NHSPS service charges test case judgment – What does it mean for GP practices?
The long running saga of the 5 NHSPS ‘test cases’ regarding service charges has reached a conclusion. The case has been much hyped by all parties, to the extent that it was named as one of the ‘top 20 litigation cases of 2022’ by one excited journalist. Many practices in NHSPS buildings have been waiting for the outcome of the case, in the hope that it would lead to a resolution of their problems with disputed service charges. In the event, the case has proved less useful than many had hoped. The judge has made clear that he does not consider it to be a test case, and that each dispute will turn on its own facts. In essence, the judge concluded that a tenancy is a contract, and that each practice is therefore bound by the particular agreed or implied terms of their occupation. What is perhaps most surprising, is that this outcome should come as a surprise to anyone.
This rather complicated litigation started when the BMA sought to bring an action on behalf of 5 practices who were tenants in various NHSPS properties, asking the Court to confirm that certain standard policies operated by NHSPS to calculate service charges had not been incorporated into the terms of the tenancies. The court refused to make a declaration to this effect, but NHSPS admitted that they could not simply change the terms of a tenancy to include the policies and a ‘victory’ of sorts was declared. This was however short-lived as NHSPS took the opportunity to countersue the 5 practices for arrears of service charges. It is this counterclaim which has now been determined. NHSPS was seeking over £1m in overdue service charges from the 5 ‘test case’ practices and claims that it is, in total, owed over £175m by its GP tenants. It is clear that very significant sums are at stake.
The facts of each of the 5 tenancies are subtly different, which was undoubtedly why they were chosen for the BMA as a ‘test case’. The main thing they have in common is a general lack of documentation and rigour around any of the normal legal processes. As a result the judge had to untangle a complex web of poorly documented issues relating to each building, including: What demise does the practice actually occupy now and in the past? Which partners have been/are tenants and are therefore liable? What are the terms of occupation? What services have been, and should have been, provided by NHSPS? To what extent did payments made represent an ‘all-inclusive rent’? Were service charges capped or in some other way limited by agreement, including by historic agreement with a PCT? Are any of the claims time-barred?
Probably the most important message from the judgement is that as an ordinary landlord, NHSPS has the right to recover a reasonable service charge for the services which it delivers. None of the practices were able to successfully argue that they should be receiving discounted or free services from their landlord, or that their rent was somehow ‘all-inclusive’. That is not to say that other practices cannot succeed with such an argument, but it would require solid evidence that such an agreement existed rather than simply relying on an absence of evidence. In the words of the judgment: “the law, where appropriate, has to step in and fill the gaps in a way which is sensible and reasonable. The law will imply, from what was agreed and all the surrounding circumstances, the terms the parties are to be taken to have intended to apply”.
The judgment did not determine how much of the £1m claimed from the 5 ‘test cases’ was actually recoverable, but it did set out the parameters by which the amount payable should be calculated. It is thus clear that the 5 practices have a significant service charge liability to NHSPS. However the judge went out of his way to make clear this cannot be seen as a precedent for other practices:
“There has been some reference to these five actions as test cases for other disputes over service charges which may arise between the Defendant and other GP practices. While I express the hope that this judgment will assist the Defendant and other GP practices in resolving disputes over services charges without the need for expensive litigation, I would be wary of classifying these five actions as test cases. As this lengthy judgment demonstrates, and as I have already said in this judgment, the resolution of a service charge dispute in any particular case essentially depends upon the evidence and arguments in that case. This is one of the principal reasons why, for reasons which I have endeavoured to explain in making my decision on whether the Charging Policy Declarations should be made, I do not think that it is sensible for any GP practice to adopt what I would describe as a policy of non-engagement; by which I mean refusing to pay service charges pending explanation of the position by the Defendant. As I have said, it seems to me that a more constructive approach would be for GP practices to take their own advice on the position, and to put their particular case to the Defendant on what is and is not recoverable by way of service charges.”
What, therefore, should practices facing NHSPS service charge disputes do now?
1) Don’t ignore the problem as it is very unlikely to just ‘go away’. Having now proven that there is no blanket ‘NHS exemption’ to paying service charges, it would be surprising if NHSPS simply wrote off the £175m it believes it is owed.
