Institutional Lease Care Home UK - A Guide for Property Owners and Care Operators

An institutional lease for a care home is a specialist commercial property arrangement where a building is leased for use as a care facility. These arrangements can suit property owners with buildings capable of accommodating elderly people, vulnerable adults or other groups requiring residential care, as well as care operators looking for premises from which to run an established service.

Care home leasing requires more consideration than a standard residential tenancy. The property must be appropriate for its intended use, while planning, building regulations, regulatory requirements, repairs, insurance and lease responsibilities should all be addressed before the arrangement is completed.

For landlords considering an institutional care home lease in London or elsewhere in the UK, understanding the property and operator requirements is essential.

What Is an Institutional Lease for a Care Home?

An institutional lease is a commercial lease under which a property is occupied and operated for a specific institutional or care-related purpose.

For a care home, the lease may allow a care operator to occupy the building and use it to provide residential care services. The operator may invest in adapting the property, installing appropriate facilities and preparing it for its intended residents.

The precise structure will depend on the property and service.

A care home where residents live at the property and receive personal or nursing care can fall within the CQC's framework for regulated locations. CQC explains that care homes where people are accommodated and receive personal and/or nursing care are included within its location rules.

The landlord owns the property, while the care operator is responsible for running the care service where it is the registered provider.

Why Use an Institutional Lease for a Care Home?

A care home is a specialist operation that may require significant investment in a property.

An operator may need to spend money on:

• Refurbishment

• Accessibility improvements

• Fire safety measures

• Bathrooms and bedrooms

• Communal areas

• Kitchen facilities

• Staff areas

• Security systems

• Heating and ventilation

• Specialist equipment

A longer commercial lease can give the operator greater certainty when making those investments.

For the landlord, an institutional lease can create a clearly defined commercial relationship with responsibilities for rent, repairs, insurance, alterations and property use set out in the lease.

However, the commercial terms need to be negotiated carefully rather than assuming that every care home lease should have the same structure.

What Properties Can Be Used for a Care Home?

A potential care home property might include:

• Existing care homes

• Large detached houses

• Former residential facilities

• Former healthcare premises

• Purpose-built care facilities

• Buildings suitable for conversion

• Larger commercial properties with appropriate planning potential

The building should be assessed according to the proposed care model rather than simply its size.

A large property with numerous bedrooms may still require substantial work before it can operate as a care facility. CQC's Regulation 15 guidance states that premises used by a provider must be clean, secure, suitable for their purpose, properly maintained and appropriately located.

Planning and Building Regulations

Planning should be addressed at an early stage.

Changing a property's use can require planning permission depending on its existing use, proposed use and the circumstances of the project. Building regulations can also apply when a property is changed for business or institutional purposes.

CQC specifically identifies building regulations approval in relation to changes of use involving properties such as nursing homes and homes for caring for elderly people or children.

A landlord should therefore avoid agreeing an institutional care home lease based solely on the assumption that the existing residential or commercial use automatically permits the proposed operation.

The lease can also establish which party is responsible for obtaining planning permissions, building control approvals and other necessary consents.

What Should an Institutional Care Home Lease Cover?

A specialist lease should clearly establish the commercial relationship between the property owner and care operator.

Important provisions can include:

Permitted use

The lease should define exactly how the property can be used.

A landlord may not want a tenant to change from one form of care service to another without consent, particularly where the change could affect planning, building requirements or the property's condition.

Lease term

Care operators may prefer longer terms because they can provide greater certainty when investing in the property.

The appropriate term depends on the property, operator, investment requirements and commercial negotiations.

Rent

The lease should establish the rent, payment dates and any agreed rent review mechanism.

Repairs and maintenance

Responsibilities should be clearly divided between landlord and tenant.

Depending on the structure, the operator could take responsibility for some or most repairs and maintenance, while the landlord may retain responsibility for particular structural matters.

Insurance

The parties should establish responsibility for buildings insurance and other relevant insurance arrangements.

