Property Investor Looking to Lease Property to Care Company - What Investors Should Consider

Explore what property investors looking to lease property to care companies should consider, including suitable buildings, operator due diligence, planning, CQC requirements, long-term leases, refurbishment and property management with Fraser Bond.

Property investors looking to lease property to care companies may be able to create specialist property opportunities by matching suitable buildings with established care operators.

Care companies can require premises for residential care, nursing care, supported living, domiciliary care management and other specialist services. This means investors may consider a range of properties, from former care homes and large houses to healthcare premises and buildings requiring refurbishment.

However, investing in property with the intention of leasing to a care company requires careful due diligence.

The investor needs to understand the proposed care use, planning position, physical condition, regulatory requirements, lease structure, operator strength and likely refurbishment costs before committing capital.

Fraser Bond can support investors with property acquisition, investment advice, lettings, refurbishment, building works, property management and wider property requirements.

What Does Leasing Property to a Care Company Involve?

A property investor may purchase or already own a building and seek a care company as a long-term occupier.

Depending on the operator, the property could be used as:

• A residential care home

• A nursing home

• Specialist care accommodation

• Supported living accommodation

• A domiciliary care office

• A healthcare facility

• A rehabilitation facility

• A specialist residential service

• An operational base for care staff

The property requirements vary significantly between these models.

A residential care operator may require multiple bedrooms, bathrooms, communal areas and accessible facilities.

A domiciliary care company may instead require an office from which care delivered in people's homes is organised and managed.

CQC's current guidance confirms that locations can include care homes as well as premises from which domiciliary care, supported living and other regulated activities are managed.

Why Investors Consider Care Companies as Property Tenants

Specialist property can attract occupiers with specific operational requirements.

An investor may consider leasing to a care company because the property could potentially provide:

• A specialist commercial use

• Long-term occupation

• An opportunity to refurbish an underused building

• Demand from an established operator

• Potential for a longer lease structure

• A way to reposition a property

• A specialist investment strategy

These are potential commercial characteristics rather than guarantees of rental performance.

The investor still needs to assess the property and tenant independently.

What Type of Property Could Be Suitable?

There is no single property type that works for every care company.

Potential opportunities can include:

• Former care homes

• Former nursing homes

• Large detached houses

• Purpose-built care facilities

• Healthcare buildings

• Specialist accommodation

• Former institutional buildings

• Residential properties with conversion potential

• Commercial properties capable of adaptation

• Offices for domiciliary care providers

A former care home may already contain useful infrastructure, while a large house may offer conversion potential subject to planning and regulatory requirements.

Former Care Homes Can Be an Investment Opportunity

Former care homes can attract investors because the buildings may already contain features associated with care use.

These could include:

• Multiple bedrooms

• En-suite bathrooms

• Communal lounges

• Dining rooms

• Commercial kitchens

• Staff rooms

• Laundry facilities

• Accessible entrances

• Lifts

• Fire safety infrastructure

• Parking

• Gardens

However, an investor should not assume that a former care home can simply be leased to a new care company without further investigation.

The investor should establish:

• Current planning use

• Previous use

• Why the previous operation ended

• Building condition

• Fire safety position

• Accessibility

• Required refurbishment

• Existing planning conditions

• Whether additional approvals are needed

Historical care use can be useful information, but it is not a substitute for current due diligence.

Large Houses for Care Operators

Investors may also consider large houses where there is potential for an appropriate care or supported accommodation use.

Potentially attractive characteristics include:

• Several bedrooms

• Multiple bathrooms

• Ground-floor rooms

• Communal reception areas

• Large kitchens

• Gardens

• Parking

• Flexible layouts

• Good transport connections

The investor should establish the proposed service before purchasing or refurbishing the property.

A building suitable for one care model may not work for another.

Planning Should Be Investigated Before Acquisition

One of the most important questions is whether the intended care use is permitted.

In England, Use Class C2 covers residential institutions including residential care homes and nursing homes. However, the exact planning position depends on the proposed operation and the property's existing lawful use.

Investors should investigate:

• Existing lawful use

• Planning history

• Previous planning applications

• Proposed care use

• Number of residents

• Staffing arrangements

• Physical alterations

• Parking

• Access

• Local planning policy

• Planning conditions

Planning permission and CQC registration are separate matters.

An investor should not purchase a property on the assumption that CQC registration makes the proposed use lawful from a planning perspective.

CQC Registration Is Not Attached to the Property

This is an important distinction for property investors.

A building may previously have been occupied by a CQC-registered care provider, but the registration does not simply become an asset attached to the property for the next operator.

CQC states that registered providers must identify locations where regulated activities are carried on or from. If a provider adds or removes a location, it must apply to vary the relevant registration conditions.

Investors should therefore avoid marketing a property as automatically "CQC registered".

A more accurate description may be that the property has previous care use or is being offered for consideration by a care operator, subject to the operator's own regulatory and planning requirements.

Understand the Care Company's Business Model

Before agreeing a lease, an investor should understand exactly what the prospective tenant intends to operate.

Questions can include:

• What type of care will be provided?

• How many residents or service users are expected?

• Will people live at the property?

• What regulated activities are involved?

• Is the company already CQC registered?

• Will the property need to be added as a CQC location?

• What planning use is required?

• How many staff will be based there?

• What alterations are required?

• Who will fund the works?

• When does the operator intend to open?

This information can materially affect the property's suitability and investment requirements.

Due Diligence on the Care Operator

The property is only one part of the investment.

The tenant should also be investigated.

An investor can request information such as:

• Company details

• Trading history

• Accounts

• Existing locations

• CQC registration details where applicable

• Registered manager information where relevant

• References

• Business plan

• Experience in the proposed care sector

• Funding arrangements

• Proposed service

• Property requirements

• Refurbishment plans

CQC states that anyone intending to provide a regulated activity in England must register where registration is required, and carrying on a regulated activity without registration is an offence.

