Letting out a room in your surgery can help generate income and improve the services available to patients. Many GPs as well as other healthcare professionals do this frequently and there are important considerations to bear in mind before letting a TPO.
The key things to consider before letting a TPO into occupation include:
1. Use - Any TPO must operate within the permitted use for your Property set by the planning authority and your lease (if you hold a lease of your premises). GP surgeries are often restricted to providing medical or health services which can frustrate some more commercial uses offered by potential TPOs.
2. A written agreement - the rights and obligations of both parties are best documented in writing from the start so that in the event that a dispute arises, any issues can be smoothed out quickly to preserve commercial and personal relationships as well as time, and money.
3. Type of agreement - it is important you use the correct type of agreement for the intended type of occupation so as to avoid a TPO accruing rights, which may make it difficult for you to recover full contributions from them or get them to leave when you want them to:
- Licence - permission for a third party to use your premises. This provides non-exclusive access rights (i.e. the space can be used by others, whether or not at the same time) and is a personal arrangement between the parties. Usually used for short term arrangements ideally of less than 6 months.
- Lease - the grant of an exclusive right to occupy premises for a certain period of time. This means that the tenant has sole use of the area covered by the lease usually for periods longer than 6 months. A landlord will have certainty as to their income and the tenant certainty of occupation which may extend to a right to a new lease at the end of the term. Stamp Duty Land Tax (SDLT) may be payable by the Tenant.
- Tenancy at Will - a simple tenancy arrangement where occupation is regularised but can be terminated at any time by either party. A tenancy at will is usually for short period of occupation and is personal between the landlord and tenant.
Note: in the event of a dispute, it is the reality of the occupation which determines whether an arrangement with a TPO is a licence, lease or tenancy at will, so it is important to take advice and make sure that the correct document is entered into to protect your position.
4. Agreement for Lease - if you are agreeing to incur costs before a lease starts (for example, works are being carried out), an Agreement for Lease (AFL) creates a contract between the landlord and tenant which commits the parties to enter into the lease. This gives the Landlord the certainty of income (via rent) from the tenant they need to obtain funding and carry out works whilst the tenant has the certainty that they need to make the necessary plans to relocate their business.
5. Reimbursed Space - If the space you intend to let is reimbursed through notional rent or rent reimbursement, then your payments could be reduced by the same value as any rent charged to the TPO. Once the tenant has left, there is no guarantee that the reimbursement payments will revert to the previous rate. The rules relating to notional rent and rent reimbursement are complicated and we are expecting new Premises Costs Directions this year.