What can you do about inflated NHSPS service charges?
Around 1,500 GP practices in England currently operate from premises owned and managed by NHS Property Services (NHSPS). Many of these surgeries have now been contacted by NHSPS about entering into a new lease and are also facing demands for a highly inflated service charge.
The proposed service charge increases can be substantial, with charges reaching up to six figures in certain cases. So, it’s little surprise that we have been contacted by many practices who are extremely concerned about the impact the increased costs will have on their business.
The first point to bear in mind is that unless you have signed a lease and agreed to these charges, you shouldn’t feel immediately pressured and you may be within your rights to challenge them. There are also practical steps you can take that may help you negotiate with NHSPS and agree on a more manageable figure going forward.
Breaking down the costs
The invoices themselves are sometimes not very clear, as they simply lump all costs together. Begin by checking the backing sheet to break down the cost, so you’re clear on exactly what you are being charged for.
In accordance with the Premises Cost Directions, certain expenses are classed as ‘reimbursement costs’ and should sit outside the service charge. They are:
- Rent
- Rates
- Clinical waste
Other elements may also be reimbursed in part, depending on what they include. Such as:
- External repairs and maintenance for which the tenant has responsibility
- Buildings insurance
The repair costs may not be recovered in full, as they depend on the District Valuer looking at the Current Market Rent figure. This will usually include an ‘uplift’ of a small percentage (usually around 5%) which includes reimbursement for these items but in practice may not cover the whole cost. That is why it is important to control service charges; as they often not fully recovered.
All remaining items will form part of the service charge, which will typically include landscaping, litter picking, gritting and the cleaning and lighting of common areas.
Action you can take
1. If you have a lease – Check what it says about your obligations in regard to payment, as the terms of the lease will ultimately prevail. If you have signed a lease and agreed to them, then you are legally obliged to pay in accordance with the lease terms. Check what the lease says about which services the landlord must provide, how the service charge costs are worked out and what the optional services are. Ideally, your lease may have a cap beyond which the landlord cannot charge.
2. If you don’t have a lease
Our recommendations
In this situation, there is no ‘one solution fits all’. While there has been some talk of a national resolution, nothing has yet materialised. It is difficult to imagine how a single solution can suit all practices, since this kind of approach is likely to generate winners and losers.
If you don’t have a lease in place, our advice is not to feel pressured to pay the inflated charge. Follow the steps we have outlined above and try to negotiate a more acceptable amount. Resist the temptation not to pay anything, however. The safest course of action will usually be to keep paying the amount you have historically paid, and get assistance to negotiate revised terms. Be careful not to sign or commit to anything until you have professional advice!
Also, be wary of time sensitive incentives, such as offers to pay legal fees or stamp duty land tax. Whilst these are nice to have, a one-off payment is unlikely to offset the impact of a large recurring annual service charge, so make sure you understand the cost/benefit.
For more information about NHSPS leases, or any other related issues, please contact Daphne Robertson on 01483 511555 or email d.robertson@drsolicitors.com
- Continue to pay what you have historically paid. Paying any more could set a new precedent and that’s something to be avoided as it may harm your negotiations if you decide to enter into a formal lease later. If you’ve been in occupation for a long period of time without a formal lease, then you may have a periodic tenancy that secures your rights. This could also be helpful when negotiating a service charge cap.
- Consider starting a maintenance fund – Begin putting some money aside regularly, so you have built up a contingency pot should things get difficult in the future.
- Negotiate – The final step is to try and negotiate an amount you can afford to pay and a service charge cap in your new lease. The advantage of having a cap will be the certainty it provides, but it does have the drawback that charges are likely to end up at that amount, so think about what you can afford going forward. If a cap cannot be agreed, the services and method of charging should be carefully reviewed – for example, any additional services should only be provided with your consent to the proposed costs.
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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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Should your surgery building be held as a partnership asset?
