Whoever its Landlord may be, at the point of retirement of a GP partner, it is essential to consider the action required to change the names on any lease and to update the names in any Declaration of Trust. Here are some guidance notes to bear in mind, dealing not only with the retirement of a partner, but also the admission of a new partner:
1. Look at your Lease
This is a fundamental point! The lease itself will set out the rules which must be followed when a practice wants to update the names of the tenant. However, you should also be aware that the “tenant names” on the face of the original lease will not necessarily reflect the “current” tenants at that time, as there might have been additional updating exercises since the date of the lease which are reflected in documents to be read alongside the original lease. It is essential therefore to ensure the complete
set of documents is available.
Specialist GP Lease
Any well drafted lease which has been adapted to recognise the specific requirements of a GP tenant (as opposed to any other form of commercial tenant) should allow for the assignment of the lease between partners without the requirement to seek the Landlord’s consent. That said, there might be a minimum number of GP tenants permitted to hold the lease at any one time – and if this is the case, a retiring partner would not be able to seek release as a tenant under the lease unless and until this requirement is fulfilled.
The lease should also allow the GP partnership tenant the ability to freely assign the lease to succeeding GP partners without the requirement to enter into an Authorised Guarantee Agreement (“AGA” – see below). On this basis, ideally it should permit the retirement of GP partners and the introduction of new GP partners without the requirement (or cost) of having to go through the process of making any formal application to the landlord for consent. and the simple notification of the assignment should be all that is required.
Standard commercial lease
If your lease does not have the flexible provisions referred to above, you will be required to seek your landlord’s formal consent to the release of a retired partner and the assignment to the continuing partners (and any new partner). Usually the lease will prevent the landlord from unreasonably withholding its consent – but if specific conditions to an assignment have been included within the lease, such as for a minimum number of tenants or to enter into an AGA, the requirement to fulfil these obligations will not be considered unreasonable.
You should be aware that you will have to pay not only your own solicitor’s costs but also those of the landlord (and any superior landlord) in seeking such consent. There are also timing issues to take into account and the greater the number of parties involved, the longer it will take and the more costly it will become.
If an AGA is required this means that the retiring GP does not leave the practice free from ongoing liabilities: instead he will continue to guarantee the lease until such time as there is a further change in the names of the tenants following a subsequent change in the partnership.
2. Consider your Partnership
Deed/Declaration of Trust
Any lease can have only a maximum of four names on the legal title, but there may be more than four partners in the GP partnership. In such a situation, the partnership should have a valid Deed in place which declares not only that all the partners have an equal right to occupy the premises but also that it is clear that the obligations arising under the Lease are to be shared by all the partners, rather than only by those whose names appear on the face of the lease.
As there are circumstances in which a retiring partner could continue to remain liable to the landlord under the lease (even after his retirement from the partnership) e.g. under an AGA, the Deed should also state that as between the partners themselves, any partner or named tenant should be indemnified by the ongoing partners in the practice – as they are the parties with control of the funds to meet the tenant obligations under the lease. Whilst this will not extinguish any direct liability a retiring partner has to the landlord under an AGA, this form of agreement will provide a degree of protection.
Such provisions can be included within your Partnership Deed. However, given this can become inadvertently invalid, the “best practice” advice is to incorporate the provisions within a free standing Declaration of Trust.
Any GP partnership which occupies its premises under a lease should appreciate that the signing of the lease itself should not represent “the end of the road”. It is essential the additional steps above are taken to provide the protection required to the individual partners – and that the names on the lease are kept “current” and updated upon each change within the partnership.
In particular, a GP who is planning to retire should plan ahead to ensure he/she is released from liability as soon as possible – and that their name does not inadvertently remain on the lease for years to come at a time when they will have no control over the direction of monies within the partnership. By the same token, the continuing partners, and any new partners, should ensure they are in a position to exercise control over their own destiny by ensuring only the names of the current partners are on the lease going forward.
It is essential you should seek advice not only on the lease terms but on the timings associated with this to ensure liabilities are limited and costs are kept to a minimum.