2) You should be paying a reasonable amount for the services that you receive from NHSPS, unless you can clearly demonstrate an agreement to pay less. You should accrue accordingly and pay non disputed charges.
3) If you do not agree with a service charge demand, you should challenge it in writing and explain why you believe it is incorrect. For example, why should you pay for a gardener when there is no garden, for a window cleaner who never turns up, or ‘above the going rate’ for a plumber?
4) Gather as much documentation as you can and store it safely. Since any documentation gaps can be filled by the courts, you want to have as much evidence to hand as possible.
5) Make sure your Partnership Deed is clear about what happens when partners join and leave. Your liabilities to the landlord do not automatically cease when retiring from the partnership unless the lease is assigned (which is difficult if the tenancy is undocumented), so retirees will want indemnities from the continuing partners. Likewise incoming partners will want certainty that they will not be liable for charges relating to the period before they joined, and that a suitable retention is in place for disputed charges.
6) Engage with NHSPS to get your situation ‘regularised’. For most practices this will mean that it makes sense to get a lease agreed, but this should be done in tandem with sorting out disputed historic service charges. It is in everyone’s interest to avoid further expensive litigation, so there will be deals to be done.
7) Most importantly, seek specialist advice. When it comes to buildings, no two buildings and (thus no two leases) are the same. If you start negotiating without proper legal advice, you risk giving away important legal rights without securing anything in return. The most likely outcome for all practices now is a negotiated settlement with NHSPS, but this will be very difficult unless you understand the strength of your negotiating position. With so much money at stake, skimping on advice is likely to prove a false economy.
At DR Solicitors we have very deep experience and success acting for GP tenants who are in dispute with their NHSPS landlord. We understand the issues, and the areas where negotiation is likely to prove most fruitful. Our new partnership deed also addresses these NHSPS issues. Please contact Daphne Robertson or Sue Carter on 01483 511555 for a free initial conversation about your NHSPS surgery issues.
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What makes a surgery lease different from an ordinary commercial lease
In this short v-Blog Daphne Robertson of DR Solicitors and Paula Mace of Aitchison Raffety surveyors share their expertise in primary care estates, and discuss why a GP surgery lease is very different to any other commercial lease. Produced specifically for GP practices, they identify the key considerations you need to be aware of when negotiating your surgery lease.
Watch this vBlog to understand how they are different.
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NHS Property Services: Is the end in sight for GP tenancy disputes?
NHSPS put itself back in the spotlight recently, by announcing its intention to increase service charges and facilities charges for GP practices who request changes associated with Covid-19. This will undoubtedly add fuel to the many ongoing disputes over demands for increased service charges. The vast majority of our GP clients who occupy NHSPS owned and managed buildings have been living with a stalemate for the last couple of years, which is causing a variety of problems as time marches on.
The DHSC recently published its review into the current state of NHSPS. You can read the summary here and in this blog, we look at what the recommendations might mean for practices occupying NHSPS buildings.
- For readers who have been hoping that NHSPS would just go away, I’m afraid that won’t be happening anytime soon! There was found to be no benefit in divesting NHSPS of its functions, but rather a recommendation that it align itself more closely to the commissioner footprint and work more closely with NHSE. Having your commissioner and your landlord work more closely together could work either way for practices. One possibility would be that NHSE, as the ultimate funder, agrees to pick up a greater share of the disputed costs. Perhaps more likely though, is that NHSPS and NHSE will put increased pressure on practices to ‘pay up’ by turning the tenancy dispute into a GMS/PMS contractual dispute. This is one to watch carefully.
- NHSPS have been told (again) to regularise all their tenancies. This means that the pressure on GP tenants to sign up to leases will continue, but unless there is a resolution to the service charges issues most practices will continue to be reluctant to sign anything.
- The DHSC recommends that NHSPS “must make progress in customer sectors not currently engaged and ensure that agreement of FM-service and specifications, utilities and management charges are also covered”. In other words, the issues around increased service and facilities charges must be sorted out.
Readers may be aware of the ongoing High Court test case brought by the BMA on behalf of 5 GP Practices to challenge the legitimacy of some of the claimed charges. Whilst this has probably temporarily chilled NHSPS’s enthusiasm for chasing ‘arrears’, and some Practices may also have paused the process for reaching agreement on claimed charges pending the outcome of this test case, the case is unlikely to resolve soon.
