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29 Feb 2024

Life sciences A to Z – L is for Leasing in life sciences

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Given the activities and operations of life sciences companies, their property requirements will differ from companies in more mainstream sectors. As such, the leases that these companies enter into often have bespoke considerations and non-standard provisions.

This article looks at some provisions which may require closer consideration when drafting or negotiating a lease in the life sciences sector.

1. Lease term and renewal rights

Leases in the life sciences sector tend to have longer terms than are usual for a commercial lease, typically lasting for 15 to 20 years. This is because the time and costs incurred by a tenant in fitting-out a property in this sector can be especially high (certainly higher than in a typical office or retail fit-out), so a tenant will want to ensure that it has certainty of occupation to justify this cost.

Additionally, as competition for space is intensifying, and as life sciences firms tend to be bound to particular locations (like university grounds, or those with proximity to other facilities), certainty of location for an extended period is desirable.

For similar reasons, tenants often seek to negotiate a right to renew the lease on relatively short notice periods. It is also sometimes a requirement that the lease contains pre-emption rights in the tenant's favour, granting them first rights to take a lease of any neighbouring space owned by the landlord should it become available for rent.

2. Fit-out works

If a space does not immediately meet a tenant's needs, negotiations will take place as to whether it should be the landlord or the tenant who carries out (and pays for) the works to make the space useable for the tenant's purposes. Typically, structural alterations will be undertaken by the landlord, with non-structural fit-outs handled by the tenant. It will need to be ensured that the correct planning permissions are available and in place, both in relation to the planned works and to the proposed new use of the premises.

Additionally, given the fit-out works are likely to be tailored to the particular tenant and its specific needs, it is expected that the Landlord will require the right to oblige the tenant to reinstate the fit-out works once the lease expires and the tenant vacates. This is so that the landlord gets back a vacant unit which is easier to re-let without needing to incur time and costs in removing the previous tenant's purpose built fit-outs which, given their bespoke nature, are unlikely to be wanted by a new tenant.

3. Utilities, and service charges

The services that a landlord is required to provide will also be a significant consideration for both parties when negotiating a lease in this sector. Life sciences tenants may require the landlord's assistance with matters such as hazardous waste disposal, specific environmental risks, an enhanced need for utilities or power, and the provision of any specific additional services or goods. Tenants will also give thought to whether a landlord's assistance will be required to obtain or maintain any necessary consents / permits to allow the proposed activities at the property.

Additionally, depending on how vital it is that certain specialist services are provided by the landlord, there may be significant negotiation over the penalties and repercussions of a landlord delaying (or failing entirely) to provide them. For example, if a loss of temperature control or air conditioning would have a substantive effect on the tenant's lab work or equipment, the tenant may seek to include clauses setting out the compensation procedure or tenant remedies for this loss. The same consideration arises with regards to the landlord's obligation to maintain and repair the premises or installations. I.e. the tenant should consider the repercussions to its operations if the landlord delays in complying with these obligations and seek to build in higher standards of obligation on the landlord in order to minimise this risk.

4. Storage of hazardous materials

Landlords of life science premises are concerned to ensure that the tenant retains responsibility for safety issues and statutory compliance surround the storage and disposal of chemical waste and hazardous materials. The issue is heightened in multi-let buildings as both parties will also need to consider whether additional safeguards might be required in order to accommodate the differing uses/processes at the building.

5. Confidentiality

Life sciences firms are protective of their research and product, so will want to limit a landlord's right of access to the property. A tenant's starting point in negotiations may be to only allow the landlord permission to enter certain areas of the demise (or to do so only when accompanied by a representative of the tenant), and to only enter following a significant notice period. There may also be other reasons for requiring these restrictions, such as to ensure a sterile environment is maintained or for health and safety grounds.

Additionally, a confidentiality provision may be included in the lease to ensure that the landlord is barred from sharing any information that they come across when on the property with any third party (unless the third party is expressly provided for).

6. Alienation rights

Whilst standard leases often restrict a tenant's ability to assign to a group company, this may be an important point of negotiation for a life sciences tenant. It is not uncommon for a tenant to want a group company to take on the lease or a part of the premises, so they may seek to negotiate flexibility in this regard. Similarly, the tenant may want the option to share the occupation of the premises. This is particularly relevant where the life sciences entity in question works closely with a third party, or requires a third party to be nearby to provide specific goods or expertise.
 

Conclusion

Life sciences leases often have different considerations to those typically seen in other sectors, and so need to be drafted, and considered, with this in mind. Our life sciences team has particular expertise in this regard and are well-equipped to help and advise.
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