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Practice owners ‘actually have more power than you think’


Anastasia Tsirtsakis


6/05/2020 4:30:31 PM

Negotiating rental agreements in the time of coronavirus.

Empty consulting room
An RACGP survey found at least 50% of practices had been approached with proposed changes to current pathology rental agreements.

‘You might feel like it’s a David and Goliath battle, but you actually have more power than you think.’
 
That is Dr Sean Stevens, GP, Chair of RACGP WA and the RACGP Specific Interests Business of General Practice network. He is referring to practice owners who are facing requests from pathology companies for temporary rent reductions of up to 50%.
 
It is yet another consequence of the coronavirus pandemic, which has seen a decrease in the volume of pathology tests as clinicians navigate the transition to telehealth and many patients avoid seeking medical care with their GP.
 
A survey of 143 practices conducted by the RACGP found that, as of 28 April, at least 50% had been approached with proposed changes to current pathology rental agreements.
 
The general sentiment that emerged was one of GPs feeling they are in a poor negotiating position, with 41% of respondents saying they were concerned about how the negotiations regarding rental agreements were handled.
 
But a recent webinar on the topic hosted by the RACGP highlighted that general practices are in a much stronger negotiating position than they might think.
 
‘The letters that were written by some of the pathology providers effectively demanding a 50% rent reduction were really an initial opening gambit, if you like,’ Dr Stevens told newsGP.
 
‘The experts who presented at the webinar were saying, don’t accept that as a “take it or leave it” approach, and encouraged GPs to negotiate and to approach it in a manner of partnership, working together to get through this period of downturn.
 
‘Their advice was not to give a rent reduction – and certainly not to give a permanent rent reduction – but in actual fact give a rent deferment.
 
‘So, in other words, the rent is reduced by a certain percentage for a period of time and then that is repaid over a period of months – anywhere between three and 24 months was their recommendation.’
 
Dr John Deery, Chair of the Australian General Practice Alliance (AGPA), advised that landlords should be cautious.
 
‘If you’re dealing with one of the larger pathology companies that have just over $50 million in turnover, then the Code of Conduct around negotiating rent is not applicable,’ he told newsGP.
 
‘The most important point there is you should not agree. Because if they agree to the reduction in rent you’ve got nothing to do when you go to the Administrative Tribunal – you agreed.’
 
Brooke Glastonbury, a lawyer at Macpherson Kelley and expert in leasing disputes, advised GPs to take their time and not rush into any agreements.
 
‘The first step that GPs should be taking is to just take a step back, think about what information they would ordinarily need to make an informed decision,’ she told newsGP.
 
Of those surveyed by the RACGP, 40% of practices were approached by phone and 7% face-to-face. Ms Glastonbury says landlords should be mindful of documenting all correspondence in writing.
 
‘It’s always good to say, “he said, she said”, but everything should be documented,’ she said. ‘Make a file note of who called you at what time and the content of that call.
 
‘Ask for it to be followed up by an email and that they’ll consider and respond once they’ve got something in writing.’
 
Similarly, it is advised that GPs do not respond in writing until advised on how to proceed.
 
‘GPs are wonderful at what they do, being doctors, but negotiation is one thing, actually being able to document it is another, and also understanding the legal framework that sits behind it,’ Ms Glastonbury said.

Dr-Sean-Stevens-hero.jpg
General practices are in a much stronger negotiating position than they might think, according to Dr Sean Stevens, Chair of the RACGP Specific Interests Business of General Practice network​.

While there is a mandatory Code of Conduct that applies Australia-wide, legislation can differ in each state and territory.
 
‘In New South Wales, for example, there’s a loophole in there as well where large pathology companies can arguably request to renegotiate the rent under the legislation. Whereas in other states that’s not necessarily the case,’ Ms Glastonbury highlighted.
 
‘So GPs should get the right advice and get the right support, and don’t come to an agreement unless they’re entirely informed.
 
‘It could be a small expense to get a lawyer involved, but if it’s documented incorrectly it could be the difference between months’ worth of rent.’
 
Meanwhile, it is important that landlords are informed of the tenant’s financial situation, so as to ensure the request for rent relief marries up with the reduction in turnover being incurred.
 
‘I’m advising my clients as landlords to ask for financials from tenants requesting a rent reduction. Whether that’s financials for financial year 2019 or current turnover financials, and I would also ask for projected financials so you can get an idea as to what the tenant is projecting to have over the next couple of months,’ Ms Glastonbury said.
 
‘If a tenant can’t provide the projected financials, then my recommendation has been to have these conversations on a monthly basis so that one party is not entirely out of pocket or another party getting financial gain out of coming to an arrangement for a fixed period of time.’
 
Dr Deery says landlords need to think long and hard about the terms on which they agree, amid fears that post-pandemic reduced rates may become the ‘new normal’.
 
‘They just need to think about, is this the rent that I want to have for the next five years until the contract finishes? Can my business survive this?’ he told said.
 
‘A lot of the general practices are dependent upon pathology rental to keep their businesses going.’
 
Some GPs have expressed feeling powerless in negotiations amid concerns pathology companies could terminate their contractual agreement; however, the outcome of such a scenario will depend largely on the individual rental agreement. Some contracts may have a clause, permitting a pathology company to terminate their contract after 30 days of giving notice.
 
But landlords who have negotiated those clauses out of lease agreements have options.
 
‘[In that case] if a pathology company – or any other tenant, for that matter – is threatening to just walk away, they will potentially be up for damages in breach of their lease,’ Ms Glastonbury said. ‘So it’s not something that I recommend pathology companies do.
 
‘It’s not in the spirit of what the Government has intended with this mandatory Code of Conduct in the legislation; it’s not acting in good faith for them to even threaten that.’
 
Summary of advice for practice owners

  • Take your time and inform yourself of your rights
  • Seek advice from a lawyer – aside from the Federal Code of Conduct, legislation can differ in each state and territory
  • Ensure all correspondence is documented in writing – if you receive a phone call, request that it be followed up with an email
  • Do not respond in writing unless you have received guidance
  • Request financials from your tenant, including for the 2019 financial year, current turnover and projected revenue for at least the next couple of months. If a tenant cannot provide projected financials, it is recommended landlords continue to discuss financials on a monthly basis
  • Note that if a pathology company pays reduced rent without a formal agreement, it may be possible to recover any outstanding payments at a later date
‘The thing to remember about this is that it’s affecting everyone,’ Ms Glastonbury assured.
 
‘As much as tenants want to have an answer now as to a reduction in rent, landlords and GPs as landlords can’t be expected to agree to something without being well informed.’
 
The webinar ‘GP Practice Owners: Understanding a pathology rental reduction request’ can be accessed on the RACGP website.
 
* This advice is general in nature and does not take into account individual circumstances. Members are encouraged to seek tailored professional advice from their lawyer and/or financial advisor.
 
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