The problem for practices though, is what to do about the large NHSPS liabilities now sitting on their balance sheets? As partners come and go this liability becomes a larger share of their capital accounts. We are seeing retiring partners ask why should they leave their capital behind for a liability that no-one believes is really owed? Practices should check to ensure that this question is fully addressed in their Partnership Deed, or alternatively create a separate agreement with retiring partners.
- Potentially the most significant recommendation is ‘to explore & implement changes to the funding mechanism where it will not fundamentally undermine the user-pays model, including central funding of management fees, elements of structural and external maintenance and greater use of direct payment of property costs by commissioners‘. This suggests that there may be opportunities for doing deals where the commissioner pays some or all of the service charges – both historic and possibly ongoing – as a means of breaking the deadlock.
Whilst the offer of somebody discharging your historic service charge liability (and possibly some of the future costs) might be tempting, it is likely that it will come with the strings attached including that you sign up to a new lease. We are very wary of the small print on this one!
So, has our advice to affected clients changed? In short, no. Practices should normally only sign up to a new lease once they are happy with the terms and once any historic service charge issues have been resolved. Even then, Practices need to understand their current legal position as regards their occupation of the premises before being able to make an informed decision about what does and does not constitute a ‘good deal’. This is a complex area and one with lasting financial implications for the sustainability of the practice.
When you are ready to start negotiating with NHSPS we strongly advise you seek specialist legal advice, but in the meantime, practices should agree and document how they will deal with the claimed service charge liabilities as the partnership changes over time.
We have a team of specialist property and partnership solicitors who all have deep expertise in advising primary care professionals on their premises issues. If you would like to speak to one of the team, please call Daphne Robertson on 01483 511555 or email info@drsolicitors.com
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Retaining your property share after retirement
Continuing our series of blogs on property issues upon retirement, this blog is for you if you intend to retain your share in the premises after retirement, whilst other part-owners of the surgery continue in the practice.
This is a scenario that we are seeing more frequently, as fewer incoming partners are willing and/or able to buy-in to the premises. Whether it is your preference to retain your share in the premises or whether it is something you have agreed to do for a period after retirement to help out your former Practice, the points you should be considering are the same:
- Check if you can you hold onto your property share
Check the terms of your Partnership Deed and any other relevant business documentation relating to ownership of the surgery, such as a Declaration of Trust. These documents will set out what should happen with your property interest upon your retirement. Many Partnerships take the view that a retiring partner should be obliged to sell their share in the surgery to the continuing partners, who in turn will be obliged to buy the share, often within a set timeframe.
Of course, what was agreed a few years’ ago in a Partnership Deed or Declaration of Trust down may not, in practice, be feasible now. However, any change to the position set out in the Partnership Deed or Declaration of Trust usually requires unanimity, so if you are thinking about deviating from the agreed position then you should be having early conversations with the continuing partners.
- Think about the tax and mortgage consequences
Whilst you are a partner, the premises are likely to be a partnership asset (your accountant will confirm if this is the case) and there are a number of tax benefits that follow. If you leave the partnership and retain your share in the premises, you will likely change the status of your property share which could have a significant impact on some tax reliefs you’ve been benefitting from, and in some circumstances could trigger additional tax liabilities such as a payment of Stamp Duty Land Tax. You should have an early conversation with your accountant to make sure you understand the impact of holding onto your share of the property on your individual tax affairs.
If the property is mortgaged you should also check the position with your bank, since many mortgages are based on the premise that the building is wholly a partnership asset. Moving a share of the building out of the partnership may be a breach of the terms of the loan.
- Protect your property income following retirement
Once you leave the partnership you will no longer be entitled to any property income that the partnership receives from NHSE England. You will therefore need to agree with all the continuing partners (both property owning partners and non-property owning partners) that your share of any surgery income is passed to you, and make sure you have legally binding contractual arrangement in place to back up this agreement. There are two main ways of doing this:
- put a lease in place: the property owners (you and the other continuing property owning partners) will, as landlord, grant a lease to the partnership, as tenant. As a landlord, you will have rights to the rental income under the lease. You can read more about putting a lease in place here
- put a Declaration of Trust in place: this document will set out the ownership arrangements between all the co-owners. Importantly, whilst at least one of the co-owners continues as a partner in the medical partnership, you can agree that they will ensure that the surgery premises income is paid from the partnership to the other property owners.
