A commercial lease can make or break a pharmacy deal. Whether you’re buying, selling, or setting up a new pharmacy, understanding the fine print of the lease is essential. A well-structured lease protects the value of your business, provides certainty for lenders, and helps avoid nasty surprises down the track.
Here are the key lease considerations every pharmacy buyer and seller should understand before signing on the dotted line.
1. Assignment vs New Lease
Assignment means the buyer steps into the seller’s existing lease. This typically requires the landlord’s consent, so it’s crucial to review the “assignability” clause. Does it say consent “must not be unreasonably withheld”, or does it give the landlord total discretion? That small wording difference matters.
Tip for sellers: Always ensure the landlord’s consent or deed of assignment includes a full release for the outgoing tenant and any guarantor. Without it, you could remain liable for rent or repairs long after you’ve sold the business.
New leases are negotiated from scratch and can be an opportunity to reset rent, extend the term, or update use clauses. But be cautious because landlords may try to increase rent or shift outgoing responsibilities.
Assignment costs: By default, the vendor pays legal and administrative fees, but this is negotiable. Some landlords insist the incoming tenant pays. It’s best to clarify early.
2. Lease Term & Renewal Options
Pharmacies with less than two years remaining on the lease can face valuation issues and lose buyer interest and may also raise red flags with financiers.
Ensure that renewal options pass to the buyer and can be exercised without relying on the landlord’s discretion. Also check for break clauses because some leases allow the landlord to terminate early, which can undermine business value.
3. Permitted Use Clause
Your lease must specifically permit “pharmacy” use. Generic terms like “retail” or “medical” can cause issues with councils, landlords, or even PBS approvals.
If the permitted use is too broad or vague, consider adding a schedule that clearly sets out pharmacy-related functions such as dispensing, consulting rooms, and compounding.
4. Relocation & Demolition Rights
Many leases contain clauses allowing the landlord to relocate you or terminate the lease for redevelopment. For pharmacies, this can be catastrophic because PBS approvals are locked to a specific address, and relocation could jeopardise subsidy eligibility.
Negotiate stronger protections, including:
- Minimum relocation notice (e.g. 6 months)
- Compensation (e.g. rent-free period in the new premises)
- Right to terminate the lease if relocation isn’t viable
5. Rent Reviews & Outgoings
Rent reviews may be fixed, tied to CPI, or based on market rent and each has different risks. Market reviews can lead to sudden rent increases.
Outgoings should be checked line by line. Do you pay land tax? Marketing levies? Centre management fees? Always try to cap or exclude unusual costs, particularly those tied to landlord-run promotions or capital works.
6. MakeGood Obligations
These clauses often require tenants to remove the entire fitout, repaint, or even restore original flooring.
Where possible, negotiate:
- A cap on makegood costs
- An exemption for “fair wear and tear”
- The right to leave agreed elements in place (e.g. flooring, partitioning)
7. Bank Guarantees & Security Deposits
Find out how much security is required and whether it rolls over with assignment.
Sellers should ensure their guarantee is released at settlement.
Buyers must be ready to provide a new guarantee or bond and it’s best to organise this well in advance.
8. FitOut Ownership & Removal Rights
Not all fit-out is automatically yours to keep. Be clear in the lease (or in a separate fitout deed) about:
- What belongs to the landlord vs the tenant
- The tenant’s right to remove, sell, or relocate shelving, cabinetry, dispensary counters, and cold rooms
This avoids disputes, especially during exit or sale negotiations.
9. Lease Registration
Depending on the state and lease term, leases may need to be registered to protect the tenant’s rights if the property is sold.
Check that:
- The lease includes correctly annexed plans
- There’s enough time to complete registration before settlement
- Registration won’t delay finance approval or settlement
10. Practical Next Steps
- Request the lease early; ideally within the first week of due diligence
- Add key consents as conditions precedent to avoid exchanging contracts before the landlord or bank has approved
- Engage specialist legal advice to review all consents, deeds and waiver letters. Hidden liabilities often appear in landlord-drafted documents. We are pharmacy expert lawyers so reach out if you would like some advice.
11. Special Considerations for Franchise Pharmacies
If you’re buying or selling a franchised pharmacy (e.g. Priceline, TerryWhite Chemmart, Amcal, Chemist Warehouse, Guardian), extra steps apply:
- The lease may be held by the franchisor or require their ongoing approval
- Fit-out, signage or use clauses may be controlled by the franchise group
- Assignment might trigger both landlord and franchisor approvals
Tip: Align franchise and lease approvals to avoid delays at settlement.
Final Word
While this guide is pharmacy-focused, most of these tips apply to anyone negotiating or assigning a commercial lease, from medical and retail through to office and hospitality.
Understanding the lease structure is crucial to protect your business investment. If you’re entering into a lease, negotiating a new one, or buying a business with an existing agreement, make sure you get the right legal advice.
At AP Legal, we specialise in pharmacy and commercial leases across Australia and can ensure your lease works for you, not against you.
Written by Walid El-Hawli, Solicitor – AP Group
AP Group are the leading pharmacy experts in Australia and specialise in helping buyers find the right pharmacy and attaining the best legal advice to support their purchase.
We connect existing owners with over 5000 ready and eager investors via our cutting-edge online Data Room. Our Data Room keeps confidential listing data secure and allows buyers to make informed decisions on each of our pharmacies for sale.
AP Group have the unique and highly specialised experience with providing contract and other legal advice for Pharmacy investors.
About the Author:
When it comes to tackling legal challenges, Walid’s got it covered. With a career spanning top-tier firms, community legal clinics, and everything in between, Walid has built a reputation for delivering practical, no-nonsense advice that gets results. Whether it’s drafting contracts, managing litigation, or guiding business owners through the finer points of buying and selling, Walid is the go-to expert for navigating the legal maze.
Armed with a Bachelor of Laws (Honours) and a Commerce degree in Finance, Walid combines sharp legal insight with a knack for understanding the numbers. His career includes time at Allens Linklaters, Monash Law Clinics, and Melbourne Legal Chambers, making him as versatile as he is knowledgeable. Now, at AP Group he’s focused on helping clients achieve their business goals with confidence and ease.
Outside of the office, Walid’s passions are as diverse as his legal career. A lifelong St Kilda fan, he’s no stranger to heartbreak but remains ever-hopeful that a big season is coming. He also loves NBA, is a tennis enthusiast who loves hitting the court, and a car aficionado who’s always up for a chat about supercars.
Walid’s approachable, straight-talking style and dedication to getting the best outcomes make him an invaluable ally for navigating the complexities of any legal matter. When he’s not helping clients, he’s probably debating the merits of classic supercars, or if Michael Jordan or LeBron James is the true GOAT of the NBA (the answer is MJ though of course).