A recent Court of Appeal decision, Lie v Mohile, has highlighted the importance of partners ensuring they have put in place and maintain not only an up to date partnership agreement, but also robust documentation relating to the occupation of the surgery premises.
The case arose from a partnership dispute between the principals in a two partner practice. Dr M was the sole owner of the surgery premises which were occupied by both himself and Dr L. In the absence of any formal documentation, the surgery was deemed to have been leased to himself and Dr L on a rolling basis known as a “periodic tenancy”. The partners held a PMS Contract under which they were required to practice from the surgery. When the partners fell out with one another, Dr M attempted to dissolve the partnership. At the same time he served on himself and Dr L jointly a notice under s25 of the Landlord and Tenant Act 1954, to terminate the periodic tenancy and with it, Dr L’s rights as a secured business tenant to practice from the surgery.
The claim
As a consequence of the terms of the partnership agreement, Dr M’s attempts to dissolve the partnership by notice were in fact unsuccessful although a court order has since been made requiring that the partnership be wound up. A battle has ensued over the surgery.
Dr L applied to court and attempted to claim for himself a new lease under the 1954 Act. Dr M argued Dr L’s application was invalid on the basis that, as they were joint tenants, Dr L could not apply for a new lease on his own.
The law had been changed some years ago to protect partnerships from losing security of tenure over their premises where not all the joint tenants wanted to apply for a new lease. So the fact Dr L was applying alone was not in itself fatal to the application – and indeed, he was able to satisfy three of the four requirements necessary to claim a new lease.
However, unfortunately from Dr L’s perspective, he failed on the fourth requirement – namely that no other part of the surgery may be occupied for the purposes of a business carried on by the other joint tenant. In this case Dr M was still practising from the surgery and so Dr L’s claim was defeated on this one, somewhat strict, interpretation of the statute.
The Court of Appeal would only go so far as to grant an injunction permitting Dr L to continue practising from the surgery until the partnership has been wound up pursuant to the court order. Ultimately and unless Dr L is able to successfully appeal the 1954 Act tenancy decision, Dr M will be able to exclude Dr L from the surgery, with the end result that he alone will be in a position to continue in practice from the surgery and therefore to retain the PMS Contract.
Case highlights
The case therefore highlights how vulnerable a non-property owning partner’s position can be in the event of a falling out with the property owning partner(s) in circumstances where the appropriate steps have not been taken to protect their interests.
The partners here had a partnership agreement but as the law stands, in the absence of formal property arrangements, and by virtue of him being the sole property owning partner, Dr M has ultimate control over the practice.
Of course Dr L’s position would have been far more secure had he purchased a stake in the premises and held an equal interest with Dr M. However, even in the absence of buying a share, his position would have been better protected had a formal lease been granted by Dr M (as landlord) to the two partners (as tenant) for a fixed term.
This should serve as a cautionary tale for all GP practices to ensure they not only have in place a partnership agreement, but also robust property agreements which provide long term stability for the partnership as a whole.
Furthermore, where a practice operates out of premises owned by some, but not all of the partners, a lease will not only offer protection to the non-owner partners, but can boost the investment value of the surgery for the owning partner(s). Indeed most banks will insist that, where the surgery is occupied by a combination of owning and non-owning partners, a lease is put in place as a condition to lending against the surgery.
What we can learn from the case
If you need to review or put in place such arrangements, you should always consult specialists – and both a specialist healthcare surveyor and solicitor would be required to prepare the heads of terms leading to the grant of a lease which is DV “compliant”.
By taking these relatively simple steps you can ensure, so far as is possible, the practice is operating on a level playing field which strikes a balance between the interests of the owners on the one hand and the occupying partnership on the other hand.
You can be assured that the costs of doing so will always be infinitesimally less than the costs of pursuing a case to the Court of Appeal and beyond (or even to first instance!)
Continue reading further articles from our newsbrief: The five year forward view for GPs, premises costs directions, refurbs and lease extensions and employment changes you need to know. Read up on 8 reasons to make a Will, your surgery premises, retirement or death of a partner – planning ahead for your surgery, the ‘Green Socks’ clause and buying a retirement property abroad.