Alterations

Care homes can require adaptations and refurbishment. The lease should establish which works require landlord consent and who pays for them.

Assignment and subletting

The landlord should understand whether the operator can assign the lease, sublet the property or transfer the operation to another organisation.

Break clauses

Where appropriate, break clauses can provide an agreed mechanism for ending the lease before its full contractual term.

Reinstatement

If the operator makes substantial alterations, the lease should explain whether those works must be removed when the lease ends.

Commercial lease guidance also highlights rent, lease term, permitted use, repair obligations, rent reviews and break clauses as important heads of terms.

Long-Term Institutional Care Home Leases

Some care-related property arrangements can involve long-term leases because operators and specialist housing organisations may need sufficient security to justify investment in adapting properties.

Lease-based specialised supported housing, for example, can involve long-term arrangements between property owners and registered provider landlords, sometimes on full repairing and insuring terms.

However, a long lease is not automatically appropriate for every care home property.

Before agreeing a lengthy term, the landlord should consider the operator's financial position, experience, proposed use, repair obligations and ability to operate successfully from the property.

Due Diligence on the Care Home Operator

The quality of the tenant is particularly important in a specialist institutional lease.

A landlord may wish to review:

• Company history

• Financial accounts

• Existing care homes

• Management experience

• CQC registration where applicable

• Regulatory history

• Business plan

• Proposed care model

• Insurance

• Funding arrangements

• Refurbishment plans

• References

• Lease requirements

CQC states that providers planning to carry out regulated activities in England need to register, and carrying on a regulated activity without registration is an offence.

The landlord should therefore establish what service the prospective tenant intends to provide and whether the operator has the appropriate regulatory arrangements.

Refurbishing a Property for an Institutional Care Lease

A property does not necessarily need to be completely refurbished before a care operator is found.

In some cases, it may be more commercially sensible to identify the operator first and establish its requirements.

For example, a property in North London could have eight bedrooms, several bathrooms and substantial communal space but require accessibility improvements and changes to its fire safety arrangements.

A prospective operator may have a specific layout and specification in mind. Understanding those requirements before committing to major works can prevent a landlord from spending money on improvements that do not match the eventual operator's needs.

Fraser Bond can assist with property assessment, refurbishment coordination, building works and commercial property negotiations where required.

Location and Accessibility

Location is an important consideration for a care home.

Operators may assess:

• Access to local healthcare services

• Public transport

• Parking

• Local amenities

• Accessibility

• Neighbourhood suitability

• Distance from relevant services

• Availability of suitable staff

CQC's premises guidance specifically highlights appropriate location, access to relevant facilities, parking and public transport as considerations for regulated services.

A care home in West London, for example, may have different operational requirements from a specialist facility in a suburban or rural location.

Institutional Lease vs Standard Residential Tenancy

An institutional care home lease should not simply be treated as an ordinary residential tenancy.

A standard residential tenancy is designed around occupation of a home. A care home lease involves a business operating a specialist service from the property.

This can introduce additional considerations involving:

• Commercial rent

• Permitted use

• Regulatory compliance

• Refurbishment

• Building maintenance

• Insurance

• Fire safety

• Alterations

• Assignment

• Lease length

• Professional management

The lease should therefore reflect the actual commercial purpose of the property.

How Fraser Bond Can Help With Care Home Institutional Leases

Fraser Bond supports landlords and property owners dealing with specialist property requirements across London and the UK.

Depending on the project, services can include:

• Property assessment

• Care operator sourcing

• Commercial property marketing

• Lease negotiations

• Refurbishment coordination

• Building works

• Property management

• Maintenance coordination

• Landlord support

• Investment and development advice

For a landlord with a building that could potentially be used as a care home, the process should begin with a realistic assessment of the property's current condition, proposed use and commercial potential.

For care operators, identifying a property that matches the intended service can help reduce unnecessary adaptation costs and complications later in the process.

An institutional care home lease can provide a structured framework for both parties, but the property, operator, planning position, regulatory requirements and lease obligations should all be assessed carefully before completion.