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
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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.
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Thinking of ‘shutting up shop’? What are your options regarding your leased premises?
Thinking of ‘shutting up shop’? What are your options regarding your leased premises?
Having the security a lease offers you is important when you are operating your business, but what happens if you no longer wish to practice from that location? There are a number of ways a lease can be brought to an end, but whether they are available to you will depend on how your lease is drafted. In this blog, we discuss some of the more common options that might be available to you.
1. Expiry of the Term
The simplest way is to wait until your lease expires. Leases are usually for a defined period, e.g. 10, 15 or 20 years, and it may be that you are approaching the end date of your lease. Depending on the type of lease you have, you may not need to do anything to bring it to an end, this will simply happen when the term expires. However, your lease may require you to serve notice on the landlord, depending on when you intend to vacate the premises (this is particularly relevant if your lease is protected by the security of tenure provisions of the Landlord & Tenant Act 1954, which we have written about in more detail here).
We recommend that you check your lease (or that you instruct a solicitor to do so) as soon as the subject of termination is discussed. It will be important to assess the type of lease you have and what processes you need to follow to ensure you can bring the lease to a close at the end of the lease term.
Remember that even if the lease comes to an end, that does not always mean that your liability ceases. For example, you may be responsible for repair and decoration costs to bring the premises up to the standard required under the lease and the landlord can recover these costs from you even after the lease has expired. This can be expensive, although some of the costs may be recoverable from NHSE/the CCG. Where you have such an obligation, it is important to consider how the liability is accrued or you risk partners seeking to retire ‘just in time’ to avoid having to contribute.
2. Break clauses
Some leases contain break clauses which allow either the landlord or the tenant (or both) to bring the lease to an end before the term expiry date. Such clauses are individually negotiated when you first enter into the lease, and the terms of the break and when it can be exercised vary enormously. Typical examples could be a break after set periods (e.g. every 5 years) and some GPs have also been able to negotiate breaks linked to termination of their core contract. You may want to read our blog to explore break clauses in more detail.
Before seeking to exercise any break clause, you should ensure you take professional advice. There are usually a number of conditions attached to a break, which an unwary tenant may fall foul of. Whilst some of these conditions may sound reasonable in practice (e.g. being up to date with all payments of rent and service charges) these can actually prove difficult to comply with, as courts strictly interpret the wording of any break condition. There has been a recent case where even though the landlord had not requested a particular payment (in this case, of interest) due under the lease, the tenant’s failure to pay the un-demanded payment was deemed to be a breach of the break condition, and resulted in the tenant being unable to exercise their break clause.
3. Assignment
This is the right for the tenant to assign (i.e. sell or transfer) the lease to another party. If you do not have a break clause and you are some way from the end of the lease term, this may be a viable option if you can find another tenant interested in the premises. Landlords will need to be involved in the process and they almost always want to approve a potential new tenant. There may also be specific conditions set out in your lease that you have to comply with – such as the type of tenant – but as a general rule, the landlord cannot unreasonably withhold consent. In some instances, you may be required to guarantee the entity you are assigning to, so be aware that you may still have a residual liability under the lease.
If the landlord lawfully objects to the assignment, an alternative may be to ‘underlet’ the premises to the entity rather than assign it. Whether or not you are allowed to do this will depend on the terms of your lease and you need to be aware in this instance that you will still be the head tenant, so will still have the ongoing obligation to pay rent etc. to the landlord. Hopefully you will be able to recover the same from your under-tenant.
4. Surrender
If all else fails, you may be able to negotiate a surrender of the property with your landlord. The success or otherwise of this will be based purely on commercial negotiation. There may be a value to the landlord in taking the premises back and using it for other purposes (for example redevelopment, or to grant a new lease to a tenant that attracts a higher rent) – but there are no guarantees that a landlord will be open to such discussions.
Conclusion
Careful thought and legal advice is crucial when entering into a lease to ensure you have built in as much flexibility as possible, given the strengths of the relative negotiating positions. If you are considering closing your main or branch surgery premises, then an assessment of your lease by a solicitor is important to enable you to evaluate the options and make sure you comply with your obligations.
For more information on terminating your lease, or anything else, please contact Daphne Robertson on 01483 51155 or email info@drsolicitors.com
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Stamp Duty Land Tax on Surgery Leases
Stamp Duty Land Tax (SDLT) was introduced in December 2003. It is a tax payable on a variety of property transactions, including purchases and transfers of freehold and leasehold land and property.
GP Practices sometimes believe they are exempt from SDLT because of the ‘partnership exemption’. Whilst this may be the case for some transactions, the truth is unfortunately much more complicated.
What types of transaction are liable for SDLT?
SDLT is payable on UK land transactions that have a chargeable consideration – for example, on the purchase price of a property, or when a lease is granted.