Whether you go for the Lease or the Declaration of Trust option will depend on a number of factors including: tax treatment; how long any continuing property owning partners are likely to stay in the partnership; whether the premises are charged to a bank; what sort of lease terms would you be able to agree and what will the CCG support? These are all matters which should be considered in detail before you retire, since your negotiating position is considerably more difficult after you have already retired.
Our next blog looks at the scenario of a retiring partner who wishes to sell the surgery premises, either to his former partners or to a third party.
We advise that all property owning partners need to start thinking about their property plans at least 2 years prior to their date of retirement. If you are considering retirement and would like to discuss your options in more detail then please contact Daphne Robertson on 01483 511555 or info@drsolicitors.com
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Protecting your investment upon Retirement
If you are a property owning partner who plans to retire and keep your premises as an investment, allowing the practice to continue to run from them, then this blog is for you. We will be looking at some other variations of premises ownership and retirement, in future blogs.
There are many things to consider when you retire, not least being what will happen to what is probably your biggest investment – the surgery building. Here are some of the main considerations:
1. Whilst you have been practising from the surgery, you will have been receiving notional rent under the Premises Costs Directions 2013 (”PCDs”). Entitlement to the notional rent payment arises solely as a result of the partnership holding a ‘core contract’ with NHSE/the CCG and carrying out the services from owner occupied premises.
Following your retirement from the partnership, you are no longer a contract holder and so you lose any entitlement to notional rent. It is the continuing partners who hold the contract and they will become entitled to reimbursement of premises costs under the PCDs.
2. Before retirement, you may have relied on the Partnership Deed to protect your premises income and to identify those property-associated costs which were to be paid by you, as property owner, and those to be paid by the practice, as business occupation costs.
At the point you retire, you are no longer a party to the Partnership Deed so you need to put a new legal arrangement in place to ensure that have your property interest adequately protected. The way to do this is to put a lease in place.
3. A lease will set out the obligations on both you, as Landlord, and the Practice, as Tenant, in resect of the property, as well as protecting both parties’ interests from a legal perspective. The lease may include provision for the repair and maintenance of the building; the length of occupation and any rights of early termination; what costs each party is responsible for and what changes can be made to the property with or without your permission.
There are many factors to consider when deciding what the terms of the lease will be. How long should it last for? What will happen at the end of the lease term – will you be happy for the tenant to have a new lease? Who is to be responsible for the various elements of the building that may need to be repaired over time? These factors, along with others, will need to be thought through in advance of your retirement.
It is important that you take specialist advice from solicitors experienced in dealing with NHS surgery leases, as if you do not have the correct provisions in the lease you risk it not being approved for funding from the CCG.
4. Timing is very important. If you don’t put the lease in place prior to the date of your retirement, you run the risk of the medical practice accruing protected tenancy rights once you leave the partnership. It can also help your negotiating position if you are able to agree terms whilst you are still a partner in the business. Crucially, any lease terms will need to be approved by the CCG in order to guarantee rent reimbursement, which can take a considerable period of time. If you have a mortgage secured over the surgery premises, you will also need your lender’s consent to the granting of the lease.
Our next blog looks at the scenario of a retiring partner who owns a share of the surgery premises along with others who will be continuing in partnership, and the retiring partner wishes to retain his or her share in the premises. This is a scenario that we are seeing more of, as fewer incoming partners are looking to buy-in to premises.
We advise that GP partners start thinking about their property plans at least 2 years prior to their planned retirement date. If you are considering retirement and would like to discuss your options in more detail then please contact Daphne Robertson on 01483 51555 or info@drsolicitors.com
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New planning regulations to impact on Surgery flexibility and valuation
If you own your surgery premises, you ought to be aware of the recently announced changes to the Planning Regulations.
The new planning regulations come into force on 1 September 2020 and are intended to reduce red tape and speed up development. One change is that GP Surgeries which currently operate under Use Class D1 will be re-designated as new Use Class E(e)â but what does that actually mean for you?