A surgery building is one of the most valuable assets a GP practice may own, so it is important to understand the implications of how it is held. Partners need to be clear whether their property is held as a partnership asset or not. The answer can have significant implications in relation to ownership rights and obligations, occupancy and even tax.
The nature of partnership assets is complex, but we have summarised some of the main features of holding the building inside and outside the partnership:
1. When the surgery building is held by the partnership
As a partnership has no ‘legal personality’ it cannot hold property in its own name. Partnership property, therefore, has to be held on trust.
If a surgery is held as a partnership asset the legal owner(s), who are generally those named at the Land Registry, hold the surgery on trust for the ‘beneficial owners’ who are all the partners in the partnership. There is often reference in GP partnerships to ‘owning partners’ and ‘non-owning partners’, but the starting point in law is that all partners are equal owning partners unless there is evidence that something else has been agreed.
It is of course very commonly the case that some partners have a greater interest in the surgery than others, or that some partners have no ownership interest at all, but if the surgery is a partnership asset this will need to be stated. This means it is critical that all rights and entitlements in the building are documented. Otherwise, there is likely to be scope for confusion and disputes over your most valuable asset.
2. When the surgery building is held outside the partnership
If the building is held outside of the GP partnership, then it is generally much clearer who owns it.
The ‘legal owners’ named at the Land Registry will normally have full ownership rights and be entitled to make decisions such as when to sell or develop it, and be entitled to rent from the partnership occupying it.
However, in this scenario clarity needs to be given over the basis on which the partnership is occupying the building. This could, for example, be via a lease, a licence, or documented in the partnership agreement. Without this being documented, non-owning partners are potentially vulnerable.
Our recommendations
1. Know where you stand
It is essential that all partners understand if the property is held as a partnership asset or not. This should normally be clear from the partnership agreement and supported by the accounts.
2. Check how things have been documented
Next, you need to check that suitable documentation is in place. This should cover the ownership and occupancy of the property. It is always advisable to seek the advice of an experienced legal team here, to ensure all documentation is fit for purpose and up to date.
3. Understand how the situation can change
Finally, be aware that there are situations where a surgery building may ‘accidentally’ move in and out of a partnership. This can have very significant implications, such as for NHS Premises Funding and for Stamp Duty Land Tax. (For more details on this topic, see Are you liable for a ‘hidden retirement tax’?)
When it comes to property owned by a GP partnership, sadly it’s not as straightforward as simply having your name on the deeds. It is a complex area of law and having the right documentation in place is crucial, if you’re to guard against potential disputes in the future.
For more information about partnership deeds and assets, or any other related issue, please contact Daphne Robertson on 01483 511555 or email d.robertson@drsolicitors.com
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Are you liable for a ‘hidden retirement tax’?
If you’re a partner in a GP practice that owns its own premises, you may not be aware of the tax liability that could arise if you retain your share in the surgery when you retire.
Stamp Duty Land Tax (SDLT) was introduced in 2003 and is payable on the transfer of an interest in a property. Chargeable transfers include introducing and removing the surgery from a partnership. This is regardless of whether any changes in ownership need to be notified to the Land Registry or whether any of the other partners buy in or out.
The tax itself will form part of your self assessment meaning it is your responsibility to declare it, and can amount to almost 5% of the surgery market value.
Since it is increasingly common for GPs to retire from partnerships whilst retaining a share of the surgery, we estimate that many hundreds of GPs will, over time, have become liable to pay SDLT. Many may be unaware of this liability, but the consequences of non payment can be severe. In addition to any overdue tax HMRC will levy fines and interest, and if they consider that you have deliberately not paid will look back up to 20 years.
What is SDLT?
SDLT is a tax you need to pay if you buy an interest in property or land over a certain price in England, Wales or Northern Ireland. The current SDLT threshold is £150,000 for non-residential land and properties.
When do you need to pay SDLT?
You become liable for the tax when you:
- buy a freehold property
- buy a new or existing leasehold
- transfer an interest in land or property, including transfers into and out of partnerships
Is there not a Partnership Exemption?
