GP Landlords Experience a £200,000 Rent Shortfall from Pharmacy

notional rent review

GP Surgeries who lease space to a pharmacy could be leaving themselves open to a major rent shortfall, losing out on up to £200,000 if they do not carry out regular reviews of the rent that their pharmacy tenant pays. 

This warning is issued by GP Surveyors who carry out pharmacy rent reviews on behalf of GP practices nationwide.

Between 2012 and 2014, GP Surveyors negotiated average pharmacy rent increases of 49%. This amounts to an increase in income of £7,990 per year or £199,750 over a standard 25-year pharmacy lease.

Chris Johnson, director at GP Surveyors, says: “These new figures show that many pharmacy tenants are still paying far too little rent to their GP landlords. £200,000 is a huge shortfall figure which would play a significant part in helping GP surgeries across the country who are struggling financially.”

Johnson explains why there is often such a shortfall: “The problems often start at the beginning of the occupancy. In many cases, a pharmacy company will approach a GP surgery asking to rent space at a rate that is higher than the Notional Rent currently being achieved for the space. In addition to this, the amount of floor space that a pharmacy needs to operate is very small. Therefore, the rent being offered by the pharmacy sounds very attractive and many practices will sign up to a lease without seeking professional advice.

“If advice had have been sought, it is possible that a much higher rent could have been negotiated, along with a one-off premium payment and an agreement from the pharmacy to fund any changes required to the fabric of the building to allow the pharmacy to be best accommodated within the premises.

“At this stage, it is also pertinent to ensure that there is appropriate rent review provision within the lease. This means that the GP practice can review the rent at various points throughout the duration of the lease to ensure that it remains in line with the market and patient numbers etc.

“It is important to note that it is possible to review the pharmacy rent retrospectively if you have forgotten to action a rent review in the past. If it was found that the pharmacy was paying too little, the pharmacy would have to pay this shortfall to the practice. This is normally plus interest – depending on the interest provision outlined in the lease.”

Johnson stresses the importance of getting professional representation: “Pharmacy companies are businesses who will be professionally represented by surveyors whose job it is to keep the rent as low as possible and minimise the liabilities to the pharmacy. Therefore, GP practices also need professional representation in order to get the best deal. £200,000 is a lot of money to lose out on!”