Property considerations before selling

When selling a pharmacy, it’s easy to focus on the value of the sale and the corporate elements, but overlooking the property side can cause delays and disruptions to the sale. Aidan Welton has some hints as to what to deal with ahead of time to make the process smoother. 

BUYER EXPECTATIONS

If your pharmacy is held under a lease, buyers or lenders are likely to have some basic requirements. The most fundamental will be the remaining lease term; lenders typically want 15 years and most buyers will want a minimum of 10. If your lease has less than this and you are looking to sell, you should consider trying to negotiate a new lease with the landlord to extend the term. 

DOCUMENTS IN ORDER?

Delays caused by trying to collate key documents can be avoided by good record keeping or collating this information before taking a pharmacy to market. Copies or originals of key documents should be kept together for each pharmacy you operate, so they can be given to your solicitor at the earliest opportunity. Key documents include:

• Rent review memoranda
• Stamp Duty Land Tax payment records
• Landlord concessions (side letters, etc)
• Service charge budgets and historic accounts
• Rent and service charge invoices
• Utility and rates bills
• Planning documentation
• Licences to assign, alter, charge, etc
• Lease variations.

PERSONAL GUARANTEES

If you occupy your pharmacy on the basis of a lease, you may have given a personal guarantee of the company’s performance of the lease. This can cause problems when selling a company, as you need to be released or replaced from those guarantees. Such guarantees do not usually incorporate automatic release provisions and when the company is sold, the guarantees are legally unaffected. 

Landlords can be reluctant to release guarantees and there is often no way of obliging them to do so. Attention should be given to this issue as early as possible so time can be spent negotiating with the landlord. You may be able to negotiate for a buyer to provide a guarantee in return for your being released.

It’s a similar issue if you have taken the lease personally and you assign it on the sale of the business. Landlords may be entitled to ask you to guarantee the buyer’s observance and performance of the tenant covenants in the lease. This means that if a buyer defaults under the lease, you may be called upon to make up that default and even take on the lease again for the remainder of the lease term.  

To avoid this, you may need to convince a buyer to offer another form of security, such as a rent deposit or guarantee. Other ways of avoiding giving this guarantee could be to proceed via a share sale instead (you would avoid a lease assignment), or incorporate your business and take the lease in the company name so the company is the tenant. 

STATUTORY COMPLIANCE

The need to demonstrate compliance with the statutory obligations that apply to pharmacy tenants can cause delays. Ones which cause problems include: 

Asbestos Most pharmacists will be familiar with the harm asbestos poses to human health. Any property built before the year 2000 is effectively presumed to have asbestos in it and the relevant dutyholder, usually the pharmacist, must have a management plan for that asbestos. If there is no asbestos in such a property, evidence that it has been inspected and none detected must be kept.

Air conditioning units contain coolants and some of these are harmful to the environment if released. There is an obligation for all units above a certain size to be inspected at least every five years and a report kept as a record.

Planning A buyer, and specifically their lender, will want to see that the use of the pharmacy is properly authorised. If there is no express permission, or if the consent to use the property as a pharmacy has been obtained by way of ‘long user’, the buyer may want indemnity insurance. As such, no contact should be made with the local planning authority without the buyer’s consent as this will prevent insurance from being available. Your solicitor can help you prepare this aspect of the property for sale and early contact is therefore advised.

LOOKING TO SELL 

This is just a brief overview; if you are thinking of selling, it is worth taking legal advice early to collate the necessary documents and address the issues in this article to pre-empt problems that might arise during a sale. 

The above is a general overview and we recommend that independent legal advice is sought for your specific concerns. 

Aidan Welton is a member of the property transactions real estate team, Charles Russell Speechlys LLP aidan.welton@crsblaw.com