What is your liability for repairs?
First published in Practice Management in June 2021
What type of surgery lease do you have and what is the extent of your repair liability? You need to know, or you could end up with a bill of destabilising proportions.
Lisa Davison, real estate partner from specialist healthcare law firm Hempsons, explains the liabilities of repairs and why it is important to plan ahead to reduce the risks
FRI or IRI?
A full repairing and insuring (FRI) lease can be a lease of whole or part of a building, where the cost of all repairs and insurance are borne by the GP partners as the tenants. With a lease of whole, this may be from redecoration to structural roof repairs. With a lease of part, the landlord would generally carry out repairs and charge back to you the cost through the service charge.
An internal repairing and insuring (IRI) is typically a lease of part of a building where the cost of internal repairs only falls on the tenant. As a result, market rents are often higher for this type of lease.
Limiting your repair liability
The most common standard of repair is ‘good and substantial repair and condition’, which means the tenant has to first put the property in good repair, and then keep it in repair. When negotiating your lease consider the following:
- Schedule of condition – where the building is not new, take advice from a surveyor and obtain a detailed schedule of condition. In the lease state that will not be required to put the property in any better state of repair than is shown in the schedule
- New build – exclude any repairs resulting from defects in the construction
- Service charge cap – negotiate a cap on the service charge
- Carve outs – exclude matters particular to the property, like environmental liabilities where there was a previous for contaminated use (for example, a a petrol station).
Managing your repair liability
Repairs are expensive, particularly with an FRI lease with an uncapped service charge – so plan from the start of the lease. If you have not, start now, by:
- Ring fencing funding. With an FRI lease, a ‘top-up’ is added to the open market rent under the rent reimbursement of the Premises Cost Directions for repair liability. Separate that sum from other practice income, so it is a pot to call on when repairs are required and you don’t leave the practice with a huge dilapidations liability at the end of the lease
- Documenting liability in Partnership Deed and/or Declaration of Trust. This is particularly important with larger practices and practices with non-property owning partners
- Regular maintenance. Regular inspections and repairs should be undertaken and treated as an ongoing expense of the business.
Expensive repairs are inevitable and should be managed by sensible planning and seeking appropriate professional advice. Such good practice will reduce risks and make the practice more attractive to incoming partners.