Armageddon clauses
How do these affect your GP practice?
Armageddon clauses – How do these affect your GP practice?
Armageddon clauses – How do these affect your GP practice?
General medical practitioners (GPs) who take a lease of a property normally receive NHS funding to pay the rent reserved under that lease. The GPs would usually continue to receive NHS funding whilst providing medical services at the property however, there may be occasions where the GPs cease to be entitled to this. In these circumstances, a lease would usually continue, leaving the GPs to pay the rent themselves, unless the lease contains an Armageddon clause. An Armageddon clause protects GP tenants who lose their entitlement to NHS funding, allowing them to terminate the lease. But there are often several conditions attached and a process to be followed. This is because an Armageddon Clause is a type of break clause.
An Armageddon clause would normally apply where GPs are providing primary medical services under the National Health Service Act 2006 (as amended) and the NHS funding (or any other financial provision granted to them to pay the rent) ceases. Where these circumstances arise an Armageddon clause often requires the GPs to seek alternative funding (if its own practice income is insufficient) or to locate a suitable assignee for the lease. If either of these alternatives are not available, the GPs are permitted to terminate the lease by serving notice on the landlord. Notice often needs to be served within a defined period following cessation of the funding but would only be valid where specified conditions are complied with. The standard conditions you would expect to see relate to up to date payment of rent and the ending of third-party occupations however, other conditions may be agreed between the parties.
In a standard break clause, the conditions apply only at the date of the break. Armageddon clauses, however, can contain a requirement that the conditions are satisfied both at the time of serving the notice and at the date of expiry of the notice. A GP tenant should ensure all conditions are satisfied at both times. Failure to comply could result in the notice being deemed invalid and the tenant being liable to pay the rent for the remainder of the lease term.
It is also important to note that where the cessation of funding is due to the fault of the GP an Armageddon clause will not apply and the GPs would be required to continue to pay the rent under the lease as normal. When taking a lease as a GP it is essential to ensure your heads of terms refer to the inclusion of an Armageddon clause as failure to include such a clause in a lease could be costly.
If you need any advice or assistance with your GP lease, please do not hesitate to get in contact with our team of experienced healthcare lawyers.
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This article was authored by Philippa Henderson.