The most significant change lies in all the other uses which now form part of Use Class E (see the full list at the end of this article). From 1 September 2020, any premises with a Use Class E permission is permitted to change to any other use within Class E without having to obtain a new planning permission. This change applies to existing premises as well as new ones.
Possible benefits?
For GP Surgeries, this means that you could switch the use of your surgery premises from surgery to retail, offices, professional services or as a crèche (as just some examples) without necessarily having to apply to your local authority for a planning permission for change of use.
Wider opportunities for alternative uses may widen the potential pool of buyers which in turn, could increase value (at least for those premises that are at the end of their useful life as a surgery and are to be sold on for different purposes). We will have to wait and see the full implications of this change.
Even if you are not currently thinking of selling your premises, you could still benefit from the changes. It will be easier for you to use part of the surgery premises for another use Class E Рfor example if you wanted to change part of your existing premises into a pharmacy or community caf̩.
A word of caution
Whilst the changes could prove to give a lot of flexibility to property owners going forward, it is important to remember there are other restrictions that could limit how you can use your property. Your Planning permission could contain particular conditions which may limit the use of the property, and may override the changes permitted under the new Regulations. Associated building works may require their own independent planning permission and covenants on the legal title to the property may impose specific restrictions as to use which you may need to deal with. It is advisable to seek professional advice and undertake careful due diligence on all these areas prior to making a significant change to your property, or indeed if you are buying into surgery premises hoping to take advantage to the flexibility that these new Regulations offer going forward.
Finally, a note of warning to any Landlord’s out there – you will need to take particular care when agreeing lease terms with your tenant, to ensure you do not inadvertently give your tenant the ability to take advantage of the flexibility afforded by the new Regulations without safeguarding your investment.
Please do get in touch if you have any questions about your surgery premises or running your practice. Call Daphne Robertson on 01483 511555 or email info@drsolicitors.com
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âClass E. Commercial, Business and Service Use, or part use, for all or any of the following purposes:- (a) for the display or retail sale of goods, other than hot food, principally to visiting members of the public, (b) for the sale of food and drink principally to visiting members of the public where consumption of that food and drink is mostly undertaken on the premises, (c) for the provision of the following kinds of services principally to visiting members of the public: (i) financial services, (ii) professional services (other than health or medical services), or (iii) any other services which it is appropriate to provide in a commercial, business or service locality, (d) for indoor sport, recreation or fitness, not involving motorised vehicles or firearms, principally to visiting members of the public, (e) for the provision of medical or health services, principally to visiting members of the public, except the use of premises attached to the residence of the consultant or practitioner, (f) for a creche, day nursery or day centre, not including a residential use, principally to visiting members of the public, (g) for: (i) an office to carry out any operational or administrative functions, (ii) the research and development of products or processes, or (iii) any industrial process, being a use, which can be carried out in any residential area without detriment to the amenity of that area by reason of noise, vibration, smell, fumes, smoke, soot, ash, dust or grit. |
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NHS Property Services lease problems – is a solution in sight?
If you are a practice which occupies an NHSPS building, then you may well have received a letter from NHS England and NHS Improvement in April which encourages GPs to regularise their leasehold and service charge arrangements with NHS Property Services. The letter states that it is in the best interests of both Landlord and Tenant to have clarity and certainty on occupancy arrangements, but also threatens ‘legal recourseâwhere it is evident that GPs and Providers are failing to engage’.
You are now being offered 3 options:
- a full lease;
- a rental agreement letter (as an interim measure); and
- a licence for you to join Open Space.
To help you decide which of the 3 options might be best for you, we have summarised our thoughts on the legal implications below. However, our views expressed in previous blogs about NHSPS remains the same, and ‘doing nothing’ may remain an option for some practices if the terms on offer are not sufficiently attractive.
Option 1: a lease
Whilst the clarity and certainty of a lease is generally the preferred outcome, this is only the case if any lease arrangement is sustainable. This is particularly the case for building maintenance costs and other ‘non rent’ costs associated with a lease.
