Pharmacy tenants, like the vast majority of businesses and individuals, are feeling the effects of steep rises in the cost of energy and other utilities. Understandably, property owners and occupiers are turning to their tenancy agreements to understand who is responsible for paying increased utility costs and what could be done to make these costs more manageable.

For pharmacy businesses that own their properties outright, the liability to pay the costs of utilities is simple: the business enters into contracts and deals with the invoices as they fall due. Where a business occupies their property as a tenant, the answer may be a little more complex and is likely to be dictated by the terms of the lease.

Most commonly, a pharmacy lease will provide that the tenant must pay the cost of utilities used at the property. Note that such an obligation would likely only catch utilities that are separately metered and independent of any other premises. Where a pharmacy only forms part of a building and utilities are consumed by other occupiers in separately metered premises, the pharmacy will only be responsible for the utilities metered for and consumed by their premises. In these cases, it will be straightforward for the pharmacy to enter into their own utility supply contracts.  

On the other hand, if utilities at the building are not separately metered, it will be more difficult for the pharmacy to simply pay for what it consumes. In this scenario, the landlord usually wants to control and take on the responsibility for entering into utilities contracts and paying the invoices, with each tenant contributing their fair share towards these costs. Such contributions are usually dealt with under a service charge operated by the landlord, or ad-hoc requests for payments in arrears, as and when common expenditure is incurred.  

BEST PRACTICE 

The Royal Institution of Chartered Surveyors (RICS) produces a professional statement – the Code of Leasing Business Premises (the Code) – which is generally recognised as a best practice guide for preparing and negotiating commercial leases.  

When it comes to managing and paying for utilities in commercial leasehold properties, the Code recommends tenants find out from their landlord details of all of the costs and outgoings the property incurs (including utilities) and any irregularities that might affect those costs. It is important to know what utilities serve the property and whether they are connected to the mains or supplied privately. Details like these will generally form part of your lawyer’s standard due diligence package when taking on new premises.

Some pharmacy businesses may wish to go a step further and install sustainable technologies

The Code considers separate metering of utilities to be ‘essential’ to ensure that costs are properly apportioned between occupiers in the same building. However, for practical reasons, this is not always possible.

Where utility costs are not separately metered and are paid for by landlords, the Code recommends that any recovery of costs from tenants should accord with the terms of the lease and may allow for a reasonable administrative charge. But the costs should always be transparent and clearly communicated to occupiers, for example, by providing original utility invoices as evidence.

SWITCHING TO RENEWABLES

Some pharmacy businesses may be interested in shifting the utilities they consume in their premises to renewable alternatives. Not only does this boost a business’ green credentials and benefit the environment, in some cases it may also lead to cheaper utility costs.

If you own the freehold in your pharmacy, changing utility supplier to one that supplies energy from exclusively (or largely) renewable sources will not be difficult. If you are a tenant, you should consider the terms of your lease.

We recommend that, in any event, you discuss any change of utility supplier with your landlord before proceeding, unless your lease is explicit that you may (or must) enter into and manage your own utility supply contracts for your property.

Some pharmacy businesses may wish to go a step further and install sustainable technologies into their premises. These might include smart meters, solar photovoltaic panels or heat pumps, amongst other options. Pharmacy tenants will most likely need their landlord’s permission before undertaking any such installations, so the terms of the lease must be considered carefully.  

Planning permissions, building regulations consents or other approvals might be necessary before commencing these more substantial works. Your specialist advisers will be able to advise you on what would be required and help you through the process.

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

Ben Butterworth is a solicitor in the real estates team, Charles Russell Speechlys LLP ben.butterworth@crsblaw.com