CQC registration should not replace the investor's own financial and commercial due diligence.

Check the Operator's Existing Track Record

An investor should understand whether the prospective tenant has experience operating similar properties.

Useful questions include:

• How many services does the company operate?

• How long has it been trading?

• What type of residents does it support?

• Does it currently operate similar properties?

• What is its proposed staffing model?

• What experience does management have?

• Has the company previously leased specialist premises?

• What is its expansion strategy?

For a substantial long-term lease, understanding the tenant's business model can be as important as assessing the building.

CQC Data Can Help With Background Research

Investors researching an established care company can also review publicly available CQC information.

CQC's current data includes information about active and inactive providers and locations, registration dates, regulated activities, service types and specialisms.

This can provide useful background information when researching a prospective tenant.

It should still be supplemented by independent legal, financial and commercial due diligence.

Fire Safety Should Be Considered Before Letting

Care premises can have particular fire safety requirements because some residents may require assistance to evacuate.

Government guidance on residential care premises applies to premises where residential care is the main use and where some or all residents may require assistance during a fire.

An investor should investigate:

• Fire alarm systems

• Fire doors

• Emergency lighting

• Escape routes

• Fire compartmentation

• Fire extinguishers

• Signage

• Evacuation arrangements

• Electrical systems

• Kitchen fire precautions

The responsibilities of the landlord and tenant should be clearly established within the lease and related agreements.

For new care homes, current Approved Document B updates include provision for sprinklers in new care homes.

The precise requirements for an existing building or refurbishment should be assessed by the relevant professionals.

Accessibility Can Affect Investment Costs

A building may look attractive as an investment but become significantly more expensive once accessibility works are considered.

Potential works include:

• Step-free entrances

• Ramps

• Accessible bathrooms

• Wider doors

• Ground-floor bedrooms

• Handrails

• Lifts

• Accessible parking

• External pathway improvements

The investor should assess the likely specification before calculating the property's potential investment return.

Refurbishment Before Leasing

Some care companies may be willing to lease a property that requires refurbishment.

Others may require a property that is ready for occupation.

An investor could consider works such as:

• Bathroom upgrades

• Kitchen refurbishment

• Fire safety improvements

• Electrical upgrades

• Heating replacement

• Plumbing

• Accessibility alterations

• Internal reconfiguration

• Flooring

• Decoration

• Security upgrades

• External repairs

The appropriate level of refurbishment depends on the target operator and proposed service.

Investors should avoid spending heavily on works before understanding what their target care occupier actually requires.

Who Should Fund the Works?

Several structures are possible.

The investor could:

• Fully refurbish the property before letting

• Complete structural works while the operator handles its fit-out

• Offer a landlord contribution

• Allow the operator to fund approved works

• Agree a rent-free period

• Negotiate a phased refurbishment programme

The commercial structure should reflect the size of the investment and proposed lease term.

A specialist property adviser can help coordinate the property and refurbishment side, while legal professionals should document the agreed responsibilities.

Long Term Leases Can Be Important

Care operators may prefer longer leases where they need to invest substantially in a property.

For investors, a longer lease can potentially provide greater income visibility.

Important lease terms include:

• Lease length

• Rent

• Rent review mechanism

• Deposit

• Rent-free period

• Break clauses

• Repairs

• Insurance

• Service charges

• Alterations

• Assignment

• Subletting

• Planning responsibilities

• Compliance responsibilities

• Maintenance

• Dilapidations

• Renewal options

The lease should clearly permit the intended care use.

A Long Lease Should Not Replace Tenant Due Diligence

A 15- or 20-year lease may appear attractive because of its length, but the investor still needs to understand the tenant's ability to perform throughout the lease.

Consider:

• Financial strength

• Business model

• Management experience

• Existing operations

• Funding

• CQC position where relevant

• Proposed service

• Property investment

• Repair obligations

A long lease is only as useful as the underlying commercial arrangement and tenant's ability to meet its obligations.

Calculate the Full Investment Requirement

An investor should not assess the opportunity based solely on the expected rent.

The financial appraisal may need to consider:

• Purchase price

• Stamp Duty Land Tax where applicable

• Legal costs

• Survey costs

• Planning costs

• Refurbishment

• Building works

• Professional fees

• Finance costs

• Insurance

• Void periods

• Management costs

• Maintenance

• Compliance-related works

For example, an investor purchasing a property for £750,000 might expect £60,000 of refurbishment before leasing it to an operator.

The investor should assess the total capital requirement rather than treating the £750,000 purchase price as the complete investment.

The figures are illustrative only and do not represent a market valuation or expected return.

Consider the Property's Exit Strategy

A specialist care property should not be assessed solely on the initial lease.

An investor should consider what happens if:

• The operator leaves

• The business fails

• The service changes

• The lease is assigned

• The property needs another use

• Planning policy changes

• Major refurbishment becomes necessary

• The investor wants to sell

Understanding the property's potential future uses can be particularly important when purchasing a highly specialised building.

Domiciliary Care Companies Need Different Premises

An investor does not necessarily need a care home to attract a care company.

A domiciliary care provider may require an office from which staff and regulated activities are managed.

CQC's location guidance identifies premises from which domiciliary care and other services delivered in people's homes are organised or managed as locations.

A suitable office might require:

• Management offices

• Meeting rooms

• Training space

• Interview rooms

• Secure records storage

• Staff facilities

• Parking

• IT infrastructure

CQC's homecare guidance also requires providers to provide information about their office or base and states that premises need to be suitable for managing the service and keeping records secure.

This can create opportunities for investors with appropriate office properties.