Top reasons why the rent you receive from your pharmacy may be too low …

August 1, 2013

Top reasons why the rent you receive from your pharmacy may be too low …

GP Surveyors regularly encounter situations where GP practices are paid extremely low rents by the pharmacies that lease space from them. This means that practice income is much lower than it should be which is particularly important when GP practice budgets are so tight!

Here are GP Surveyors’ top reasons why this is the case:

1) Low valuations
Pharmacy companies often have teams of specialist surveyors whose goal is to keep rents to a minimum. Therefore, it is common for GP surgeries (who don’t seek professional representation) to be persuaded to accept a rent from a pharmacy which is lower than it should be.

Pharmacies will often use approaches such as offering a high premium which can sound like an attractive proposition even if the actual rent is low. However, if a surgery is signing a pharmacy up to a 15 – 25 year lease, the benefits of this premium quickly disappear. This leaves the surgery tied into a long lease with a low rental income.
Tip: Don’t get so carried away with what may seem like an attractive proposal from a pharmacy that you sign on the dotted line without consulting a specialist GP surveyor. If the deal sounds too good to be true then it probably is!

2) Incorrect valuation method
Pharmacies are often valued like retail units – based more on an assessment of the space that is occupied by the pharmacy rather than having any regard to the specialist pharmacy use.
However, when a pharmacy operates close to a GP surgery, their profits are mostly based on the prescriptions issued by that surgery. In these situations it is now well established that the most appropriate valuation method takes this profit source of the pharmacy business into consideration.

Pharmacies often operate from small premises. Therefore, valuing them in terms of their floor space and visible shop frontage may result in a very low rental value, especially when taking into consideration the premises’ specialist use and the pharmacy’s proximity to their chief source of business.

3) A growing patient list
When a pharmacy is correctly valued based on the profit source of the business, any changes to the GP surgery’s patient list size will have an effect on the valuation. Therefore, when the patient list size increases, the value of the pharmacy will increase and the rent that the pharmacy pays to the GP practice should also be increased.

Increases in patient list size are common especially if a new housing estate is built nearby or another surgery in a specific catchment area closes. This underlines the importance of regularly reviewing the rent that a pharmacy pays.

4) Lack of professional advice
Doctors’ surgeries must seek specialist professional advice from a healthcare property surveyor from the time that they are considering leasing space to a pharmacy. This surveyor can help to gain the most competitive offers from pharmacy companies and negotiate with the chosen pharmacy on rent and lease terms to ensure that they are the best possible for the GP practice.

This is vital because once a long 15-25 year pharmacy lease has been agreed; back tracking and solving some of the issues noted above can sometimes be difficult – depending on the lease terms. For example, if the valuation method cannot be changed from a retail-based valuation to a ‘price per patient’ valuation, 25 years is a very long time to wait to amend it!

Tip: The earliest a GP practice can serve notice on a lease renewal is 12 months before the lease renewal date. This gives 12 months to negotiate and agree any new lease terms or rent with the pharmacy (or their representative) before the lease expires.

5) Forgotten pharmacy rent reviews
GP surgeries are so busy that it is not uncommon for them to forget about their pharmacy rent reviews. It is very unlikely that the pharmacy will remind them because they will be aware that a review could mean that their rent would go up.

If you are a GP practice in this situation, you may be able to begin negotiations now and receive back pay, depending on the terms of your lease. Medical practices should seek advice on the best way to approach this.

GP Surveyors can check your pharmacy lease for free.

We will then let you know whether we think we could increase the rent that your pharmacy pays before we take the case on. Therefore, you have nothing to lose by getting your lease checked!

Contact GP Surveyors today on 0114 281 5850 / info@gpsurveyors.co.uk. Alternatively, visit our website for more information: www.gpsurveyors.co.uk

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