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Relocation, relocation?


10 May 2010

Finding premises

Other than purchasing the freehold, there are two basic ways in which you might be able to obtain new pharmacy premises:

1. Take an assignment of an existing lease: this involves you entering into an agreement with the existing tenant of the premises to take over their existing lease and will require consent from the landlord.

2. Take a new lease of premises: the landlord (generally the freehold owner or someone with a long leasehold interest) offers you a new lease with terms which can be negotiated.

Please note that if you are taking a new lease or an assignment of an existing lease then the landlord may require security from you, for example a three month rent deposit, personal or third party guarantee as well as requesting a satisfactory trade and bank reference.

It is important to check that the premises you are considering have the necessary planning consent for a use class suitable for a dispensing and retail pharmacy (generally A1). The planning department of the relevant local authority should maintain a searchable register for you to find out this information.

Taking an assignment of a lease

There is very little room for negotiation with the landlord on the assignment of an existing lease. Therefore you should be careful to ensure that the deal is right for you as you will take on all of the liabilities of the existing tenant in relation to the lease. In some cases you may negotiate with the existing tenant to pay them some money to take over the lease (a premium) or (more rarely for well-sited premises) for them to pay you some money to take over the lease (a reverse premium). You should be aware that switched on landlords who know the value of premises near a GP surgery will be likely to charge a premium.

It is therefore very important that your solicitor investigates fully, understands and explains to you the extent of the liabilities associated with the lease, for example any rent arrears (remember this doesn’t just include outstanding rent but also back-rent in relation to any rent reviews that have not been finalised when you take over the lease) and repairs if the existing tenant has failed to comply. You should ensure that you are aware of the repairing and decorating obligations under the lease and that your surveyor understands them too. Your surveyor should be able to help you quantify the cost of any outstanding repairs.

Remember to ask the existing tenant for a copy of their asbestos report on the premises, as required under the Control of Asbestos Regulations 2006. 

Taking a new lease

If you are taking a new lease of premises then your initial contact is likely to be with the landlord or the landlord’s agent to negotiate the basic terms of the lease including the extent of the premises, rent, any break clauses and who is liable for repairs. Before you start this process make sure that you have taken advice as to the level of rent and/or you have carefully researched the local market to understand the strength of your bargaining position. You can talk to your solicitor at any time during these negotiations and when you have agreed the main terms you can pass them onto your solicitor to negotiate the finer details of the lease with your landlord’s solicitors. Your solicitor should discuss matters with you to make sure that the terms of the proposed lease suit your business needs.

Moving out of your existing premises

Don’t forget that you need to work out how to free yourself of your obligations as a tenant under your existing lease as cheaply as possible. Can you assign (transfer) the lease to another prospective tenant? What are the likely dilapidations costs that the landlord is likely to demand on your exit? Before you do anything you should understand your rights and obligations under your existing lease and develop your strategy from that starting point (and plan your financial budget for the relocation).

You will need to register your new premises with the RPSGB; you can find the form on the RPSGB website (www.rpsgb.org under ‘registration’). Remember that you should do this less than six months before you intend to start trading in the new premises.

Control of Entry regulations

Before a registered pharmacy can dispense prescriptions issued by the NHS it must be included in the pharmaceutical list of the local PCT. As it is the premises from which the pharmaceutical services are provided that are entered on the pharmaceutical list with the local PCT. If you wish to move your pharmacy you will need to make an application to the PCT to approve your proposed move.

The Control of Entry Test is contained within the NHS (Pharmaceutical Services) Regulations 2005 and is a system used by the PCT to assess whether the grant of an application is necessary or expedient in order to secure adequate pharmaceutical services in a particular neighbourhood.

You will need to consider the impact of the Control of Entry regulations on your intended relocation. It may be sensible to enter into a conditional contract which will only bind you to take the premises if you are able to get approval for the move from your local PCT.

Once you apply to the PCT to relocate it is likely that it will notify interested parties so if you don’t have a contractually binding commitment to take the premises it is possible that one of your competitors will contact the landlord to try to derail your move. 

Minor relocations

If the PCT committee decides that the relocation is ‘minor’ then the Control of Entry Test will not apply. Generally a relocation is treated as minor if it is within the same neighbourhood, involves a short distance and has no physical barriers between the premises. If the relocation is less than 500 metres by the most practicable route on foot then the PCT is obliged to grant the application without notifying interested parties if it doesn’t consider that there are other factors which mean that it should be considered as if it were a relocation of more than 500 metres. This may be the case where there are physical barriers – for example if you are crossing a main road or a railway line. In these cases the PCT will go through a consultation process with interested parties. If the relocation is more than 500 metres then the PCT will have to notify interested parties and allow 45 days for representations before making a decision.

If you are concerned that your application is not likely to be treated as a minor relocation under 500m then it is sensible to take professional advice from a specialist lawyer or pharmacy consultant who is experienced in making applications to PCTs.

If the PCT decides that it is not a minor relocation then it will notify you of its decision (with reasons). You will then have an opportunity to appeal against that decision. If no appeal is made or the appeal is unsuccessful then the application is treated as if it is a relocation of over 500m and the PCT will notify interested parties and hear oral representations in respect of the application. Following those representations the PCT will determine whether or not it considers the application to represent a minor relocation, if it does then it will approve the application, if it does not then it will decide the application under the Control of Entry Test.

Decision on application

The PCT can make a decision based on written information or hold an oral meeting. Once the PCT has reached a decision it will notify you of its decision. If the PCT turns down your application then you have a right to appeal the decision to the NHS Litigation Authority. Such appeal must be made in writing within 30 days of the decision. Please note that as with any appeal there is no guarantee that you will obtain a different result.

If your application involves moving from one PCT area to another then there are slightly different rules but the general process is pretty similar.

Remember that even if you are moving your pharmacy into a health centre these rules still apply.

You can find a guide to how the PCT is likely to view your application on the Department of Health website (www.dh.gov.uk under Publications, Publications titled “The NHS (Pharmaceutical Services) Regulations 2005: Information for primary care trustsrevised September 2009”).

What next?

Once you have followed the procedure above you should be in a position to fit out and start trading from your new location.

Don’t forget that you can’t relocate again under a minor relocation process for a period of 12 months.

The Health Act 2009 will make changes to the Control of Entry Test and will introduce a new test based on a needs assessment by the local PCT. These provisions are not yet in force.

The material in this article has been written for the purpose of giving a general overview of the law in this area and is not intended to be relied upon as specific advice. Vertex Law LLP will not be liable for any loss or damage (whether direct, indirect, or consequential) occasioned to any person acting, or omitting to act, or refraining from acting, as a result of this article – this does not exclude or limit Vertex Law LLP’s liability for death or personal injury caused by negligence.

Nick Austen of Vertex Law’s Pharmacy Team


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