When becoming the proprietor of a pharmacy, it is important to consider the most appropriate agreement that documents your occupation of the business premises. The two most common commercial agreements that a pharmacist will come across in this context are a lease or licence. Selecting which arrangement is appropriate requires an understanding of your business, your objectives, and the advantages and disadvantages of each agreement.
Lease
A lease is an agreement where you are granted the exclusive use of the premises for a specified period of time to carry on your business. The core characteristics of a lease include:
- The parties intend to create a legal relationship;
- The tenant is granted exclusive use of the premises; and
- The lease is subject to a fixed term in return for payment of rent and other monies such as outgoings.
Key Advantages
- The tenant is granted exclusive possession of the property and the landlord cannot interfere with your business;
- The lease will be governed by the Retail Leases Act 1994 (NSW);
- Your interest in the premises can be registered with the relevant land titles office; and
- The lease will run with the land. This means if the landlord sells the premises, then the new landlord must take the premises subject to the lease.
Key Disadvantages
- Leases are not suitable as short-term arrangements; and
- Any adjustments to the premises may require the surrender of the lease and grant of a new lease.
Licences
A licence is an agreement where you are granted a contractual right to occupy and use the premises to carry on your business. The core characteristics of a licence include:
- The parties intend to create a legal relationship;
- The licensee will not have exclusive possession to the premises; and
- Payment of a licence fee.
Key Advantages
- A licence is practical if you require a shorter term and more flexible arrangements;
- Simple variations to the terms of the licence agreement can be made if you wish to change the location or increase or decrease the licensed area; and
- A licence is cheaper and easier to prepare and may contain less obligations on the parties.
Key Disadvantages
- A licence is less secure than a lease;
- Licensees do not receive the protections under the Retail Leases Act 1994 (NSW);
- It is common to share common areas of the premises with other businesses; and
- A licence does not run with the land. This means if the ownership of the land changes, the licensee will not have any rights against the new landlord unless the licence is transferred from the old landlord to the new landlord.
Conclusion
Choosing the commercial agreement to document your occupation of a premises for your pharmacy will require a clear understanding of each structure and how it may affect your pharmacy business. It is important to obtain legal advice before entering into an agreement to ensure that the agreement most appropriately meets your needs for your pharmacy business and that any disputes at a later time can be mitigated.
Long Saad Woodbridge has lawyers with significant experience in all aspects of law relating to pharmacies and we look forward to assisting you.
Important Disclaimer: The content of this publication is general in nature and for reference purposes only. It is current at the date of publication. It does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.