For the purposes of SDLT, a chargeable consideration is defined by HMRC as “anything given for the transaction that is money or money’s worth”. When the value of a transaction rises above a certain threshold, the purchaser is liable to pay the tax.
The calculation of SDLT on the grant of a new commercial lease depends on the length of the lease, the premium paid (if any) and the rent payable under the lease. A helpful SDLT calculator can be found on the HMRC website: www.gov.uk/stamp-duty-land-tax/nonresidential-and-mixed-use-rates
Who is responsible for paying SDLT?
It is the responsibility of the purchaser or tenant (upon the granting of a lease) to calculate the amount of tax and complete and submit a Land Transaction Return (SDLT1) to HMRC within 30 days of the effective date of completion of a transaction.
A solicitor can help complete this on behalf of the purchaser or tenant, but legally the purchaser is responsible for the accuracy and timeliness of the information submitted. Failure to submit the Land Transaction Return and/or to pay SDLT on time will result in penalties. Interest is charged on both late paid tax and outstanding penalties.
Joint purchasers, such as a partnership, are jointly liable to pay the tax, although the proportion that each individual partner should pay can be subject to private agreement within the partnership.
Additional points practices should be aware of:
- SDLT regulations for freehold and leasehold properties differ.
- SDLT may be payable on certain changes to the lease. For example, lease renewals have the same SDLT implications as new leases.
- A sale and leaseback would normally trigger two payments of SDLT; one by the purchaser of the surgery and the second by the tenants on completion of their lease. However, you can claim tax relief on the lease element of the transaction if the seller and the tenant are identical. Be aware though that this doesn’t get you off the hook for ever – the SDLT will become due on the first lease assignment.
- If SDLT was paid in full when the lease was originally entered into, it is only payable on the premium element of any lease assignment. As most GP surgery leases are 25 years or less and have no premium value, surgery lease assignments are usually SDLT free.
- Some changes in partnership arrangements may incur SDLT. This is a particularly complicated area, but introducing and withdrawing property from a partnership are both chargeable events, regardless of whether the name on the lease or at the Land Registry changes.
- If an original lease term expires, but the tenant remains in occupation of the premises, it is called holding over. Once the lease runs past its contractual expiry date, it is treated as if the original term of the lease has been extended by one year. If SDLT was paid at the outset of a lease, or if the additional year takes the lease over the SDLT threshold, then a further SDLT return will need to be filed with HMRC and relevant tax paid. This is required for each subsequent year the lease is held over.
If a rent review occurs within the first 5 years of a lease, SDLT should be recalculated using the new rent for the remaining years, and a new submission made to HMRC. This can result in either additional tax to pay, or a refund in the event SDLT has been overpaid.
If you need advice on SDLT payments for your practice or any other matter related to your Surgery building, contact DR Solicitors on 01483 511 555, or email at info@drsolicitors.com.
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The importance of agreeing a break clause for your surgery lease
If you rent your premises, one of the key questions is when and how you can be released from your obligations under the lease. If for some reason you want to vacate your surgery premises, you will either have to wait until the end of the lease term, or rely on a break clause. It is, therefore, an important point to consider in the lease negotiation process.
What is a break clause?
A break clause is a provision within a lease that enables either the landlord, practice, or both parties, to end the lease early.
When one party to a lease tries to exercise a break clause they will often find the other party is reluctant to agree, as the landlord will be losing a valuable income stream, or the tenant will be left with the problem of finding somewhere else to practice. It is therefore vital that break clauses are negotiated well, drafted carefully, and are followed to the letter to avoid costly and protracted disputes.
Common break conditions
These may include:
- a fixed date or dates at some point in the future
- the right for a tenant practice to terminate the lease after a certain date, or
- the occurrence of a specific event that can act as a trigger.
As an example of the third type, a surgery lease would usually include a termination right in the event of the end of an APMS/GMS/PMS Contract, or the term of such a contract expiring without renewal. This should be linked with voluntary termination of the relevant contract, so a practice has some control.
The NHSPS standard lease contains a form of break option and does allow for voluntary termination. However, there may be other circumstances under which you wish to end the lease, so it needs some consideration.
How and when notice can be served
This will specify the form in which notice must be served, the method it must be served by, to whom it should be given and the timeframe within which it must be given.
One issue that can arise here is if the break clause notice period doesn’t mirror the notice period required to terminate the APMS/GMS/PMS Contract. This can lead to a practice having to pay rent after the contract has ended.
The NHSPS standard lease recognises this in principle, but it needs to be more fully addressed in the detailed drafting.
Break pre-conditions
These are the conditions which need to be met in order for a break to be achieved. They should be both clear and attainable. For example, practices may be required to be up to date with the annual rent and any other monies owed. Landlords also often want a break clause which requires full compliance with all the other terms of the lease.