You may well have heard that there is an SDLT exemption for partnerships. Whilst it is true that most intra-partnership transfers are exempt, you need to be certain that every transaction qualifies. Introducing and removing a building to/from the partnership are certainly not exempt, and even transferring shares between partners can be chargeable if, for example, the surgery was recently introduced as a Partnership Asset.The key point to understand in order to determine any liability is whether or not the surgery is held as a Partnership Asset. If you retire with some or all of the Partnership Asset you will be treated as a purchaser for the purposes of SDLT.
How do you calculate the tax?
Unfortunately this is not simple. SDLT for partnerships is calculated very differently from ‘normal’ property transactions, and is not a straightforward percentage of the market value. The calculation can involve changes in income profit shares going back 13 years and requires specialist knowledge.
Think you may be liable?
If you are planning to retire soon and are considering holding onto your share of the surgery, SDLT is something that you should take into account in your financial planning. Given enough time, you can make plans which manage your liability.
If you are a retired Partner and think you may have a historic liability, please get in touch. The partnership SDLT team at DR Solicitors is one of the most experienced in the country, and can help you understand where you might stand in relation to this issue.
For more information, please contact Nils Christiansen on 01483 511555 or email n.christiansen@drsolicitors.com
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Planning to retire? Don’t forget about your lease liabilities
If you’re a partner in a GP practice and have decided to retire, then there are many issues that both you and the remaining partners need to consider. Making a smooth exit is likely to be top of your agenda and one important area that can often be overlooked is dealing with lease obligations.Your responsibilities will vary depending on how the lease is ‘owned’. Here, we examine three of the most common scenarios and what the implications may be, along with offering advice on how best to mitigate any liabilities.
1. Named at Land Registry
If your lease term is for a period of seven years or more, then it should be registered at the Land Registry. It is also possible to register leases of a shorter term, although this is rare.
Leases registered at the Land Registry are available to the public and show you as having rights and obligations associated with the property. Public bodies and other third parties with an interest in the property may, therefore, look to you and the other named parties to meet any obligations that arise.
When you leave the partnership, assuming you are also intending to leave your lease liabilities behind, it is important that you sign a TR1 to remove your name from the Land Registry and transfer the title to an ongoing member of the partnership. There can only be 4 people named on the Land Registry title at any one time, so if there are more than 4 ongoing partners they will have to agree who gets to replace you.
2. Named tenant on the lease
If you are named on a lease or have taken over the lease by way of a formal assignment, then the landlord will look to you and the other signatories as joint tenants. You will have responsibility for fulfilling all obligations under the lease and your liabilities will be unlimited – unless you have agreed anything different with your landlord. If any problems arise, such as unpaid rent, required repairs or dilapidations, the landlord could potentially sue you to put things right. Unlike the Land Registry title there are no restrictions on the number of signatories to a lease, so all the partners will usually sign the lease in order to share risk equally.
Once you leave the partnership, you will have little control over what happens to the building, and if your name remains on the lease you cannot easily manage any risk. You will normally want to sign a Deed of Assignment as soon as possible.
A landlord, by contrast, will typically want a minimum number of partners named on the lease at all times so that he can hold as many people as possible personally liable. This can be an issue, particularly in smaller partnerships with recruitment problems, and is commonly known as the ‘last man standing’ problem. There are several ways to mitigate the problem, but it is always advisable to seek legal advice at an early stage if you think you may be facing this situation.
3. Tied into the lease via the Partnership Deed
A partnership deed will typically document a trust relationship, which seeks to ensure that those partners who are not named at the Land Registry or on the lease, will still have the same rights and obligations as those partners who are. This helps ensure everybody is treated equally. Some partners will, therefore, find that they are able to retire without having to notify either the land Registry or their landlord.
However, just because you retire doesn’t mean that any obligations under the partnership deed will end. It is important when leaving a partnership, to understand what you are responsible for and whether the partnership deed permits you to be released from these obligations.
