Whether you have a high street pharmacy or a dispensary in a health centre, most leases require the landlord to insure the building. This obligation usually covers risks such as fire, lightening and flood. If the pharmacy is damaged or destroyed by one of these risks, the lease explains who is responsible for repairing the damage and who pays the cost.
However, some leases don’t deal with what happens if the pharmacy is damaged or destroyed by a risk that isn’t covered by insurance (“an uninsured risk”). Terrorism is often quoted as a risk that isn’t covered by insurance. However insurers are increasingly withdrawing flood risk from their insurance policies, following the recent disasters seen across the country.
Who is to Repair?
The pharmacist is responsible for repairing the whole of the property let to them. Most repair obligations are limited to exclude damage by a risk that the landlord has insured against. However they often don’t deal with what happens if the property is damaged or destroyed by a risk that the landlord has not insured against. This could be due to an exclusion or limitation in the policy, or because insurance is simply not available.
If the pharmacists repair liability isn’t limited, they will remain responsible for the cost of, and the carrying out of, any repair or reinstatement works required. Where the lease is a lease of part of the landlord’s building, such as a pharmacy within a health centre, the landlord is likely to be able to recover their costs of repairing the structure of the building where damaged or destroyed by a risk they have not insured against through the service charge.
What if the Pharmacy cannot be used?
If the pharmacy can not be used due to damage by a risk that is not covered by insurance, the pharmacist may not only find themselves responsible for the cost of repairing any such damage caused, but may also remain responsible for paying the rent for the pharmacy during the period that the property cannot be used because of the damage caused.
What to do about Uninsured Risks?
Uninsured risks need to be considered when pharmacists are looking to buy an existing lease, take a new lease or renew an existing lease. In the current climate most commercial landlords are alert to the difficulties caused by uninsured risks and are willing to agree something with the pharmacist to make it clear exactly happens if the pharmacy is damaged by one of these risks. However it will often depend on the bargaining power of each party as to whether the pharmacist can shift the responsibility for uninsured risks onto the landlord.
Repair: Landlord’s will often agree that pharmacists will not be responsible for the cost of repairing any damage caused to the pharmacy by a risk that is not covered by insurance (unless the pharmacist has stopped the insurance from being available). This should be an exclusion from the repair responsibility in the lease, as well as an exclusion from the service charge, so that there is no way of the landlord sneaking the cost from the pharmacist unknowingly. The pharmacist will however remain responsible for any damage caused to their own contents or fixtures and fittings.
Rent: Most commercial leases allow for a suspension of rent if the pharmacy cannot be used following damage. This suspension of rent should also apply where the damage has been caused by an uninsured risk.
Reinstatement: Once the rent has been suspended and the pharmacist is not incurring any cost, it is up to the landlord to decide whether they want to repair the pharmacy. If they do want to repair, any repair works should be at their own cost. However if the landlord is paying to repair the damage, they are likely to want to make sure they still have a tenant once the works have been completed, so there is still someone in situ to pay the rent. It is therefore often agreed that the landlord will have a certain period to decide whether they want to reinstate and the pharmacist will not be able to terminate the lease until this decision has been made. If the landlord does decide to reinstate, they will again have an agreed period within which to carry out these works. If the works are not carried out by the end of the agreed period so that the pharmacy can once again be used, the pharmacist ought to have the opportunity to terminate the lease and move to alternative premises.
In order to retain continuity of services, depending on the extent of the damage, the pharmacist may need to make alternative arrangements to continue trading whilst the pharmacy cannot be used. It is therefore important to make sure that they don’t have to pay rent for two properties during this period, are not responsible for exorbitant repair costs and that the timer periods for works to take place are appropriate and agreed for the relevant situation.
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Pharmacy Brief - June 2019
Welcome to the June edition of our Pharmacy Brief.