Dealing with property in a GP practice merger
There is a lot to think about when merging practices. Issues include transfer of staff by TUPE, creating joint accounts, agreeing profit shares, drafting a new Partnership Agreement, aligning ways of working, dealing with the CQC and NHS England, and more.
With so much to think about and with limited time and resources, merging practices are often tempted to put the properties to one side to be dealt with later. In this post we explain why it’s best to have a plan for managing property issues from the outset.
But nothing is going to change?
We are often told that the surgeries will ‘just stay as they are’, or that their ownership can be kept outside of the new partnership. However, it’s not that simple and by taking no action you risk hitting problems later.
A merger involves changing business vehicles. Generally speaking, two or more partnerships become a new, single partnership and most of the legacy business vehicles disappear. Each of the legacy partnerships would have had rights of occupation in their surgery, whether as tenant, licensee, owner occupier, or some combination of all these. Post merger, even if exactly the same partners and staff are working in each building, the occupier will be the new merged partnership.
The consequences of this are significant. Regardless of who has their name on the title at the Land Registry and whether the surgery is freehold or leasehold, the new partnership will acquire rights and obligations associated with the building from the very first day post merger. Examples can include; rights of occupancy; tax liabilities; problems with NHS premises funding; implications for mortgage financing; breaches of covenants, and; unexpected changes in value.
Such problems typically lie ‘dormant’ for some time, before emerging and creating a crisis. When this happens and has the inevitable financial consequences, the partners who were around at the time of the merger may be long gone and it becomes difficult to attribute the resultant costs.
Some questions you need to consider:
- How are the premises currently owned and occupied?
- How will they be owned and occupied following the merger?
- Will any premises be closing and if so, what are the implications?
- Do you need to seek prior approval from NHS England for changes in occupancy/use? (see our article Don’t put your premises funding at risk)
- How are the new owners/occupiers going to be tied into any leasehold obligations?
- How will the changes impact on any mortgage financing and do you need mortgagor consent?
- Do you need to obtain landlord’s consent?
- Is there an impact on the amount of premises funding?
- Tax impacts, such as, stamp duty land tax (SDLT), capital gains tax)
Our recommendations
Our advice is to do your homework in plenty of time before the merger and ensure you undertake appropriate due diligence on all the properties involved. Once you understand the implications of the proposed changes you can consider your options for mitigating the problems. Doing nothing is certainly an option, but it is unlikely to be the best one.
Remember that the Surgery is almost always the most valuable asset in a GP Practice. It therefore pays to get professional advice to protect it and maximise its value.
For more information about practice mergers, property, or any other enquiries, please contact Daphne Robertson on 01483 511555 or email d.robertson@drsolicitors.com Â
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Can your patient list be ‘open but full’?
From funding cuts, to an aging population and the increasing demands being placed on primary care services, GP practices face ever increasing pressure.
Balancing growing patient numbers with resource constraints can prove a challenge and may lead some practices to consider restricting the growth of their patient list.
Can such a move ever be justified and what could the potential implications be?
The regulations
Current regulations specify that a GP practice must provide:
- Essential services to all registered patients and temporary residents
- Primary medical services for an accident or emergency situation happening in the practice area within core working hours
- Immediate treatment when necessary of any person whose application for inclusion on the patient list has been refused but who is not yet registered with another provider
For an individual to apply to join your patient list, they must live within the practice area, or be entitled to seek acceptance as a temporary resident.
A practice with an open patient list may only refuse an application to join their list if they have ‘reasonable grounds’ for doing so.
Capping a list
Much of the discussion around refusing to register patients focuses on the definition of reasonable grounds. The rules are clear that the following would not be reasonable grounds to refuse: age; appearance; disability or medical condition; gender or gender reassignment; marriage or civil partnership; pregnancy or maternity; race; religion or belief; sexual orientation; or social class.
Examples provided which might be reasonable grounds for refusal include an applicant living in the outer boundary area, or if they have previously been removed from the list – particularly if this was because of a history of violence.
This obviously leaves some uncertainty around the reasonableness of other possible grounds, and some commentators have suggested that staffing shortages and resource constraints would be sufficient grounds to refuse all new applications. This is sometimes known as ‘open but full’ or ‘list capping’.
To informally cap a list by refusing to register new patients, your reason for doing so must be extremely serious. For example, if a practice strongly believes that registering more patients will overstretch its ability to provide the necessary services, it may be arguable that patient safety is at risk. This situation could, in theory, justify a short-term list closure but a practice would be well advised to further justify their decision with some analysis of the risk.
However, should you routinely start refusing to register new patients then you may find yourself on shaky ground. You will need to show you are actively working on a solution, such as seeking help or getting in additional resources, and doing all you can to resolve the problem.
