Our office observed a dramatic rise in Medical Practices receiving 'Please explain’ letters from the Department of Health relating to their rental agreements with various Pathology Laboratories.
Solution - Providing Evidence/Rationale relating to the Rental Terms
The logical solution to a ‘Please explain’ letter from a Government Agency/Department requesting you to provide rationale as to the agreed upon annual rent paid to your business, is simply to provide the reasons (and supporting documentation) for the particular agreed upon rent in question.
In our experience, we found that where a business charges approximately $20,000 per annum for their premises; in most cases the business (landlord) could charge considerably higher rent due to the actual unrealised value in their premises.
For example, upon our firm completing our processes and final negotiations with Pathology Providers, the average rental sums paid to our clients by the bid-winning Provider ranged between $92,000 to $186,000 per annum over a five (5) year term.
There have been several cases, where our firm successfully negotiated, on behalf of our clients, an annual rent of approximately $274,000 per annum for a five (5) year term.
Although it should be noted that each rental sum is subject to the particular client, the following process is strictly followed on each matter:
Advertising Period to Qualified & Vetted Providers - Two (2) weeks
Compiling Results from the Interested Providers - Three (3) days
Verify received Results with our Australian Wide Data-Set to ensure the Interested Providers offered a fair and reasonable market rate, which would enable our firm to justify the final-agreed upon terms - Two (2) days
Finalise Negotiations with Bid-Winning Provider - Two (2) weeks [approx.]
Fees
We provide a Fixed-Fee service that includes the entirety of the ‘Pathology Lease Terms’ Negotiations.
Upon our preliminary analysis of your business’ unique circumstances and review of your provided documents, we will provide you a written quote, prior to your acceptance of our Service Fee Agreement.
Next Steps -
If you are attracted to the idea of having our firm represent you in negotiating a mutually beneficial Lease Agreement between your business and Pathology Providers, please forward your current Pathology Agreement to our office at:
pathology@hamiltonbailey.com
Rationale - Article (Extract)
Below is an extract from an article that we authored regarding a solution that we developed for our clients that have found themselves in the sights of the Department of Health regarding rental agreements with Pathology Laboratories.
THOUGHTS ON MEDICAL PRACTITIONERS AND PATHOLOGY RENTAL AGREEMENTS
15 December 2020 - Lukasz Wyszynski
Some time ago, we were approached by a national accounting firm that specialised in Medical Practices to advise their client that was issued a “Please Explain” letter relating to an alleged Department of Health’s Redbook (“Redbook”) violation.
After reviewing all materials relating to the Redbook Policy Guideline, our findings concluded that the only reasonable solution was to prepare a “RedBook-Friendly” Lease/Sublease (“Lease”) agreement with the Pathology Laboratory tenant (“Tenant”).
However, the rationale behind the solution was two fold, to which we have detailed in the below.
First Step Lease Agreement - Legally binding Document
Firstly, secure a solicitor that has the relevant experience and knowledge of the relevant laws and regulations relating to Medical Practices/Medical Sector.
Have the said solicitor draft a Lease/Sublease Agreement between the landlord and the Pathology Laboratory tenant.
Although having experience in Australian Property law is favourable, the subtle nuances specifically relating to Medical Practice/Sector should require an advisor with considerable experience in leases relating to the Medical Sector.
Second Step: Valuation Report - Supported by Evidence (Dataset)
Secondly, ensure that the landlord has justified the valuation as proposed within the Lease document.
This is, in our opinion, the most fundamental component of the Lease Agreement, and cannot and should not be bypassed if the landlord desires to be compliant with the Department’s Redbook Policy Guideline.
Although, the necessity of the Valuation Report is straightforward and logical, the predominant issue is that numerous Commercial Valuers that we approached nationally, had respectfully informed our firm that they did not have the capacity nor the technical dataset to justify the Valuation Reports as specified by the Redbook.
In the interest of exploring every avenue of providing our client the opportunity of receiving the most detailed Valuation Report, we also reached out to four of the five big Accounting Firms in Australia. We were systemically informed by the said Accounting Firms that they were unable to provide our client the high degree of detail-based data from their accumulated Medical Practice clientele.
Nevertheless, we did enquire the approximate cost that our client could expect to be invoiced by the four Accounting Firms to prepare the Valuation Report, with the average sum totalling to $27,800.
We also considered whether the big five Accounting Firms were able to represent our client relating to concerns of whether they would be “conflicted out” due to the Accounting Firms having earlier represented most, if not all, the Pathology Laboratories in Australia at one one time or another.
Upon interviewing numerous local and interstate Commercial Valuers & Accounting Firms, we concluded that there was only one Accounting Firm in Australia that we are aware of that was able to provide us a robust and detailed Valuation Report that was not contaminated by the firm having been previously engaged by a Pathology Laboratory.
*We note that the Department of Health’s Redbook Policy Guide (2018) is not legislation or regulation, and was drafted for the purpose of assisting the public to better understand the requirements as set out by the relevant legislation and regulation.
Contact form - Redbook Letter
If you have been referred to our office by your Accountant or Solicitor regarding a letter from the Department of Health, please complete the form below and one of our staff members will contact you to discuss your matter.