Such conditions attached to Break options can be very difficult for a tenant to comply with. Even minor breaches can mean that the Break Option cannot be exercised, so such conditionality should be resisted where possible.
Recovery of any overpayments
Most leases require that payment of monies such as annual rent, service charges and insurance are made in advance. If a lease is terminated using a break option, then a surgery will not be entitled to a refund of any sums paid for the period after the break date – unless it has been specified in the lease.
The NHSPS standard lease includes a refund for rent, but not for service charges or other sums that may have been paid in advance.
Our recommendations
There are many commercial, legal and practical issues to consider when agreeing a break clause. And when it comes to exercising one, great care needs to be taken to ensure all conditions are followed to the letter, so it remains valid.
While the NHSPS standard lease is relatively well balanced, there are still important enhancements that need to be made, based on an individual practice and its circumstances.
When it comes to negotiating a lease – and with the importance that the drafting of that lease will have for a practice – it is always advisable to seek the advice of an experienced solicitor who can guide you through the process, while ensuring your interests are protected.
Other articles in this series which you may find useful include: ‘How to Successfully Negotiate a NHS Property Services or CHP Surgery Lease and NHS Property Services (NHSPS) standard lease
For more information about negotiating a lease, or any other related issues, please contact Daphne Robertson on 01483 511555 or email d.robertson@drsolicitors.com
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NHSPS lease – should you sign, take action or do nothing?
The new NHSPS lease and the prospect of significantly increased service charges continues to be a serious concern for many practices. It is a topic we have covered in detail on this blog and is one which raises many concerns for every practice affected. One question we are being asked frequently is ‘what action, if any, should we be taking now?’ With the application deadline for financial incentives to practices who sign up fast approaching, we thought it timely to update you on the current position.
The story so far…
We have successfully negotiated a number of beneficial changes to the Heads of Terms originally presented to our clients by NHSPS. However, some aspects of the service charge formula are proving difficult to agree. Our clients are awaiting revised proposals from NHSPS, but these have not been forthcoming and it is unclear when they might arrive.
Incentives to sign
The deadline to access the financial incentives on offer from NHSPS is currently set as 30 November 2017. However, given the lack of progress that has been made in getting practices to sign up, we anticipate that this deadline may be extended.
Options
Nationwide, there are very few practices which have signed the new NHSPS lease. Usually this is because the value of the incentives on offer is far outweighed by the ongoing future cost of the liabilities NHSPS is seeking to impose – particularly in relation to service charges.
This is an issue we have previously highlighted:
- What can you do about inflated NHSPS service charges?
- How to Successfully Negotiate a NHS Property Services or CHP Surgery Lease
It is important that you try not to be pressured into signing a new lease until any historic service charge disputes have been resolved and you are satisfied with the level of future service charges.
In the interim, we advise you continue to maintain service charge payments at historical levels.
Unfortunately however, this brings its own problems and cannot be seen as a long-term solution. Over time, your practice will change through partner changes, mergers, or increases/decreases in patient numbers. These changes may result in you having different requirements for your building.
If you then seek to change the basis of your occupation, such as by increasing the space you occupy, this will constitute a change in your current lease arrangements. NHSPS may choose to refuse consent unless you agree to an increased service charge for the whole.
Similarly, trying to share the potential liabilities on historic service charge claims between current, new and former partners will be a recipe for dispute.
Our recommendations
Overall, practices should only sign the lease once they are happy with the terms and any service charge issues have been resolved. It is a complex area and one with lasting financial implications, so it is always advisable to seek the advice of an experienced legal team.
If you would like our assistance, with this or any communication from NHSPS which has given rise to concern, then please do not hesitate to get in touch.
For more information, please contact Daphne Robertson on 01483 511555 or email d.robertson@drsolicitors.com
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Is your surgery lease coming to an end?
GP practices are increasingly occupying their surgeries as leasehold tenants. It is a trend that has been happening for some time now, so many practices are approaching the end of their lease.
As a surgery lease is one of the most important and complex contracts a practice can enter into, it is important to plan ahead and take action early. Here are some of the key points to address in your plan:
Questions to consider
1. What are the key dates for your lease?
It is vital that you are aware of and understand the key dates specified within your current lease. Make sure you diarise the lease expiry date and also the dates of any break clauses, so you can begin to plan at least 12 months in advance.
2. Do you wish to vacate the surgery?
The default position at the end of a lease will be for you to vacate the premises before the lease expiry date. If this is what you intend to do, you need to ensure you have somewhere to move to and that NHS England is prepared to fund the new premises and change your contract accordingly.
If you wish to close the practice when you vacate the premises, then you must give NHS England sufficient notice – which is six months under GMS contracts. You would then need to close the business, which could be a lengthy process and is likely to involve staff redundancies, as well as settling various business liabilities.
