GP Practice Pharmacy Accommodation Rentals – Is Yours Valued Inaccurately?

Successfully maximising income and ensuring that operational costs are kept to an absolute minimum are two universal priorities shared by every practicing GP up and down the country. The challenge of remaining profitable and keeping things balanced at all times is becoming increasingly difficult, which in turn means that meticulous management and control of expenses and revenues is of the utmost importance.

In many instances, GP surgeries receive regular income by way of renting space within their properties out to pharmacies and other service providers. But while there is every potential for such an agreement to prove highly beneficial for the owner of the GP practice in question, it isn’t necessarily guaranteed. The reason for this is that research has shown that many surgery owners may in fact be charging pharmacy operators monthly rents that are considerably lower than they could/should be. As a result, surgery owners who let accommodation to third party pharmacy operators are encouraged to review the rent they charge their pharmacy tenants where their lease provides the flexibility to do so.

Quite simply, there is too much potential income going to waste for this issue to be overlooked, especially when expert advice is always available. It is, of course, always prudent to regularly review pharmacy rent and contractual terms and conditions when the opportunity to do so arises, and it makes sense for the GP to bring in the services of the very best GP surveyors available to assist in this process.

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There are many reasons why the terms of a pharmacy occupation may have resulted in the agreed rent being set low, which include the following:

1) Initial Valuation Errors

Much of the time, if not in the majority of instances, the pharmacy operator looking to take up space in the GP surgery in question will bring along their own surveyor to establish the rental value and other occupational lease terms. Needless to say, it is the job of such surveyors to work as hard as possible to ensure that the rent agreed upon is as low as possible for their client – the pharmacy operator.  This in turn means that it is somewhat inevitable that their own opinion of the appropriate rent may fall considerably below the actual market value of the rent for the premises. Unless the GP property owner also has an experienced and reputable surveyor representing their interests, it is likely that they will be obliged to the terms of an agreement that strongly favours the pharmacy operator to the detriment of the surgery owner.

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2) Initial Capital Payment

One of the most commonly used and undeniably effective strategies for minimising long-term rent payments is for the pharmacy operator or their representative to suggest that a sizeable initial capital payment is made. An initial payment is offered in return for more favourable terms and conditions for the pharmacy operator, including lower rent. Whilst in many respects the offer of a significant capital premium payments is an attractive one to any property owner, it is important to ensure that such a payment is not detrimental to the long-term interests of the surgery owner; this may be the case if the lease rent is significantly lower than it might have been in the absence of the payment of such a capital premium. With the benefit of professional advice it should be possible to ensure that any such arrangement is beneficial to both the landlord and the tenant.

3) Flawed Valuation Strategy

Initial approaches to valuation can vary significantly from one surveyor to the next, though suffice to say they are not always as accurate or fair as they might be. One relatively common mistake is that of assessing the value of the pharmacy space in the same manner that would be adopted when valuing other property types. The simple fact of the matter is that the pharmacy business is an entirely different and highly specialised property type that needs a specialist and very specific assessment of value.  The co-location of the pharmacy within the same building as a GP surgery will have a significant impact on the value of this property type.

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4)  Ignoring the effect of Practice Patient Numbers

Finally, given the fact that the value of any space rented out to a pharmacy operator will be determined (or at least influenced) by the patient list of the adjacent GP surgery itself, it simply makes sense to reflect this matter into the equation when assessing the value of this accommodation. Just as an increase in patient numbers will typically warrant an increase in pharmacy rent payments, a decrease in patient numbers warrants the opposite. A significant or gradual spike in patient numbers can and should result in higher rent payments on the part of the pharmacy tenant.  Which is precisely why it is of crucial importance to ensure that regular rent reviews are in place, and that the assistance of an experienced valuation surveyor is sought.