Closing a list
If the problems you are facing are very severe and no short-term solution looks likely, then a formal closure of the list should be pursued. To do so, you would need to make an application to NHSE for their approval to close it for a period of between 3 and 12 months.
Such applications should never be entered into lightly. They require a great amount of detail to be supplied about the difficulties being experienced in delivering services, the help that NHSE may be able to give to alleviate those difficulties and also any discussions that have been had with existing patients.
The regulations do not spell out the exact grounds on which the closure of a list may be justified, but in these difficult times NHS England will likely seek to rigorously challenge your application.
In summary
A practice may potentially justify what amounts to an informal list closure without applying for a formal list closure, if the circumstances are deemed serious enough – such as putting patient safety at risk – and if the problem is perceived as short-term.
However, capping a patient list should only ever be seen as an extreme and temporary measure, as otherwise the list closure process should be followed.
If you’re at all concerned, we would generally recommend you contact your LMC in the first instance to discuss the problems you are facing and see what help and support is available to you.
For more information about practice management, or any other enquiries, please contact Nils Christiansen on 01483 511555 or email n.christiansen@drsolicitors.com Â
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Pensions protection scheme deadline approaches
The start of a new fiscal year is fast approaching and with it comes an important deadline for any GP nearing retirement.
If you’ve built up a healthy pension pot, then Individual Protection 2014 (IP2014) is a scheme that could help you reduce, or avoid, a tax liability on your savings. But with an April 5 2017 deadline, time is running out to apply.
What is IP2014?
The lifetime pension allowance was reduced from £1.5 million to £1.25 million in April 2014, then lowered again in April 2016 to £1 million. Any pension savings above this level are taxed at a significantly increased rate.
Since reducing the lifetime limit could be seen as unfair to those who had already accrued large pension pots, IP2014 was introduced to enable such people to safeguard their pension savings and effectively ‘lock-in’ the higher lifetime savings allowance. However, IP2014 is not an automatic right and must be applied for. We understand that significant numbers of GPs who may benefit from IP2014 protection have not applied. The deadline for applying is 5 April 2017.
Are you affected?
If the total value of your pension benefits exceeded £1.25m as at 5th April 2014 you are potentially able to secure Individual Protection 2014. The calculation to perform is:
(NHS Pension x 20) + Lump Sum + Private Pension Fund Value
The problem is that this calculation requires information on valuations from the NHS Pensions Agency and the demands on their time are currently significant. Fortunately the required information should also be available online, but you would be well advised to check soon if you have not already done so as the tax savings can be significant.
Our recommendations
At DR Solicitors, we believe in always seeking expert advice from specialist advisers. We do not advise on tax or pensions, but we do stay current with all the various regulatory and commercial issues which may affect our clients.
If you are concerned about IP2014 or any other aspect of your pension planning you should always seek the advice of a specialist IFA or accountant who understands the intricacies of the NHS Pension Scheme. We are always happy to make introductions to our extensive network of primary care advisers including specialist accountants, surveyors, banks, IFAs and consultants.
For more information, please contact Nils Christiansen on 01483 511555 or email n.christiansen@drsolicitors.comÂ
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Partnership disputes – the early warning signs
Partnership disputes can be expensive, time consuming and destructive; not to mention unpleasant for all parties involved.
If you find yourself having to deal with a partnership dispute, the best protection for any practice is to have a valid partnership deed in place.
To help you spot the early warning signs of a potential dispute, we have pulled together a list of some of the most common causes of partnership disputes:
- Underperformance: Partnerships are based on the principles of trust and fairness. Negative feelings can start to creep in, if there is a perception that one partner is underperforming. For example, if they are perceived as not pulling their weight, have a lack of attention to practice management responsibilities, or exhibit poor time keeping and organisational skills.
- Money: Financial concerns are one of the most frequent causes of disputes. They can range from arguments over alleged financial impropriety, to non-property owning partners paying for building costs, the sharing of outside earnings, or the profit share to workload ratio.
- Unacceptable behaviour: Disputes can arise when a partner is considered by others to be behaving in an unacceptable way. Examples of this include: bullying, harassment, discrimination, inappropriate use of computer systems (sometimes even during consultations) and self-prescribing.
- Clinical concerns: Every clinician has a professional obligation to report any clinical concerns they may have. By themselves, these issues won’t necessarily lead to a partnership dispute. However, problems can arise when clinical issues are covered up, reveal a lack of insight, or if they put a partner’s GMC registration at risk.
- Personality clash: Personality clashes can fester for years. Such disputes are usually best dealt with through mediation and the LMC can often help in such circumstances. However, successful mediation requires that the partners in conflict demonstrate insight and work on changing their behaviour, which can sometimes be difficult.