3. Do you wish to remain in the surgery?
If you wish to remain in the surgery your negotiating position will be affected by the wording in your current lease. If it includes ‘Security of Tenure’ under the Landlord and Tenant Act 1954, then you will have the automatic right to renew your lease on terms similar to those in your current lease (subject to certain conditions). However, many surgery leases will specifically exclude this.
Regardless of whether you have security of tenure or not, you will need to negotiate a new lease with your landlord. Like any negotiation, it is important to understand the strength of your position, and to ensure that you negotiate in good time to secure yourself options. Bear in mind renewing a lease, can be a very different negotiation from a new occupation.
4. What happens if you do nothing?
Surprisingly, many practices continue to occupy a surgery after their lease has expired, but this can have serious implications and risks. Again, a lot will depend on the wording of your previous lease and also any correspondence you have entered into with your landlord about your current occupation.
If you continue to pay rent and it is accepted as such, then it will probably hold that some form of landlord/tenant relationship exists. But beyond that you face a number of potential problems, such as:
- The risk that the landlord could seek to recover possession
- The possibility that you may have inadvertently consented to some onerous lease terms
- The risk that you will be prejudicing your rent reimbursement.
Furthermore, any joining or leaving partner will want to understand any risks they are taking on, or be confident that they have fully left their obligations behind. These may be difficult to quantify in this situation.
In summary
There is an old saying that the ‘L’ in lease stands for liability. As some of these liabilities only crystallise around the lease expiry date, it’s important to understand what your obligations are.
Early planning for your lease expiring will both reduce your risks and improve your negotiating position. We strongly advise that you seek specialist advice early in the process.
For more information, please contact Daphne Robertson on 01483 511555 or email d.robertson@drsolicitors.com
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What can go wrong with a surgery move or redevelopment?
Making the decision to move to a new surgery, or to redevelop your existing surgery building, is a big step. In fact, it is likely to be one of the most complicated legal transactions a practice will ever undertake, carrying significant financial and legal risks.
Once you have successfully secured a share of the NHS premises development budget, you need to think about managing this complicated process.
There are too many differing scenarios for us to cover them all in this blog and not all of the issues we mention will be relevant to you, but we highlight below some of the more common problems we encounter during transactions of this nature.
1. Partnership changes during the process: change within any partnership is reasonably common, but in this situation it can create confusion as to who has certain obligations and who doesn’t. What obligations does an incoming partner take on, and will a retiring partner be released from his or her obligations? In addition, if you have agreed to sign up to a new lease, there is a risk that the number of partners may drop below the minimum number of tenants specified in the lease.
2. Signing a development agreement without District Valuer (DV) approval: the premises funding approval process must be followed to the letter. One common misconception is that DV approval can be sought once the building is up and you are ready to sign the lease. In all likelihood this is too late in the process as you are already committed.
3. Lack of understanding of the total lease costs: this is a very common issue, particularly when it comes to service charges: what non-rent costs are payable, and how will they be financed?
4. Using a limited company to try and manage risk: some practices try to manage their risks by putting the property or lease in a limited company. This is not something you should do without specialist advice, as it often results in significantly higher cost and no risk reduction.
5. Misunderstanding the difference between an agreement for lease (AfL) and a lease: the AfL binds the signatories to signing a lease – subject to certain conditions being met. All development works are therefore associated with the AfL and it can often be a year or more before they are completed. Some practices sign the AfL thinking they will be able to negotiate the lease at a later date, but this is not the case.
6. Overlooking the partnership agreement: it is important to bind all partners into the obligations under the lease and AfL. Since only a subset will be signatories of these documents, it is critical that the risk and obligations are properly shared through an up to date partnership deed. Remember that occupation of the surgery is a vital feature of the partnership so these documents must work properly together.
7. Not seeking advice from a specialist surveyor: a specialist surveyor needs to be involved in any surgery development, to ensure all works are compliant with the regulations. Otherwise, the funding will be put at risk.
8. Failure to properly consider tax: there are many potential tax savings associated with a development, but it requires careful consideration and planning if these are to be maximised. This will need to be done far in advance.
Our recommendations
In certain circumstances, it can make sense for a practice to work on resolving an issue itself – but developing a surgery, or moving premises is not one of them!
With the amount of complexity involved and so much at stake, we would advise any practice considering development, to enlist the support of an experienced team, including a specialist solicitor, surveyor, and tax adviser. That way you can ensure you have everything covered and are fully compliant and protected.
If you need help in this area, we are always happy to introduce clients to the extensive network of contacts we have built up, to help ensure the success of your practice.
For more information, please contact Daphne Robertson on 01483 511555 or email d.robertson@drsolicitors.com