If you don’t have a valid partnership deed, or it is unclear about this issue, then the safest course of action is to draw up a deed of retirement, which will document which past and future obligations you are released from.
In the event that it proves impossible to eliminate all liabilities associated with the lease, another option would be for the partners to provide each other with indemnities against any claims. Just be aware that such indemnities need to be very carefully worded, as they are often contested when one party seeks to enforce them.
Other considerations
Dealing with lease obligations is just one of the many areas that need consideration when you retire. For more expert advice on what to think about and the steps you can take to cover off your risks, see our Retirement Planning Checklist.
For more information about any of the issues covered here, please contact Daphne Robertson on 01483 511555 or email d.robertson@drsolicitors.com
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Are you overpaying your landlord?
The issue of NHS premises funding is a complex area which is often misunderstood by GP practices. This confusion sometimes results in practices inadvertently overpaying their landlord.If you don’t own your own surgery then you must be occupying it on some form of tenancy basis, – whether that agreement is in writing or not – and you should be receiving rent reimbursement. Here we take a closer look at what rent reimbursement is supposed to pay for, and how you should be managing it.
Understanding rent reimbursement
Rent reimbursement comprises two parts:
- the rent
- a contribution to the repairing and insuring of the building – commonly referred to as the ‘uplift’
The rent element is normally the same as the rent agreed in your lease, and practices will often pay this straight to their landlord. The uplift element will vary, but is usually between 5% and 7.5% of the rent, with the amount being determined by the terms set out in the lease.
The uplift may be paid to the landlord or retained by the tenant, dependant on what is stated in the terms of the lease. This is the element which most commonly gives rise to confusion
The uplift
The uplift is a contribution towards the repair of the exterior and structure of the building, along with the cost to insure it. To determine who should receive the uplift monies, you need to be clear about who is responsible for which aspects of the building.
Some common situations are:
1 – The practice occupies the entire building
If you occupy the whole building, you are likely to have a full repairing and insuring lease. In this situation, you will be responsible for dealing with all the repairs, so the practice should keep the uplift.
If your lease only requires you to repair the internal parts of the building, then the landlord should probably receive the uplift element as part of their rent. They will have responsibility for repairing and insuring the exterior and structure of the building, without any additional costs being passed on to you as tenant. Practices often assume that this is the case when the occupation is undocumented, but be aware that your landlord may see their responsibilities vey differently!
2 – The practice occupies part of a shared occupation building
If you share occupation of a building with other tenants (known as a ‘lease of part’) it is likely that your landlord will be responsible for managing all repairs to the building and will then pass on the cost of these to you through a service charge. In this scenario, you should keep the uplift but regard it as a contribution towards your service charge.  Since the uplift is a fixed amount, you may also want to talk to your landlord about capping the level of service charge that can be demanded.
3 – No formal agreement in place
A third scenario, which is relatively common for GP surgeries, is for there to be no written agreement in place but for the landlord to historically have repaired the building. In this case, there is a good argument that the uplift monies should be paid to the landlord. However, in the absence of a lease or other contractual agreement, there is scope for an expensive dispute to develop. A starting point would be to see what you have historically paid over.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
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GP practice funding: What you need to know about the District Valuer
Most GP practices will come into contact with the District Valuer Service (DVS) at one time or another. The DVS plays a key role in issues surrounding GP premises funding and has the potential to significantly impact on a surgery’s finances. There are many reasons why a practice and the DVS may cross paths, including: notional rent reviews, practice valuations and in relation to proposals for significant building works. What’s important to remember is that the DVS is working to protect the interests of NHS England, not your practice.
In this blog, we take a closer look at the DVS, what it is responsible for and the steps you can take to strengthen your position when faced with any negotiations.
What is the DVS?
The DVS falls under the specialist property arm of the Valuation Office Agency (VOA). It provides independent valuation and professional property advice to bodies across the entire public sector, and where public money or public functions are involved.