- Sickness absence: When a partner is frequently off sick, or takes a long period of sickness absence, this can contribute towards a feeling that they are not ‘pulling their weight’. A locum can be used to backfill but they will not be sharing any of the management workload, which means extra pressure is felt by the remaining partners.
- Generational differences: Generational interests are sometimes not aligned. For example, a partner nearing retirement may be keen to preserve capital and minimise unnecessary change, whilst a younger partner may be keen to invest in new premises or different working patterns. Disputes of this nature can lead to issues with 24 hour retirement planning, or even age discrimination claims.
- Surgery Premises: Incoming partners are showing less interest in buying into surgery premises than they did in the past. They are also often unwilling to sign up to a long lease. This can cause problems for other partners, who may be keen to move on or retire and are unable to divest themselves of the property interest.
Why your partnership deed is important
A well drafted partnership deed can help minimise the disruption caused by a dispute or avoid the dispute altogether. It will seek to anticipate many of the issues mentioned above and provide an agreed framework for resolving them.
For example, it can state grounds for expelling a partner; document the terms of absences from the practice; ensure that all partners have the right to 24 hour retirement; and specify a dispute resolution process. Â Importantly, it can also prevent a partnership from being dissolved in the event of a dispute, as this can put the GMS/PMS contract – and therefore the practice – at risk.
Our recommendations
If you are unlucky enough to find yourself in dispute with your partners, then make sure you seek professional legal advice at an early stage. It is important that you know where you stand legally, so you can avoid doing anything which may compromise your position. Fortunately, most partnership disputes will be settled without the need for litigation. In the meantime, please ensure you have a valid and up to date Partnership Agreement.
For more expert advice, download our free guide: ‘Top 10 tips for dealing with partnership disputes‘.
For more information about Partnership Agreements or disputes, please contact Daphne Robertson on 01483 511555 or email d.robertson@drsolicitors.com
News
Dealing with the CQC during a practice merger
Merging your Practice is a major decision and there are many factors that you need to consider before taking the plunge. (For more details, see: When is a GP practice merger not a merger?)
News
Don’t put your premises funding at risk
Premises funding is a complex area for any GP practice to navigate.
There will be times when you need to obtain prior consent from NHS England (NHSE) in order to secure funding, and other times when you are simply required to inform them of changes.
Failure to seek consent when it is needed or to notify certain changes can put future premises funding at risk, or even result in NHSE looking to recover any overpayments.
To help you understand what is required, we’ve taken a look at some of the most common events in a practice which may have implications on your premises funding and explain what you need to do:
Top trigger events:
1. Partner retirement
If an owning partner retires and is not bought out, he/she will cease to be an owner-occupier. This has implications if you are in receipt of notional rent, which is only available to owner-occupiers. In this situation, it’s best to inform NHSE well before the retirement date to confirm that they will continue paying notional rent for the whole building, while at least some of the partners remain owner-occupiers.
2. RefinancingÂ
If you are in receipt of cost rent (borrowing cost funding) then you must make an application in writing to NHSE if you are looking to change your mortgage lender, or advise NHSE following a change in the rate of interest you are being charged.
3. Premises developmentÂ
If you’re planning any building works for the development of your premises, then you must not start work without first agreeing the work with NHSE.  Similarly, if you are purchasing a property with a view to using it as a surgery, then don’t sign anything binding, such as a purchase contract, without the prior agreement of NHSE. In both these scenarios, if you proceed without prior consent, NHSE are within their rights to refuse to consider any subsequent grant or funding application.
If you receive any tax allowances when developing your premises, these must also be disclosed to NHSE, who may off-set them against any premises development or improvement grants.
4. Sale and leasebackÂ
Before agreeing a contract for the sale and/or leaseback of the surgery to a third party, ensure that you have confirmation from NHSE that they are in agreement with the arrangement. NHSE is not permitted to fund the rent reimbursement unless they have agreed the contract before it is signed.
5. Registering for VATÂ
If your practice is VAT registered – or you are considering registering – then you must disclose any relevant recovered VAT to NHSE so they can off-set such sums against your premises funding.Â
6. Rent review
Unlike most other applications for premises funding, rent reviews do not have to be agreed with NHSE in advance. In fact, you will first need to agree the rent review with your landlord, before seeking NHSE’s agreement to reimburse the new rent. Â Clearly, this leaves the practice at risk of a shortfall if NHSE do not agree with the amount of the new rent. This was a change introduced in the 2013 Directions and it continues to be controversial.
7. Lease renewal
NHSE needs to confirm that any new or varied lease represents ‘value for money’. All new and varied leases should, therefore, be sent to NHSE for their approval before they are signed.
