Planning to retire? Don’t forget about your lease liabilities
If you’re a partner in a GP practice and have decided to retire, then there are many issues that both you and the remaining partners need to consider. Making a smooth exit is likely to be top of your agenda and one important area that can often be overlooked is dealing with lease obligations.Your responsibilities will vary depending on how the lease is ‘owned’. Here, we examine three of the most common scenarios and what the implications may be, along with offering advice on how best to mitigate any liabilities.
1. Named at Land Registry
If your lease term is for a period of seven years or more, then it should be registered at the Land Registry. It is also possible to register leases of a shorter term, although this is rare.
Leases registered at the Land Registry are available to the public and show you as having rights and obligations associated with the property. Public bodies and other third parties with an interest in the property may, therefore, look to you and the other named parties to meet any obligations that arise.
When you leave the partnership, assuming you are also intending to leave your lease liabilities behind, it is important that you sign a TR1 to remove your name from the Land Registry and transfer the title to an ongoing member of the partnership. There can only be 4 people named on the Land Registry title at any one time, so if there are more than 4 ongoing partners they will have to agree who gets to replace you.
2. Named tenant on the lease
If you are named on a lease or have taken over the lease by way of a formal assignment, then the landlord will look to you and the other signatories as joint tenants. You will have responsibility for fulfilling all obligations under the lease and your liabilities will be unlimited – unless you have agreed anything different with your landlord. If any problems arise, such as unpaid rent, required repairs or dilapidations, the landlord could potentially sue you to put things right. Unlike the Land Registry title there are no restrictions on the number of signatories to a lease, so all the partners will usually sign the lease in order to share risk equally.
Once you leave the partnership, you will have little control over what happens to the building, and if your name remains on the lease you cannot easily manage any risk. You will normally want to sign a Deed of Assignment as soon as possible.
A landlord, by contrast, will typically want a minimum number of partners named on the lease at all times so that he can hold as many people as possible personally liable. This can be an issue, particularly in smaller partnerships with recruitment problems, and is commonly known as the ‘last man standing’ problem. There are several ways to mitigate the problem, but it is always advisable to seek legal advice at an early stage if you think you may be facing this situation.
3. Tied into the lease via the Partnership Deed
A partnership deed will typically document a trust relationship, which seeks to ensure that those partners who are not named at the Land Registry or on the lease, will still have the same rights and obligations as those partners who are. This helps ensure everybody is treated equally. Some partners will, therefore, find that they are able to retire without having to notify either the land Registry or their landlord.
However, just because you retire doesn’t mean that any obligations under the partnership deed will end. It is important when leaving a partnership, to understand what you are responsible for and whether the partnership deed permits you to be released from these obligations.
If you don’t have a valid partnership deed, or it is unclear about this issue, then the safest course of action is to draw up a deed of retirement, which will document which past and future obligations you are released from.
In the event that it proves impossible to eliminate all liabilities associated with the lease, another option would be for the partners to provide each other with indemnities against any claims. Just be aware that such indemnities need to be very carefully worded, as they are often contested when one party seeks to enforce them.
Other considerations
Dealing with lease obligations is just one of the many areas that need consideration when you retire. For more expert advice on what to think about and the steps you can take to cover off your risks, see our Retirement Planning Checklist.
For more information about any of the issues covered here, please contact Daphne Robertson on 01483 511555 or email d.robertson@drsolicitors.com
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Are you overpaying your landlord?
The issue of NHS premises funding is a complex area which is often misunderstood by GP practices. This confusion sometimes results in practices inadvertently overpaying their landlord.If you don’t own your own surgery then you must be occupying it on some form of tenancy basis, – whether that agreement is in writing or not – and you should be receiving rent reimbursement. Here we take a closer look at what rent reimbursement is supposed to pay for, and how you should be managing it.
Understanding rent reimbursement
Rent reimbursement comprises two parts:
- the rent
- a contribution to the repairing and insuring of the building – commonly referred to as the ‘uplift’
The rent element is normally the same as the rent agreed in your lease, and practices will often pay this straight to their landlord. The uplift element will vary, but is usually between 5% and 7.5% of the rent, with the amount being determined by the terms set out in the lease.
The uplift may be paid to the landlord or retained by the tenant, dependant on what is stated in the terms of the lease. This is the element which most commonly gives rise to confusion
The uplift
The uplift is a contribution towards the repair of the exterior and structure of the building, along with the cost to insure it. To determine who should receive the uplift monies, you need to be clear about who is responsible for which aspects of the building.
Some common situations are:
1 – The practice occupies the entire building
If you occupy the whole building, you are likely to have a full repairing and insuring lease. In this situation, you will be responsible for dealing with all the repairs, so the practice should keep the uplift.