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What does the DVS do for Primary Care?
One of the key roles of the DVS is to advise NHS England on whether the financial dealings of a GP practice represent value for money. It does this in accordance with the 2013 Premises Costs Directions, which apply to all new applications for funding. (For any funding that falls under the 2004 directions, its functions are slightly different, but for this article we will focus on new applications made under the 2013 directions).
The main responsibilities of the DVS include:
Notional rent – Setting the level of notional rent and agreeing to any supplements.
Purchase price – Ensuring that the amount being paid for the purchase of new GP premises is a fair market price.
Premises development – Assessing proposals for significant premises developments (such as the building of an extension), or the construction of new premises.
Sale and lease back arrangements – Ensuring that the sale price and lease arrangement offers good value for money.
Financial assistance – Approving financial assistance towards running costs and service charges.
Grants – Ensuring any grants being offered by NHSE are good value for money, including premises improvement grants, mortgage redemption or deficit grants, and grants relating to the cost of converting back former residential property.
Minimum sale price – Where a guaranteed minimum sale price for surgery premises has been agreed – such as in areas of high deprivation where property values are low – the DVS will advise NHSE on an appropriate minimum sale price and ensure that any sale agreed below that price represents a realistic market value.
Rent reimbursement – When a leased surgery may be entitled to rent reimbursement, the DVS will advise NHSE on whether the proposed terms of a new or changed lease represent value for money. It is therefore  necessary that you obtain NHSE approval before any lease is signed or varied.
How can you protect your interests?
For any practice, securing the best possible deal from any funding negotiations is a top priority. One of the most effective ways to protect the interests of the practice and ensure you don’t miss out financially, will be to call on the services of an experienced healthcare surveyor. They will be able to conduct an independent review of the DVS’ conclusions and negotiate on your behalf.
It is also advisable to seek specialist legal advice from the outset, to help you navigate the complex processes and procedures that surround lease agreements, premises development and all other related issues.
For more information about GP funding, lease negotiation, or any other issue associated with GP practices, please contact Daphne Robertson on 01483 511555 or email d.robertson@drsolicitors.com
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GP surgery lease – managing your repair and reinstatement obligations
When you’re negotiating a lease for your GP practice it is important to ensure that you are aware of all the potential costs you may incur throughout your tenure – especially when you could be faced with bills running into many thousands of pounds.
One key area where costs can quickly mount up, and where disputes between tenants and landlords are common, is repairs, maintenance and reinstatement of the premises. This is particularly true if you are signing a full repairing and insuring lease (FRI), which places full responsibility for all such costs on your shoulders, as tenant.
Here we take a closer look at how you can best manage your obligations and minimise any potential for dispute.
- What is a Full Repairing and Insuring lease?
As the name suggests, under this type of lease the full cost of all repairs and insurance will be borne by you as tenant. This is true whatever the repairs may be, whether external, internal or structural. It is also established law that as part of your FRI obligations you must repair the property even if it is in a poor condition at the start of the lease.
If you are the sole occupant of a building on an FRI lease (a ‘lease of whole’), you will normally have full responsibility for the maintenance of the whole property. If you occupy a surgery which forms part of a larger property (a ‘lease of part’) you will be responsible for repairing the interior of the surgery, and will share with the other occupants the cost of repairs to the structure, exterior and common parts of the property through a service charge.
In addition to keeping the property in ‘good repair’ throughout the term, you may have to return the interior and/or the exterior of the building to their original state at the end of the term.
If you are in breach of any of your obligations during the lease, then your landlord may be able to claim damages, including the costs of repairs, loss of rent and any other damages. At worst, your landlord may seek to terminate the lease.
What are repair and reinstatement obligations?
Your responsibilities should be clearly set out in your lease. Typically, they will include:
- A responsibility to keep the premises in good condition throughout the term of the lease, not just at the end of the term (such as maintaining the roof, the heating system, the windows and doors etc)
- An obligation to clean and redecorate at regular intervals through the term and/or at the end of the term
- An obligation to remove and reinstate any alterations you have made
What do you need to be aware of?
