding whether or not to grant its consent. The landlord's consent is formally documented in a licence to assign which all parties enter into. The lease will set out a non-exhaustive list of circumstances in which the landlord may refuse consent. Examples include where the proposed purchaser is (in the reasonable opinion of the landlord) not of sufficient financial standing to enable it to comply with the tenant covenants and conditions in the lease or if the assignment is to a group company. The landlord may also be entitled to seek security in the form of a rent deposit or guarantee from the purchaser.
The landlord's consent will also normally be required for any underletting of the pharmacy, group sharing or charging of the lease. Ideally the lease will expressly provide that the landlord's consent is not to be unreasonably withheld. If it does not, then the landlord may grant or refuse its consent in its absolute discretion. In respect of an underletting of the pharmacy, the landlord will want additional control by requiring that the underlease cannot be varied or surrendered without its consent as well as having the requirement to pre-approve any reviewed underlease rent. The landlord's consent may also be conditional on the underlease being contracted out of the security of tenure provisions of the Landlord & Tenant Act 1954, requiring the undertenant to give up its statutory right to renew the underlease at the end of the term.
Each lease will expressly provide for which type of alterations require the landlord's prior consent. These include structural and non-structural alterations to the pharmacy. The pharmacist will need to submit drawings and a specification of the proposed alterations with its written application for consent for consideration by the landlord. Ideally non-structural minor alterations such as the erection/removal of demountable partitioning will be permitted without consent.
The landlord will want the pharmacist to decorate the pharmacy at regular intervals as set out in the lease. The landlord's consent to the materials, designs and colours of such decoration will be required. Whether or not the landlord's consent is to be unreasonably withheld or not is a matter of negotiation, but pharmacists should try and agree that the landlord's consent is only required for decoration carried out during the last year of the term.
CHANGE OF USE & PLANNING GENERALLY
Use as a dispensing pharmacy tends to fall within Use Class D1 of the Town & Country Planning (Use Classes) Order 1987 and where there is a retail element, such as the sale of toiletries or food, within Use Class A1. Specific planning advice should always be sought though, as this can be a grey area depending on the property type. If a pharmacist wants to change the use of the pharmacy then careful review of the permitted user provisions in the lease is needed in order to determine whether the pharmacist may change the use and if landlord's consent is required. The pharmacy lease will usually prohibit any change or require the landlord's consent, which it can withhold or grant at its discretion. This is crucial to the investor landlord wanting to control the type of business run from the premises, tenant mix or simply being restricted by planning.
The landlord's consent for any planning application will also be required. This isn't limited to change of use scenarios, but could also apply to any alterations and signage requiring planning permission. Whilst a landlord will usually insist that its consent be in its absolute discretion for change of use (as discussed above) the pharmacist should try and agree that the landlord's consent for planning applications relating to alterations and signage should not be unreasonably withheld or delayed. This affords both parties some protection and flexibility.
Shop front and fascia signage will generally require the consent of the landlord. Ideally this is sought at the same time as applying for the landlord's consent to initial pharmacy fitting out works to save time and expense. The nature and extent of the signage might mean that some signage is permitted without the need for consent. Where consent is required, drawings must be submitted and the landlord may also have the right to pre-approve the location of any signs, notices or placards.
Whilst the above are a handful of common examples, each pharmacy lease will be different so careful review of the lease terms is needed to ensure compliance.
This article was originally published in PharmacyBusiness, November 2015.