Don’t put your premises funding at risk

Premises funding is a complex area for any GP practice to navigate.

There will be times when you need to obtain prior consent from NHS England (NHSE) in order to secure funding, and other times when you are simply required to inform them of changes.

Failure to seek consent when it is needed or to notify certain changes can put future premises funding at risk, or even result in NHSE looking to recover any overpayments.

To help you understand what is required, we’ve taken a look at some of the most common events in a practice which may have implications on your premises funding and explain what you need to do:

Top trigger events:

1. Partner retirement

If an owning partner retires and is not bought out, he/she will cease to be an owner-occupier.  This has implications if you are in receipt of notional rent, which is only available to owner-occupiers.  In this situation, it’s best to inform NHSE well before the retirement date to confirm that they will continue paying notional rent for the whole building, while at least some of the partners remain owner-occupiers.

2. Refinancing 

If you are in receipt of cost rent (borrowing cost funding) then you must make an application in writing to NHSE if you are looking to change your mortgage lender, or advise NHSE following a change in the rate of interest you are being charged.

3. Premises development 

If you’re planning any building works for the development of your premises, then you must not start work without first agreeing the work with NHSE.  Similarly, if you are purchasing a property with a view to using it as a surgery, then don’t sign anything binding, such as a purchase contract, without the prior agreement of NHSE.  In both these scenarios, if you proceed without prior consent, NHSE are within their rights to refuse to consider any subsequent grant or funding application.

If you receive any tax allowances when developing your premises, these must also be disclosed to NHSE, who may off-set them against any premises development or improvement grants.

4. Sale and leaseback 

Before agreeing a contract for the sale and/or leaseback of the surgery to a third party, ensure that you have confirmation from NHSE that they are in agreement with the arrangement. NHSE is not permitted to fund the rent reimbursement unless they have agreed the contract before it is signed.

5. Registering for VAT 

If your practice is VAT registered – or you are considering registering – then you must disclose any relevant recovered VAT to NHSE so they can off-set such sums against your premises funding. 

6. Rent review

Unlike most other applications for premises funding, rent reviews do not have to be agreed with NHSE in advance. In fact, you will first need to agree the rent review with your landlord, before seeking NHSE’s agreement to reimburse the new rent.  Clearly, this leaves the practice at risk of a shortfall if NHSE do not agree with the amount of the new rent. This was a change introduced in the 2013 Directions and it continues to be controversial.

7. Lease renewal

NHSE needs to confirm that any new or varied lease represents ‘value for money’.  All new and varied leases should, therefore, be sent to NHSE for their approval before they are signed.

8. Practice closure

Premises funding is tied to your GMS or PMS contract. If you close your practice, your premises funding will cease on the day your contract terminates.  Your building related obligations will, however, normally continue. The mortgage must still be paid, the rent paid, and the heating system maintained. If you have received development grants, these may have to be repaid at least in part. Some leases permit the building to be sublet, but if not you may well be tied in for many years with no possibility of an income stream to offset the rent. We have written more about this issue here.

9. Mergers

Practice merger discussions often tend to focus on the partnership elements, and ignore the premises. This is usually justified because ‘the buildings will stay as they are’ or ‘the buildings will be outside the new partnership’. This may seem like a simple solution, but can create multiple problems for the future which we will be considering in more detail in a future article. Specifically regarding the premises funding, it is common for mergers to change the legal nature of the occupancy of the surgery, perhaps by creating an undocumented lease arrangement where none existed before. Even where such arrangements are undocumented, they would normally still require the prior approval of NHSE.

Conclusion

The Premises Costs Directions require that you must give NHSE any information they ask for and may need, in order to accurately calculate the amount of financial assistance to be provided. If you are in any doubt as to whether you need to notify NHSE or not, we’d always recommend that you seek professional legal and/or surveyor advice.

For more information about premises funding, or any other enquiries, please contact Daphne Robertson on 01483 511555 or email d.robertson@drsolicitors.com