December 6, 2023

Common issues with children’s services leases

Common issues with children’s home and supported living accommodation leases - Nov 2023

For sellers and potential buyers, operating a children’s home or supported living accommodation out of a leased premises can be favourable. The increased flexibility offered by leasehold interests is a bonus. However, ensuring that your leases are in good shape prior to a sale, or ensuring that a prospective buyer has all its needs met by any existing leases is key.

There are some key points that you should look to cover off when agreeing heads of terms for a new lease:

1. Permitted use

One of the first points to check in a lease is to ensure that the lease includes the correct permitted use. A buyer’s lawyer should check to see that use under class C:2 of the Town and Country Planning Act is obtained. This should be reflected in the lease as it can cause issues when coming to sell, as buyers and lenders will expect the permitted use to be correct.

2. Break clauses

Operators can find that they are required to take on service users and be faced with service users moving on at short notice. When negotiating terms for a lease, a tenant could negotiate a tenant only break clause to terminate the lease if for example any contracts for care are terminated. We have seen rolling break clauses agreed with termination on three months’ notice, but this will be a point for negotiation with the landlord.

3. Repair

The reality of running a children’s home or supported living accommodation can mean that that the property is subject to increased wear and tear. As a tenant, staying on top of your repair obligations is key. To minimise the risk of taking on greater repair liabilities than you might want to, look to limit the repair clause in leases to a schedule of condition. This is a schedule of photographs that will be annexed to the lease, evidencing the condition of the property as at the start of the term. The repair clause should then state that the tenant will not be liable to put the property in any better condition than as evidenced in the schedule.

4. Landlord engagement

Depending on where an operator is, be it at the start of their trading life, or whether looking to exit, can have an affect on the security that a landlord will require when taking on a new lease. If a newer company (without a proven track record of good financials) is looking to take on a lease, they may be required to personally guarantee the obligations of a tenant or provide a rent deposit deed. When looking to sell, you should engage your landlord as soon as possible to confirm their requirements for replacing any guarantors, or deal with returning and replacing any rent deposit. The same also applies for asset sales where leases need to be assigned or share sales where there is a change of control provision in the lease.

How we can support you

Our specialist Health and Social Care Team are happy to offer a complementary estate review of any of your property holdings. Please do get in touch if you would like to explore this.


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