8. Practice closure
Premises funding is tied to your GMS or PMS contract. If you close your practice, your premises funding will cease on the day your contract terminates. Â Your building related obligations will, however, normally continue. The mortgage must still be paid, the rent paid, and the heating system maintained. If you have received development grants, these may have to be repaid at least in part. Some leases permit the building to be sublet, but if not you may well be tied in for many years with no possibility of an income stream to offset the rent. We have written more about this issue here.
9. Mergers
Practice merger discussions often tend to focus on the partnership elements, and ignore the premises. This is usually justified because ‘the buildings will stay as they are’ or ‘the buildings will be outside the new partnership’. This may seem like a simple solution, but can create multiple problems for the future which we will be considering in more detail in a future article. Specifically regarding the premises funding, it is common for mergers to change the legal nature of the occupancy of the surgery, perhaps by creating an undocumented lease arrangement where none existed before. Even where such arrangements are undocumented, they would normally still require the prior approval of NHSE.
Conclusion
The Premises Costs Directions require that you must give NHSE any information they ask for and may need, in order to accurately calculate the amount of financial assistance to be provided. If you are in any doubt as to whether you need to notify NHSE or not, we’d always recommend that you seek professional legal and/or surveyor advice.
For more information about premises funding, or any other enquiries, please contact Daphne Robertson on 01483 511555 or email d.robertson@drsolicitors.com Â
News
Is your practice prepared for the changes to IR35?
Significant changes to tax legislation IR35 are likely to come into force from April 2017. These changes have implications for any practice that engages workers, such as locums, through their own companies.
Here’s what you need to know:
News
Bank Holidays – how to ensure all partners have a happy New Year
Most GP partners will have enjoyed some much needed time off over the Christmas and New Year period and it won’t be long before the next bank holiday arrives. Â Â One question which we are frequently asked is how partnerships can fairly apportion bank holidays so that part time partners don’t miss out.
The challenge
Because the majority of bank holidays fall on a Monday or Friday, a part time partner who does not usually work on either or both of these days may feel they are unfairly ‘losing out’ on any benefits their full time partners receive in relation to bank holidays.
For example, in a job share where partner A works Monday and Tuesday, and partner B works Wednesday to Friday, in 2017 seven bank holidays will fall when partner A is scheduled to work, whilst only one bank holiday will fall on a day when partner B would otherwise be working.
So, how can you best manage this issue?
Your options
Because partners are not employees, there is no statutory right to paid bank holidays. How you choose to deal with bank holidays is a commercial decision to be decided between the partners. However, to avoid a potential claim of discrimination, you should ensure that part time partners are treated no less favourably than full time partners and it is sensible to ensure that any scheme you do put in place is fair.
So, what are your options?Â
- Pro rata entitlement – One route you can take is to add all holiday leave and bank holidays (based on a full time partner) together, then calculate the total leave entitlement pro rata, based on the number of days to be worked. Everyone then gets an equivalent total amount of leave but the problem is that the bank holidays are fixed days so part timers working on a Monday will have less discretion over their days off than those working on, say, a Wednesday. Â If you regard this as a problem, you could come to an agreement whereby, for example, any partner forced to use more than a given percentage of their total leave allocation on bank holidays is given an additional day of paid leave.
- No adjustment – A less popular option, but one which is followed by some partnerships, is for there to be no adjustment at all for any part time partner. If a bank holiday falls when you are scheduled to work, then lucky you and bad luck if it doesn’t fall on your scheduled day! The problem with this option is it may become hard to persuade part timers to work mid-week.Â
- Profit Share adjustment – an alternative mechanism is to calculate profit shares based upon actual sessions scheduled to be worked. Since bank holidays are known in advance, the profit shares can be adjusted to account for them. This is a complicated option leading to small annual changes in profit shares and is, therefore, unusual.
Conclusion
Whichever option you choose, the most important thing is to ensure that it is clearly set out in your partnership deed and, of course, that your partnership deed is up to date and valid. Â Older partnership deeds, in particular, tend not to cater well for part time partners.
Without a valid partnership deed, there will be no formal entitlement to leave of any kind and no clarity – for example, on what you will earn when you are absent, or who should pay for locum cover.
Our handy checklist 8 signs that your Partnership Deed needs an update may help you decide if it’s time to update your old deed.
Our recommendations
In our experience, rolling all holiday leave and bank holidays together to generate a pro rata entitlement can work well. However, as we’ve already mentioned, ultimately it is a commercial decision that needs to be taken by partners working in the best interests of the practice.
For more information about partnership deeds, or for any other enquiries, please contact Daphne Robertson on 01483 511555 or email d.robertson@drsolicitors.com
News
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
News
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.Â
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. Â
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