If your lease only requires you to repair the internal parts of the building, then the landlord should probably receive the uplift element as part of their rent. They will have responsibility for repairing and insuring the exterior and structure of the building, without any additional costs being passed on to you as tenant. Practices often assume that this is the case when the occupation is undocumented, but be aware that your landlord may see their responsibilities vey differently!
2 – The practice occupies part of a shared occupation building
If you share occupation of a building with other tenants (known as a ‘lease of part’) it is likely that your landlord will be responsible for managing all repairs to the building and will then pass on the cost of these to you through a service charge. In this scenario, you should keep the uplift but regard it as a contribution towards your service charge. Since the uplift is a fixed amount, you may also want to talk to your landlord about capping the level of service charge that can be demanded.
3 – No formal agreement in place
A third scenario, which is relatively common for GP surgeries, is for there to be no written agreement in place but for the landlord to historically have repaired the building. In this case, there is a good argument that the uplift monies should be paid to the landlord. However, in the absence of a lease or other contractual agreement, there is scope for an expensive dispute to develop. A starting point would be to see what you have historically paid over.
4 – Occupying a surgery owned by former partners
Some practices may be occupying a surgery which is owned by former partners. Sometimes the current partners in such practices will receive notional rent and pay that money across to the owners. However, that is a mistake. The correct course of action would be to notify NHS England and move to a formal lease and rent reimbursement. By not doing so you could be putting your premises funding at risk and in extremis NHS England could demand the return of monies paid incorrectly in the past. You are also likely to be paying the wrong amounts of money to the owners and former partners.
Disagreements and disputes surrounding funding can typically come to the fore when a lease is being prepared for the first time and it has historically been unclear who paid for the structural and external repairs to the building. To help you navigate such issues, it is always best to seek the advice of an experienced legal professional.
If you are in any doubt about your practice’s position or responsibilities in regards to funding, repairs and service charges, then please speak to us for some initial advice. Contact Daphne Robertson on 01483 511555 or email d.robertson@drsolicitors.com
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GP practice funding: What you need to know about the District Valuer
Most GP practices will come into contact with the District Valuer Service (DVS) at one time or another. The DVS plays a key role in issues surrounding GP premises funding and has the potential to significantly impact on a surgery’s finances. There are many reasons why a practice and the DVS may cross paths, including: notional rent reviews, practice valuations and in relation to proposals for significant building works. What’s important to remember is that the DVS is working to protect the interests of NHS England, not your practice.
In this blog, we take a closer look at the DVS, what it is responsible for and the steps you can take to strengthen your position when faced with any negotiations.
What is the DVS?
The DVS falls under the specialist property arm of the Valuation Office Agency (VOA). It provides independent valuation and professional property advice to bodies across the entire public sector, and where public money or public functions are involved.
What does the DVS do for Primary Care?
One of the key roles of the DVS is to advise NHS England on whether the financial dealings of a GP practice represent value for money. It does this in accordance with the 2013 Premises Costs Directions, which apply to all new applications for funding. (For any funding that falls under the 2004 directions, its functions are slightly different, but for this article we will focus on new applications made under the 2013 directions).
The main responsibilities of the DVS include:
Notional rent – Setting the level of notional rent and agreeing to any supplements.
Purchase price – Ensuring that the amount being paid for the purchase of new GP premises is a fair market price.
Premises development – Assessing proposals for significant premises developments (such as the building of an extension), or the construction of new premises.
Sale and lease back arrangements – Ensuring that the sale price and lease arrangement offers good value for money.
Financial assistance – Approving financial assistance towards running costs and service charges.
Grants – Ensuring any grants being offered by NHSE are good value for money, including premises improvement grants, mortgage redemption or deficit grants, and grants relating to the cost of converting back former residential property.
Minimum sale price – Where a guaranteed minimum sale price for surgery premises has been agreed – such as in areas of high deprivation where property values are low – the DVS will advise NHSE on an appropriate minimum sale price and ensure that any sale agreed below that price represents a realistic market value.
Rent reimbursement – When a leased surgery may be entitled to rent reimbursement, the DVS will advise NHSE on whether the proposed terms of a new or changed lease represent value for money. It is therefore necessary that you obtain NHSE approval before any lease is signed or varied.
How can you protect your interests?
For any practice, securing the best possible deal from any funding negotiations is a top priority. One of the most effective ways to protect the interests of the practice and ensure you don’t miss out financially, will be to call on the services of an experienced healthcare surveyor. They will be able to conduct an independent review of the DVS’ conclusions and negotiate on your behalf.
It is also advisable to seek specialist legal advice from the outset, to help you navigate the complex processes and procedures that surround lease agreements, premises development and all other related issues.
For more information about GP funding, lease negotiation, or any other issue associated with GP practices, please contact Daphne Robertson on 01483 511555 or email d.robertson@drsolicitors.com