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Pharmacy businesses are heavily regulated. There are a variety of rules and regulations which affect the services offered by pharmacies, the premises from which pharmacies operate and most importantly, the people responsible for managing the business.
Given the extensive issues involved, obtaining professional legal advice from specialist lawyers will enable you to maintain a competitive edge over rival businesses.
Property: Our commercial property team regularly deal with the acquisition and disposal of pharmacy businesses. The team advise on all aspects of property law including freehold acquisitions or lease transfers.
Whether you intend to operate a pharmacy business by way of a lease or a freehold building, you will need to consider some of the following issues:
- Access – it is imperative that the property is accessible from a public highway, particularly given that customers / patients will need to regularly access the property. If the property is part of a larger building, you will need to ensure that there is a right to use common areas such as toilets.
- Utilities – if you will be providing specialist services in your pharmacy, it is essential that the business can connect to water and electricity, for example.
- Planning consent – unless the property is currently used as a pharmacy, enquiries will need to be made to the local authority as to the authorised planning use. Depending on the replies received, you may need to make an application to change the authorised use of the property and the sale agreement would need to be conditional upon this permission being granted. Further, the landlord will need to provide permission for the use of the property as a pharmacy in the lease.
- Lease renewal – it is important to ascertain whether the lease over the property benefits from the automatic lease renewal provisions in the Landlord and Tenant Act 1954. This provides tenants with the right (subject to certain notices being served) to renew the lease at the end of the term.
For the purposes of business continuity, this is important because you may be forced to vacate the property after the lease expires. Whilst you may be able to find alternative premises, the Primary Care Trust (“PCT”) will need to approve any new property in the pharmaceutical list which may be a costly and time consuming process.
- General practitioners (GP) – you may need to consider the effect of closure of a local surgery on your business. If your pharmacy relies heavily on the trade generated by a local GP, the profitability of your business may be affected by its closure and / or relocation. Accordingly, you may wish to negotiate a clause in the lease allowing you to terminate after a certain period e.g. on the 5th anniversary. This is known as a break clause.
Corporate: Our corporate team can offer you a wide range of services including the acquisition and disposal of pharmacy businesses.
Generally speaking, acquisitions / disposals can be achieved either by way of an asset based transaction or a transfer of company shares. Although both will seek to achieve the same end goal, the preferred transaction route is often driven by a number of factors.
A transfer of shares will involve the buyer inheriting all the assets and liabilities of the company whilst an asset purchase will result in the buyer cherry picking certain specific assets (e.g. property, goodwill, third party contracts etc) to operate the business.
Whether you intend to acquire a pharmacy through an asset or share purchase, there are a number of issues which arise in any transaction:
- PCT approvals – an asset sale will require the buyer to make a separate application to the PCT for the pharmacy contract to be transferred. If the buyer is acquiring shares in a company, it is unlikely that the PCT contract will change hands however the seller may be required to notify the PCT in any event.
As explained above, the PCT will need to approve any property that does not already feature on the pharmaceutical list. If you intend to acquire a freehold property, the contract should be made conditional upon receiving consent from the PCT. It is difficult to determine how long a PCT will take to provide its consent. In the case of asset sales, the parties should enter into an agreement allowing the buyer to operate in the seller’s name until such consent is received.
- Tax – a buyer of shares will be inheriting all the past liabilities of the company. As such, a share acquisition will involve the buyer carrying out extensive due diligence on the tax history of the business. The buyer will also seek contractual protection in the form warranties and indemnities which give the buyer a right to bring claims against the seller after completion.
- VAT – if the acquisition is the buyer’s first business venture, it will need to liaise with HMRC at an early stage of the transaction to ensure VAT registration formalities are completed.
- Finance arrangements – you will need to determine how the acquisition will be financed. It is likely that a bank will require the borrower to provide security of the assets of the business e.g. a charge over the property or in the case of a share sale, a debenture of the company shares.
- Stock – a pharmacy will hold a large amount of stock at any one time. If the transaction is an asset sale, the stock will need to be valued on completion. This may also be required on a share sale depending upon how the company has been valued. The sale agreement will detail the mechanisms for the stock valuation.
- Employees – where a buyer is acquiring a business by way of an asset sale, the persons employed by the business will automatically transfer to the buyer under the same terms and conditions of employment. The employees will transfer by reason of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”).
The TUPE regulations do not apply to share sales as the employees will continue to be employed by the target company.
- Purchasing vehicle – a buyer will need to consider how it wishes to acquire the business i.e. in a personal capacity or by way of a private limited company. The decision will of course be driven by financial and tax considerations. We will work closely alongside your financial advisors to ensure you are advised in the appropriate manner with these considerations in mind.
Regulatory: like most healthcare professions, pharmacies are subject to a variety of regulations. With our up-to date expert knowledge, we are well placed to advise clients on the changes that affect their business. The legislation surrounding this sector is constantly evolving and it is important you are aware of your obligations as a business owner and a pharmacist.
An important regulatory issues that faces pharmacy owners is “control of entry” i.e. the test applied by the PCT when deciding to grant a new PCT contract. The Government published the Health and Social Care Bill earlier this year which seeks to change the test that PCTs will apply. If the new test is brought into force, this will have implications for prospective business owners who want to open a new pharmacy.
The above are only some of the issues that we can advise you upon. The firms in depth understanding of the pharmacy business allows us to provide an effective all-round service to clients whether they are sole traders or larger incorporated entities.
Please call us to speak to an experienced advisor who will be happy to discuss your business requirements in further detail.