Chris Pomfret, a dental specialist lawyer at rhw solicitors in Guildford, gives advice to dentists considering selling their practice.
All too frequently I receive instructions from a dentist selling his practice and the first thing that he tells me is that there are only a couple of years left on the lease so it will need to be extended. Unfortunately this is often a huge problem and the result is a delayed transaction, extra costs and a very frustrated client. At worst it can lead to the sale falling through.
Most lenders will not lend on a dental practice purchase unless the lease has at least ten years to run, and sometimes it needs to be at least fifteen years. In addition, any buyer will want to know that he has a sufficient length of lease left in which to establish himself as the new owner of the practice. It is not sufficient to rely on the entitlement to renew the lease at the end of the term - that is of course assuming that the lease is protected under the Landlord and Tenant Act.
Legally, the landlord of commercial premises is under no obligation to renew a lease or extend the term before the lease comes to an end. In effect therefore, you are asking your landlord to do you a favour. Even if he is agreeable to your request, all too often he will not share the same urgency as you to complete the deal. He will need to instruct his own solicitor; he will want to approve any draft documents; and if he has a legal charge registered against his freehold title, the consent of that lender will need to be obtained. Usually, that lender will want to refer any draft documents to its own lawyers for approval before it consents. This all takes time, and in some cases it can take a substantial amount of time, running into months.
You may be tempted to think that the new lease can be granted direct to your buyer. Whilst there may be an advantage to you, because it releases you from your tenant’s covenants and obligations, why should a landlord agree to this? He already has you as his tenant and presumably you are a good tenant paying your rent on time. If he agrees to you assigning your lease, he will have the benefit of a guarantee which you will be obliged to give him. If however he grants a new lease direct to your buyer he will need to consider whether your buyer will be a good tenant. He may want a third party guarantor and he will most likely seek a rent deposit. These are all added complications which will undoubtedly cause further delay, cost and frustration.
Do not consider trying to sell your practice at the same time as trying to extend your leave. You will find that there are already enough difficulties involved in selling a practice, for example the PCT, the CQC, regulations and compliance, as well as the problems surrounding the extension of the lease. You will end up making an already complicated process even more difficult. It is much better to consider extending your lease before you sell. It will give you time to negotiate with your landlord and complete the transaction without the pressures involved with a sale. You will then be able to offer your buyer a clean lease, of sufficient length and only require from your landlord consent to the assignment. This should be much easier to obtain because your landlord is usually under an obligation not to unreasonably withhold or delay giving that consent.
So if you are contemplating selling your practice within the next twelve months, and you know that the term of your lease have only a few years to run, may I suggest that you contact your landlord without delay. Find out from him if he is amenable to a lease extension now and endeavour to agree terms with him. You will not regret this when you come to sell the practice.