Nearly all Pharmacy businesses operate under a Lease and throughout Australia those Leases are predominately if not always Retail Shop Leases which are governed by various State based legislative Retail Shop Lease Acts.
It is a major condition of most Contracts for the sale of a Pharmacy that the Buyer must be satisfied with the terms of the existing lease or secure a new lease on terms wholly satisfactory to the Buyer, their Accountant, Lawyer and or Financiers. The health of your lease and relationship with your Landlord can and often directly impact on the purchase price and your legal costs. It also greatly effects time frames of any sale. Many Contracts for the sale of pharmacies fall over as a result of lease issues alone or drag out for several months at great cost to both seller and buyer while lease terms and assignments are hotly negotiated with Landlords and Financiers the like.
Most Buyers, Lawyers and Financiers require leases to be in place and registered, that have the following basic pertinent terms:
- The duration of the lease must total no less than 10 years (e.g. 5 x 5 year lease or 10 year lease)
- A Clause allowing the Financier to take security over the Leasehold by way of a Mortgage
- Fair and reasonable commercial terms and conditions
- If possible (exclusivity as to use within the centre)
- Fair and reasonable market or fixed rent increases and or Market Review Clauses
- Reasonable Assignment provisions for the Landlord to approve the new tenant without the new tenant having to jump through too many criteria hurdles
It is very important to ensure that prior to selling a pharmacy, or renewing your lease that you have the health of your lease checked and negotiated by a Lawyer. It can ultimately save you thousands of dollars.
Sellers often believe they are released form all rental and lease obligations upon the Assignment of the Lease to the new Pharmacy owner. They are later shocked when they are advised that the Landlord will only agree to the assignment if they sign a Deed of Assignment agreeing that they are to remain bound and liable to honour the lease terms in the event the new owner defaults in the future. The problem is that many Pharmacy owners place little importance on reading their original lease or obtaining prudent legal advice prior to signing a new lease, renewing the existing lease or when assigning the lease.
It is often possible to negotiate the removal or modification of harsh terms and obligations from the Leases prior to signing a new lease. All Pharmacy owners should ensure they have an experienced commercial lawyer read and advise them on the terms of their lease well prior to any sale and if need be, they should negotiate amendments or changes to the lease as part of any renewal or assignment of the lease.
by Shawn Woolf