Chloe Benson and Mira Qerasaj offer up some tips on moving your dental practice to pastures new.
Last year and the start of 2021 have been a challenge for many within the healthcare sector. The dental industry was forced to close during the first lockdown. Fortunately, the government has recognised the importance of keeping dental practices open during lockdown 2.0 and lockdown 3.0. This, no doubt, came as a relief to all those working in the profession and to patients needing dental care.
There has been a drastic shift in people working from home over the past year. This meant a significant drop in commuters into city centres.
For many people, working from home will be here to stay, at least for part of the week. Working from home has enabled people to rediscover their local area and high streets. It is unsurprising to hear that some dental practices may be looking to move away from the city centre in order to relocate to where their patients live (and now work).
If a relocation is on the cards, it is possible that you will need to exercise the break clause within your lease.
Exercising a break clause
Exercising a break clause is not as straightforward as one might expect. There are plenty of traps for tenants to fall into.
Often, it is only after the event when a tenant realises that the one-line email that was sent to the landlord does not constitute valid written notice under the lease. By that stage it could be too late. This could result in disastrous consequences. Also, the risk of being tied into the lease for the remainder of the term.
Terms of your lease
If you are proposing to exercise the break, it is crucial to check the terms of your lease from an early stage to ascertain:
- Is it a rolling break or a one-off break?
- How much notice needs to be given and how?
- Who is the landlord and where are they based? Has there been a change in ownership?
- Are there specific service provisions under the lease?
A further crucial point to check is whether there are any preconditions that need to be satisfied in order to validly exercise the break. Most commonly, a break clause is conditional upon the tenant giving vacant possession on the break date.
Three key points are to ensure that:
- The landlord is able to enjoy immediate and exclusive possession on the break date. It may sound simple, but make sure that all sets of keys are returned and all your stock has been removed
- There are no people on the premises at the break date. This includes trespassers, subtenants and any workmen carrying out repairs
- The premises are empty of chattels that substantially prevent or interfere with the enjoyment of the landlord’s right to possession.
Another common pre-condition is payment of all rent, service charge and other sums up to the break date. It is therefore advisable to check:
- That all payments have been made on time
- Whether there is interest or VAT outstanding
- Whether the break date falls in the middle of a quarter. If so, is there an apportionment clause? If not, you will need to pay the full quarter’s rent
- Whether there is a break clause penalty which needs paying.
Taking a new lease
The forecast and expectation for the remainder of 2021 is that COVID-19 is here to stay. However, with the vaccine rollout, it is hoped that society will begin to return to some sort of normality.
Whether you are planning to close or underlet your city centre practice and relocate to a residential area, one thing is certain: when taking a new lease during these uncertain times, flexibility is key.
Here are a few pointers to consider when negotiating the heads of terms with a new landlord: break clause, COVID rent suspension, keep open and concessions.
A break clause is an option to determine a lease at an agreed point, before the end date of the lease. This may be exercisable only on one specific date. It might be that it can be used on any date after a certain period.
The latter option is becoming the norm during these uncertain times for tenants and landlords. For example, when taking a new lease for a term of three years, you and the landlord may agree that the break clause cannot be exercised in the first year of the term. However, from thereon the break can be exercised on a rolling basis provided that three months prior written notice is given to the other party.
This will give you and your landlord certainty of occupation for 12 months. It will also give flexibility to end the lease after this period should your practice require it.
An even better position would be to agree a tenant-only break clause. This means that you are in a position to exercise the break, but not the landlord.
COVID rent suspension
Rent suspension clauses in leases will not normally be engaged as a result of forced closure due to government restrictions. When negotiating the terms of a new lease with the landlord, it is prudent to agree for the rent to be suspended in its entirety (or partly) should your practice be forced to close by government restrictions.
Tenants can be reassured that, if the rent liability is theirs, the pressure to pay immediately is alleviated by the Coronavirus Act 2020. This prevents landlords from forfeiting for non-payment of rent until 30 June 2021. However, it does not release tenants from the obligation to pay.
Some modern commercial leases (particularly in the high street) contain ‘keep open’ clauses and/or ‘operating/opening hours’ clauses. Where a tenant is obliged to ‘keep open’ the premises, it is likely that the regulations will provide a defence to the requirement to ‘keep open’. Especially if it can be established that by keeping the premises open will be unlawful.
To avoid any grey areas or a potential dispute, it is better practice to agree that closures due to COVID-19 government restrictions are excluded from the obligation of the ‘keep open’ clause.
It may be that during these uncertain times you may want to have the flexibility to grant a trading concession in relation to part only of the property to assist with payment of rent. For example, dentistry and aesthetic surgery can go hand in hand. Subject to the permitted use of the property, it is a good idea to agree this commercial point with the landlord from the outset.
This article was first commissioned for Dentistry magazine. Read the latest issue of Dentistry magazine here.