Many readers will be aware of the ongoing service charge issues between NHSPS and many GP practices with large, and in some cases, unsustainable service charge increases being imposed by NHSPS as landlord. This has been and remains one of the major obstructions to practices being able to enter into a lease with NHSPS and it is important that these issues are resolved before any long term lease arrangement is put in place. In case you missed it, you can read our blog on what you can do about inflated NHSPS service charges.
Whilst the letter does acknowledge the ongoing problems with service charges, it doesn’t offer any clear steps or processes which might resolve the issues.
Option 2: a rental agreement letter
A ‘rental agreement letter’ is not a legally defined term, so there is little indication of what rights and obligations it might contain. The letter states that a ‘rental agreement letter’ would only be an interim measure, giving clarity on certain occupancy terms (such as rent, payment terms etc) whilst long term lease terms were negotiated. We are concerned that such a document could override your current occupancy status and any rights you may have accrued over time and thereby prejudice your negotiating position, so would certainly advise anyone considering signing such a letter to seek legal advice first.
Option 3: licence to use NHS Open Space
NHS Open Space is a ‘room hire’ service, allowing users to book rooms on a sessional basis. Users would have no right to use the space beyond the session for which they have booked it. The service might be able to compliment your existing premises if you have a short term need for extra space perhaps to run a temporary additional clinic or a staff training day, but it is not a substitute for your main surgery premises as it conveys no security of tenure. There is also no detail about how such an arrangement could be reimbursed through the NHS premises funding, and we are not aware of any current standard mechanisms for this.
Next steps:
NHSPS are clearly minded to seek to resolve this ongoing problem, so now may be the time for practices in NHSPS buildings to enter (or re-enter) into a dialogue. We sense there is a will to resolve the service charge issues on a case by case basis, and we have seen a number of positive outcomes.
When negotiating, make sure you take professional advice from a specialist solicitor and a surveyor. Remember that whilst you may not have a written lease, you still probably have a tenancy with the important tenant protections that can come with this. Knowing your legal rights can strengthen your negotiating hand and help ensure your lease is drawn up on a sustainable footing from the start.
For a free initial chat about this or any other legal concerns you might have, please contact Daphne Robertson on 01483 511555 or email info@drsolicitors.com
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Leasehold dilapidations – how to prepare and protect yourself
Leasehold Dilapidations – how to prepare and protect yourself
Many GPs are apprehensive about becoming a named tenant on a leasehold surgery. There are of course a number of liabilities that could be imposed on a tenant under a lease, and you may have read our previous blogs on the subject of last man standing and the importance of agreeing a break-clause. Another issue to consider is the obligation to maintain and repair the premises both during and at the end of the lease term. Almost all surgery leases will impose an obligation on the tenant to repair the premises to some degree or another. ‘Dilapidations’ is the terminology used when a landlord seeks to enforce the repairing lease obligations.
When might the dilapidation liability occur?
In practice, most leases allow the landlord to serve a schedule of dilapidations on a tenant at any time during the lease term. This is because the tenant’s obligation to repair the premises is an ongoing obligation. If the premises are starting to fall into disrepair and the tenant is not complying with their lease terms to maintain them, the landlord needs the ability to force the process during the lease term. Whilst this right exists in most leases, unless there are significant ongoing problems relating to the tenant’s lack of maintenance in practice it is not often used by a landlord. It is far more common for a landlord to be concerned about repairing obligations when the lease is coming to an end. At this point, the landlord’s mind will be on future tenants and the rent they might achieve: the better the condition of the premises, the more valuable they are and the easier it will be for the landlord to charge a higher rent. They will therefore look at whatever rights they have available to them to improve the condition of the premises.
How much is it likely to cost?
The extent of your liability as tenant will depend on how your lease is drawn-up. For example, some leases may limit the tenant’s repairing obligation to keeping it in no better a state of condition than it was at the start of the lease term. Other leases may be what we call a ‘full repairing lease’, in which case the obligation is to repair all parts of the premises whether or not you caused that disrepair in the first place. Before you enter into a lease, it is very important to assess at the outset what your likely dilapidation liability may be at the end of the lease. You should seek legal and surveyor’s advice, so you understand the condition of the premises and what the language in the lease will mean in terms of your obligation to repair.