The main problem you face with an FRI lease is that irrespective of the cause of the damage, as tenant you will be responsible for funding any repairs to the property – even if the damage was due to negligence on the part of the landlord. One rare exception may be if the landlord has already insured against a certain risk, details of which you should be able to find in the buildings insurance documentation.
A common cause of dispute is interpreting the extent of this repairing obligation. Leases can use phrases such as ‘the Tenant shall keep the Property in good repair and condition’, or ‘in a tenantable condition’. Even the word ‘repair’ can mean different things. This type of terminology is subject to endless legal wrangles between landlords and tenants.
Some lease agreements even include an obligation to rebuild. This carries a far greater potential risk to you as tenant, so is something to avoid, especially when signing a relatively short term lease.
Taking steps to protect yourself
If you are going to enter into an FRI lease then there are steps you can take to better protect yourself:
- Prepare a Schedule of Condition
Enlist the services of a specialist surveyor, who can examine and record the present state of the surgery. Your legal team should be able to help point you in the right direction with an introduction.
The surveyor will put together a ‘Schedule of Condition’ (SoC) for you, which may be written or even better, photographic. This will give you a detailed record of the state of the premises at the beginning of the contract. It may also highlight any important structural concerns or existing damage to the property that you may need to repair. You should then seek to limit the lease obligation to maintaining and reinstating the building to the same state and condition that it is in when you move in.
The SoC should be attached to and form part of the lease before it is entered into. If your landlord doesn’t want to agree to one at first, then persevere, as they will usually accept one eventually. But even if your landlord won’t agree, you should arrange to have one drawn up for your own records, as it could still be a useful piece of evidence when negotiating ‘dilapidations’ at the end of the lease.
- Ensure you understand the extent of the obligations in the lease
The extent of your obligations can turn on a single word or phrase in the lease. Since this is such a controversial (and expensive) area, the meaning of these terms has been clarified over the years through case law. The ‘real’ meaning is often not obvious to laypersons, so you would be well advised to have them explained by a specialist solicitor.
- Understand and negotiate the Service Charges
Ensure you understand what you will be paying for through the Service Charges, and negotiate accordingly. For example, why should you contribute to maintaining the lifts if you are only using rooms on the ground floor?
- Consider holding a sinking fund
As partners approach retirement, they have an incentive to leave the repairing and maintaining obligations for later generations to pay. This can cause some very nasty surprises for incoming partners. Best practice is to allocate an appropriate share of the rent reimbursement to a repairs and maintenance sinking fund.
Also, bear in mind that the less you spend on maintenance and service charges during the course of a lease, the more you may end up paying to reinstate at the end of the lease. This can create problems, especially for joining and retiring partners who will want to understand what the obligations are likely to be – particularly if there aren’t many years left to run.
Conclusion
Due to the huge responsibility and cost that an FRI lease places on tenants, it should always be entered into with caution and only after taking legal advice. Remember that a tenant has obligations for the full term of the lease and not simply whilst a partner in their practice.
And one final word of advice: no matter how good a relationship you may feel you have with your landlord, never rely on good faith or memory. Landlords move on and the landlord in situ when your lease eventually comes to an end may well view things differently to your current landlord.
For more advice on lease negotiation, please contact Daphne Robertson at DR Solicitors:
Tel: 01483 511555,
E-mail:Â d.robertson@drsolicitors.com
You may like to download our free eBook ‘Top ten tips when agreeing a surgery lease‘.
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The NHS Property Services Standard Lease: Our Thoughts
If you’re a GP in an NHS Property Services Company (NHSPS) owned building, then this blog is relevant to you. You may recall that we referred to an imminent NHS Property Services ‘standard lease template’ in our recent blog post on surgery lease negotiation. That ‘last man standing’.
