It is surprising how often I come across a situation where a pharmacy business has obviously grown over time and operates from 2 adjoining premises which have been linked by the pharmacist creating a large hole in (or indeed removing) the dividing wall.

For a prospective pharmacy buyer looking at buying a pharmacy business operating from premises which have been effectively combined, it is strongly recommended that the buyer, as part of his overall due diligence inquiries pertaining to the business, undertakes a full investigation as to the circumstances behind the opening/removal of the dividing wall and the obligations in place regarding reinstatement of the wall in question.

This need to thoroughly investigate the history of “tenant works” becomes even more imperative in circumstances where the adjoining shops are owned by different landlords (again
quite a common occurrence with pharmacies operating from the expanded premises in strip locations).

The starting point is of course to review the lease documentation for each premises to see whether the reinstatement of the hole in the wall/whole wall is specifically dealt with. If the lease document does not directly deal with the dividing wall issue, a prospective purchaser should definitely seek confirmation as to what the precise requirements of each landlord may be, as part of his due diligence investigations into the pharmacy business he is looking at buying.

A number of years ago, I was contacted by a new client who had some years earlier bought a pharmacy business operating from 2 adjoining premises which had been “joined” together by a previous operator via the removal of the dividing wall. The lease documents did not specify any details regarding the reinstatement of the wall, save for the typical reinstatement clause which appears in most commercial premises leases which broadly obliges a tenant to reinstate the premises into their former condition prior to the lease having commenced. The difficulty here was that both premises had new owners (as each freehold had been sold) and so no one was entirely certain as to how/from what the former dividing wall was constructed.

In the instance of this client, he was seeking to vacate the premises and relocate his pharmacy to new premises. When making the appropriate inquiry to each landlord, he was faced with a scenario where one landlord was happy with the tenant’s proposal regarding the specifications, materials and finish to be used for the reinstatement of the adjoining wall. However, the other landlord disagreed with the tenant’s proposal and was seeking to impose a standard of reinstatement which in the circumstances appeared excessive and would have resulted in the tenant’s reinstatement costs being considerably greater.

All of this could have been avoided if the original tenant and the original landlords had sat down at the outset and both agreed on and documented the precise specifications for reinstatement of the wall.

The whole issue of contingent liabilities relating to reinstatement of premises is one that a prudent purchasing pharmacist should always keep in mind when considering the proposed purchase of a pharmacy, so that unforeseen reinstatement issues do not appear to haunt him at the end of the tenancy.

Prepared by
Anthony Cannizzo
Partner

Robert James Lawyers
Level 22, 140 William Street,
Melbourne, VIC 3000
Mobile 0439 00 2012
Email: anthony@robertjames.com.au
Web site: www.robertjames.com.au