Be aware that dilapidation settlements are inevitably a horse trade between the landlord and the tenant. In our experience, a landlord will often seek to recover more in the first instance than they are entitled to and use this as a negotiating position to work down from. There are also important protections at law for tenants that can in some instances cap the amount they are required to pay. If you do receive a dilapidations demand from your landlord, you should consider taking surveyor’s advice as to whether the amount is appropriate and legal advice to establish whether the sum has been lawfully demanded.
How to manage the risk
Understanding your leasehold obligations will allow you to plan as a business how to avoid large and unwelcome bills from the landlord. It is good advice to accrue an amount year on year towards the costs of these liabilities. You may do this by setting up a sinking fund, into which each Partner contributes an agreed amount towards future dilapidations. You will need to set out how the sinking fund is created and managed in your Partnership Deed, so do make sure you have an up to date Partnership Deed that allows you to do this. A sinking fund also helps mitigate the risk of partners seeking to avoid a large dilapidations bill by retiring just before the end of the lease term.
In some circumstances, some of the dilapidations liability may be reimbursed through your CCG. This may be paid by way of a top-up element to your monthly rent reimbursement , in which case it is prudent to pay such sums straight into a sinking fund so it is available when you might need it. Funding may also be available at the end of a lease term, particularly where you are relocating to alternative premises with the support of the CCG.
Summary
Be prepared – adopting some relatively simple financial management during a lease term can pay dividends at the end. Make sure your partnership deed is up to date and documents how dilapidations costs will be shared and financed. Finally, if you do receive a dilapidations demand from your landlord: don’t panic; don’t just agree it at face value; and always seek professional advice.
If you have any questions on dilapidations or any other NHS premises related queries, please contact Daphne Robertson on 01483 511555 email info@drsolicitors.com
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How to support improvements to primary care premises
The surgery premises are generally the biggest asset and the largest liability within a GP partnership. Suitable premises are a critical part of delivering high quality care, but they are widely considered to be in crisis. There has been a longstanding lack of government capital funding, and GPs are increasingly unwilling to shoulder the burden of long term leases or to invest in developing their own freehold surgeries. This is a key driver of the ‘last man standing’ problem.
Recognising the issue, NHSE have asked for solution proposals in their General Practice premises policy review. It is important that any ‘solutions’ are achievable, affordable, and address the differing issues for freeholds and leaseholds. We have set out below some of our ideas which we have formally submitted in response to the policy review.
Leasehold surgeries
The biggest concern on leasehold surgeries is whether a GP can walk away from the lease when they want to retire, or if for some reason the practice has to close. The lease is a bit like riding a bicycle: so long as you keep pedalling the bicycle will stay up. From the perspective of the NHS a long lease is only a small risk: the NHS has an obligation to provide services to all patients so premises will always be needed and someone has to keep pedalling. From the perspective of an individual GP or GP practice the risk is much larger: at some point they will want to retire and if they cannot find a person to take over their lease obligations they will have to keep pedalling themselves. The NHS, rather than retired GPs, are more likely to have legs strong enough to keep the wheels of the bicycle turning and as such, an obvious opportunity is to transfer this risk from the individual GPs onto the NHS. There are no significant financial implications for the NHS in doing so, because one way or another the NHS would have to fund the premises in order to ensure continuity of patient care. From a legal perspective there are a couple of ways this could be achieved:
We believe a decrease in the risk associated with commercial leases should encourage more GPs to sign up to them, or to join partnerships which operate out of premises leased in this way. In turn, this should improve recruitment and retention of GP partners, and also drive up investment and innovation in primary care premises from third party investors due to an increase in demand for the space.
From the public body’s point of view, any small increase in risk can be managed by a proper estates strategy: the proposed guarantee would only be extended to surgeries which were consistent with the estates strategy, thereby speeding up the closure of those buildings which are no longer fit for purpose. The policy might even have the effect of reducing rental costs by improving the ‘covenant strength’.
Freehold Surgeries
Whilst one obvious ‘solution’ on freeholds is for the NHS to offer to buy them, we have assumed that this is unaffordable. An alternative is therefore to reduce the risk of them ever standing empty with no funding stream.