What we are less keen on: Summary As you can see, we regard the template lease as something of a curate’s egg. Presumably the NHSPS see it the same way, as they are putting in place a number of carrots and sticks to persuade practices to sign up. In addition to the VAT ‘stick’ explained above, we understand they will be making a time-limited offer of reimbursing a tenants’ legal fees and SDLT.
Overall, the template lease is broadly consistent with an ‘ordinary’ commercial lease, but will need to be negotiated carefully. The underlying issue is that many GP practices in NHSPS buildings are not on ‘ordinary’ commercial leases to start with, so moving to one is a big and potentially very expensive step. Remember that most NHSPS buildings are currently loss making, but an ordinary commercial lease sets out to ensure that this cannot happen.
The most important question for you to ask is, ‘Is it in my interests to enter into a negotiated version of the template lease?’ The answer depends on your individual circumstances, but for many practices the answer may be ‘no’. There is no ‘one lease fits all’ position so we can only reiterate the disclaimer published on the front page of the template lease, namely that you take independent legal and professional advice before you sign anything presented to you.
For more information about the NHS Property Services standard lease  and any other related issues, please contact Daphne Robertson on 01483 511555 or email d.robertson@drsolicitors.com
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Beware the ‘Last Man Standing’ Issue in GP Practices
The ‘last man standing’ issue refers to the concern that one or more partner(s) will be unable to retire from a GP practice when they want to, because they are unable to divest themselves of the various liabilities and obligations of the practice.
The issue tends to arise when there are problems in recruiting GP partners, significant numbers of GPs looking to retire or emigrate, or when there are particularly onerous practice liabilities.
The most common type of last man standing problems are associated with surgery leases and mortgage redemption penalties, but they can be triggered by any onerous contractual obligation or unfortunate event such as a death in service or a property market crash.
How the ‘last man standing’ issue destabilises practices
A useful analogy is with a run on a bank. Normally you are happy to deposit your money, confident in the knowledge that you can get it back on demand. However, if enough people want to withdraw their money at the same time the bank cannot raise enough cash to pay them all out and it goes bust.
Similarly, if a GP partner gets concerned that one or more of their partners may be considering leaving and there is no obvious succession plan, they will start thinking about the likely costs of closing the practice and consider leaving while they still can.
Well-drafted partnership agreements normally seek to restrict their ability to do so by requiring a gap between retirements. If a retiree is not replaced in that gap or a partner leaves on other grounds however, the remaining partners may find themselves part of a rush to be the next to resign.
Once this process starts, it is difficult to get confidence back. It becomes even harder to find replacement partners, and ultimately the accountants start wondering whether the business is still a going concern, i.e. able to survive. They may then decide that it is prudent to accrue for the potential liabilities, worsening the financial position of the practice and hastening its demise.
Look after number one: beware the ‘last man standing’
There are multiple ways to reduce the risk of a practice suffering the last man standing problem:
- Be part of a larger practice; small practices only need to lose one or two partners to be at risk, whereas larger practices offer more room for manoeuvre
- Ensure the partnership agreement defines a minimum 6 month gap between permitted retirements
- Maintain a sinking fund for repairing obligations under the lease and other unfunded practice obligations
- Try to negotiate a break clause in your surgery lease for events such as termination of the GMS/PMS contract, but remember enforceability of such clauses can be an issue
- Ensure that you are always in compliance with the terms and procedures of your lease or mortgage; particular risk points are the arrival or departure of a partner
- Take out insurance against specific risks such as an inability to pay the mortgage
- Consider a practice merger to share and thereby reduce the risks
If the last man standing issue appears to be rearing its head in your practice, seek professional advice early. The sooner you get help, the more likely you can prevent it. Once it starts, it can quickly become like catching a falling knife.
Reducing the risk of the ‘last man standing’ is one of the issues which need to be considered when negotiating a surgery lease. Other issues are identified in our free guide, Top 10 Tips When Agreeing a Surgery Lease.