Most Retail Pharmacies in Australia have the right to occupy and operate from the leased premises pursuant to a Lease document. When a purchaser enters into a contract to purchase a retail pharmacy business they are required to either accept an assignment of an existing lease or negotiate and sign a new Lease with the Landlord.
Many pharmacy purchasers are relying on borrowed funds from a financier to complete the retail pharmacy purchase. In most cases the financial institution will need to take security over the business assets to secure the loan. The business assets include the Plant and Equipment, Stock in Trade, and the pharmacy owner’s interest pursuant to the terms of the Lease.
The financier will generally secure the Plant and Equipment of the retail pharmacy business by way of a Bill of Sale and if the pharmacy is owned by a Company by way of a Fixed and/or Floating Charge over the Companies assets.
Furthermore, the Financier will require additional security by way of a Leasehold Mortgage which is to be registered over the lease. Difficulties arise because as part of the leasehold mortgage their financial institution will insist the landlord and any other interested party (namely the new tenant and the landlord’s bank) agree to sign a Deed of Right of Entry or ROE document for short. A ROE document allows the tenant’s Financier or its agent’s to enter and occupy the leased pharmacy premises in place of the tenant. The ROE document sets out the rights the financier is granted in respect of the leasehold premises. These rights include the circumstances when the financier can enter the leased premises, remove plant and equipment and stock (i.e. fittings), and their ability to sell the pharmacy lease interest or assign the pharmacy lease interest as it sees fit. In doing so the landlord’s rights are generally limited and curtailed.
This is what often creates delays and difficulties for pharmacy sellers and purchasers because there are competing interests and rights contained in the document that can conflict with the landlord’s rights and interests (as well as the landlord’s financier’s rights and interests in the landlord’s premises). Understandably, most landlords do not readily give up their rights to re-enter and take possession or control of the leased premises to third parties. Often the terms of these ROE documents are not agreed to in the first instant by all parties and need to be vigorously negotiated by each parties respective lawyer before a compromise can be reached that satisfies all parties. Sometimes a compromise cannot be reached. This can cause the financier for the purchaser to refuse to provide the loan funds because as stated above it is a requirement of most financial institutions that they take a leasehold mortgage and their form of the ROE document is signed by all relevant parties as a condition precedent to the loan.
It is advisable to purchasers to ensure, that if it is a requirement of their financier to have a leasehold mortgage with a ROE document, that they obtain a copy of the ROE document as soon as possible from their financier. The ROE document can then be forwarded to the landlord as soon as practicably possible to ensure that it can be signed or changes negotiated well prior to settlement to avoid lengthy settlement delays or in the worst scenario the contract terminating due to this issue. Most parties leave this requirement to the end and it often frustrates the pharmacy sale and purchase.