One way to do this would be for the NHS to agree a ‘put-option’ whereby the freehold owner can require a short-term lease to be entered into with a public body in the event of a core contract coming to an end. This would not only give owners the comfort of an income stream if the contract comes to an end, but again provide the public body with certainty of premises to provide continuity of patient care in the event that a practice folds. This is what usually happens anyway, but by providing certainty in advance to all parties GPs would be more inclined to invest in their surgeries. If the worst happened, freehold owners would have the time to plan what to do with their investment rather than be forced into a ‘fire-sale’
Once again, the expected result of our proposal is that it should drive up investment in primary care premises by reducing risk for GP practices. There would be an incentive on the NHS to develop premises strategies to determine which buildings should benefit from the put option, and the approach should be cost neutral for the NHS since this is generally anyway what happens in practice.
Conclusion
If the ‘last man standing’ risk can be reduced in the ways proposed, buying into a freehold premises and taking on long leases will be a more attractive option for GP Partners. This will lead to more stable partnerships and more investment in the development and construction of new, fit for purpose, medical centres. We also believe this can be done in a way which is at little or no cost to the NHS. With practices under so much pressure, now is the time to act.
If you would like to discuss any particular concerns you may have relating to surgery premises, then please contact Daphne Robertson, info@drsolicitors.com
News
Disaster strikes the surgery! Are you sufficiently protected?
In normal times, GP surgeries happily practice out of their premises with no major issues. But what happens if a disaster strikes – maybe in the form of flood, fire or storm damage to your premises? This blog aims to highlight some important matters you should consider to make sure you protect your business from unexpected interruptions.
Understand the risksâ
It is important to ensure that you have adequate insurance and contingency planning in place to deal with the unexpected. If, for example, your premises flood or are damaged by fire, you could be obliged to:
- find and pay for new premises to operate from on a temporary basis;
- repair the structure of the building;
- repair & redecorate the interior of the building;
- replace all damaged contents, including medical supplies, refrigeration units and IT equipment;
- pay for clear up costs.
If you are a tenant of leased premises, you may think that the landlord’s building insurance covers you for some, or all, of the above, but that is rarely the case. Typically, the landlord is only obliged to insure the structure of the building and not your contents. Nor are they under any obligation to provide you with alternative temporary premises. It is, however, likely that the rent you pay to the landlord (for your damaged building) will be temporarily suspended if you cannot occupy the premises.
Perhaps the biggest risk â
It’s not only the immediate costs you incur as a result of a disaster, but a longer term risk to your business. If, for example, you are left unable to carry on providing some or all of your services and find yourself having to cancel certain clinics, you may be at risk of beaching your NHS contract. Under your contract you are obliged to be able to provide services from agreed premises at agreed times. Whilst the commissioner may be sympathetic to your plight, ultimately they will want to understand how you will continue to see patients. If you are unable to satisfactorily explain this, you risk receiving a Breach Notice.
Safeguard your positionâ
Having a disaster recovery plan in place is vital, as it is not easy to think with a clear head during a disaster. Be sure to keep an easily accessible copy of your disaster recovery plan off-site too – it’s no good to you if it’s destroyed by fire – and ensure that all the staff understand what they should do. The disaster recovery plan should cover a variety of different scenarios, but from a premises perspective, you should ideally have an agreed back up location in place, such as temporarily opening in the village hall or sharing a neighbouring surgery.
It may sound obvious, but ensure sufficient insurance is in place. Review the value of your contents cover regularly to ensure it remains adequate, particularly when you purchase a new piece of valuable equipment.
You may want to consider taking out ‘business interruption’ insurance, which could help with the emergency costs and any loss to your business as a result of an unexpected disaster. Speak to your insurance broker to get advice as to what would be appropriate in your particular circumstance. If you don’t have a broker, we would be happy to introduce you to specialist healthcare brokers through our network.
Conclusion
Disasters can be expensive but they don’t have to be catastrophic. Proper planning and protection will help ensure you can continue to deliver services to your patients safely and with minimum disruption.
If the worst happens and your practice does find itself ‘homeless’, then we recommend you take professional advice early on to understand your rights and confirm your responsibilities.
If you would like to discuss anything in this blog, please contact Daphne Robertson on 01483 511555 or email d.robertson@drsolicitors.com.