The importance of agreeing a break clause for your surgery lease

If you rent your premises, one of the key questions is when and how you can be released from your obligations under the lease. If for some reason you want to vacate your surgery premises, you will either have to wait until the end of the lease term, or rely on a break clause. It is, therefore, an important point to consider in the lease negotiation process.

What is a break clause?

A break clause is a provision within a lease that enables either the landlord, practice, or both parties, to end the lease early.

When one party to a lease tries to exercise a break clause they will often find the other party is reluctant to agree, as the landlord will be losing a valuable income stream, or the tenant will be left with the problem of finding somewhere else to practice. It is therefore vital that break clauses are negotiated well, drafted carefully, and are followed to the letter to avoid costly and protracted disputes.

Common break conditions

These may include:

• a fixed date or dates at some point in the future
• the right for a tenant practice to terminate the lease after a certain date, or
• the occurrence of a specific event that can act as a trigger.

As an example of the third type, a surgery lease would usually include a termination right in the event of the end of an APMS/GMS/PMS Contract, or the term of such a contract expiring without renewal. This should be linked with voluntary termination of the relevant contract, so a practice has some control.

The NHSPS standard lease contains a form of break option and does allow for voluntary termination. However, there may be other circumstances under which you wish to end the lease, so it needs some consideration.

How and when notice can be served

This will specify the form in which notice must be served, the method it must be served by, to whom it should be given and the timeframe within which it must be given.

One issue that can arise here is if the break clause notice period doesn’t mirror the notice period required to terminate the APMS/GMS/PMS Contract. This can lead to a practice having to pay rent after the contract has ended.

The NHSPS standard lease recognises this in principle, but it needs to be more fully addressed in the detailed drafting.

Break pre-conditions

These are the conditions which need to be met in order for a break to be achieved. They should be both clear and attainable. For example, practices may be required to be up to date with the annual rent and any other monies owed. Landlords also often want a break clause which requires full compliance with all the other terms of the lease.

Such conditions attached to Break options can be very difficult for a tenant to comply with. Even minor breaches can mean that the Break Option cannot be exercised, so such conditionality should be resisted where possible.

Recovery of any overpayments

Most leases require that payment of monies such as annual rent, service charges and insurance are made in advance. If a lease is terminated using a break option, then a surgery will not be entitled to a refund of any sums paid for the period after the break date – unless it has been specified in the lease.

The NHSPS standard lease includes a refund for rent, but not for service charges or other sums that may have been paid in advance.

Our recommendations

There are many commercial, legal and practical issues to consider when agreeing a break clause. And when it comes to exercising one, great care needs to be taken to ensure all conditions are followed to the letter, so it remains valid.

While the NHSPS standard lease is relatively well balanced, there are still important enhancements that need to be made, based on an individual practice and its circumstances.

When it comes to negotiating a lease – and with the importance that the drafting of that lease will have for a practice – it is always advisable to seek the advice of an experienced solicitor who can guide you through the process, while ensuring your interests are protected.

Other articles in this series which you may find useful include: ‘How to Successfully Negotiate a NHS Property Services or CHP Surgery Lease and NHS Property Services (NHSPS) standard lease

For more information about negotiating a lease, or any other related issues, please contact Daphne Robertson on 01483 511555 or email d.robertson@drsolicitors.com