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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Do you have unclaimed capital allowances?
You will need to claim capital allowances if you are to enjoy the benefit of them. It is our experience that not all GP practices promptly claim their full value. This can be a deliberate policy or simply an oversight. Left unclaimed, most capital allowances simply carry forward into subsequent years.
Some of the largest (and most commonly unclaimed) capital allowances are associated with premises improvements. In the event a property owning partner is bought out, the unclaimed capital allowances would normally remain with the partnership for the benefit of the remaining partners. This could result in a new partner using any unclaimed capital allowance to reduce their own tax liability, even though it was an outgoing partner who participated in the original investment giving rise to the capital allowance.
As the value of capital allowances can be significant, this is a potential source of conflict amongst partners. In this blog, we share some common scenarios together with some pros and cons so you can agree the right decision for your practice.
Who should benefit from them?
Usually, the existence of unclaimed capital allowances will be reflected in the price paid by a buyer. Unclaimed capital allowances increase the inherent value in a commercial building, so would increase the price in a ‘normal’ transaction, however they are often not taken into consideration in GP surgery valuations – even if the partners are aware that unclaimed allowances exist.
What can you do?
- Research
We are aware of occasions when partners discover very large bought forward unclaimed capital allowances. A nice windfall for the current partners perhaps, but any former partners would wish they had researched the position before retiring.
- Don’t delayâ
The common business practice is to claim capital allowances as quickly possible. This reduces the risk of a problem arising as well as reducing the partners’ tax bills.
- Document your positionâ
If you decide to leave significant amounts of capital allowances unclaimed, or you retire before you have claimed all of the allowances due, you need to agree with your partners how to deal with this. If the surgery building is a partnership asset, you should also have on record that it is only the owning partners that benefit from any capital allowances.
- Consider the accounts.
One option is to record the unclaimed allowances as an asset in the partnership accounts, or at least to do this when creating retirement accounts. Your accountant may be willing to do this if he considers the allowances ‘realisable’.
- Be consistentâ
Should you wish to allocate capital allowances to a retiring partner before they have been claimed in full, you will also have to agree this between the partners. In this case, you would agree that the unclaimed allowances are an asset of the partnership and that they should be valued appropriately when the retirement accounts are drawn up. You should however ensure that you are consistent over time in the way that you do this.
Conclusion
This may appear an obscure technical matter, but large sums can be at stake. If the ownership of these is left unclear, it can be a recipe for a partnership dispute. Practices would be well advised to ensure they understand whether they have significant unclaimed capital allowances, and if so to agree how they wish to deal with them. This should then be cross checked with the Partnership Agreement to ensure it is consistent.
If you have any questions specifically about capital allowances, then you should contact your accountant in the first instance. For assistance in documenting a relevant policy or for updating your partnership deed to deal with the position, please contact Daphne Robertson on 01483 511555 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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What pregnancy and maternity rights does a partner have?
A partner is a business owner and employer, which by definition means they are not an employee. As a consequence, partners do not benefit from all the various employment protections afforded to employees. Despite this, we are often asked about partner entitlements, particularly regarding maternity and childcare.
What is the legal position?
Partners do not benefit from statutory maternity and childcare entitlements, although they are protected from being discriminated against by reason of their pregnancy and maternity, gender and marital status under the Equality Act 2012.
Broadly speaking, the Equality Act provides that women should not be subject to “less favourable treatment”, or subject to unreasonable requirements that they cannot meet because of their pregnancy/maternity or childcare commitments.
The majority of the maternity rights for a partner will be set out in their partnership agreement. These will be binding unless they are found to be discriminatory. In the absence of a partnership agreement, there are very few automatic rights that will accrue.
Common Issues
Particular issues where liability under the Equality Act could accrue include:
- Not engaging or promoting someone to Partner because of concerns that they will be absent due to maternity leave, or won’t be able to “pull their weight” because of childcare commitments;
- Not allowing for any maternity leave at all or a very short period only;
- Not allowing a female Partner who has a pregnancy related illness the same sickness absence entitlements as other sick Partners;
- Reducing profit share during maternity leave;
- Not accruing holiday leave during maternity leave;
- Not allowing a partner to work part time or change session times to deal with childcare commitments.
None of the above are entirely clear-cut and would need to be looked at on a case-by-case basis. For example, the Equality Act certainly indicates that holiday leave should accrue in the normal way during some of a partner’s maternity leave, but it is less clear whether this would accrue during the entire period of their absence.
Practices should be aware that they can claim under the SFE for payments to cover locum expenses during maternity, paternity and adoption leave. The common practice is that the absent partner continues to receive profit share whilst the SFE payments are being received. However, if you wish to do this, you will have to ensure that this is set out in your partnership agreement.
Conclusion
This is an area of law that is both complex and uncertain. There is only a limited amount of case law applying specifically to Partners, so each case is likely to be determined on its own merits.
Practices should be very wary of opening themselves to the risk of a discrimination claim, as these have unlimited liability. The best protection is to:
- Ensure that the practice has a clear non-discrimination policy in place which includes discrimination on the grounds of maternity and childcare commitments.
- Make clear that this policy applies to all staff, including partners.
- Ensure that the Partnership Deed is professionally prepared, that it is clear on the subject of maternity and other forms of leave, and that it is kept reasonably current as the law changes. Anything drafted more than 3 years ago may well be out of date with current best practice.
If you have any questions about this or any other matter, please contact Daphne Robertson on 01483 51155 or d.robertson@drsolicitors.com
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Does your professional indemnity insurance put you in breach of your employment contract?
GP practices and salaried GPs are advised to check the terms of their employment contracts if employed clinical staff are considering taking out “claims made” insurance, such as that recently offered by the MDU.
In a previous blog, we looked at the broader implications of claims-made insurance policies (Will you or your practice be impacted by the MDU policy changes?). However, another potential consequence, which we’ll be focusing on here, is how claims-made policies may inadvertently put salaried GPs in breach of their employment contract.
So, what exactly is the issue and what action should you take?
Current employment contracts
The ‘BMA Model Employment Contract’ states that “The practitioner will maintain full registration with the General Medical Council and membership on an occurrence based basis with a recognised medical defence organisation commensurate with your responsibilities”. (What is the BMA model contract and does it apply to me?)
This point is regarded as so important, that it is repeated in both the BMA model contract and in the BMA model offer letter. It is clear that the BMA negotiators assumed that all salaried GPs would be insured on an occurrence based basis – i.e. a policy that offers protection for any incident which occurs during the policy period, even if the claim is filed after the policy has ended.
Since all GMS practices, and many PMS practices, are required by their provider contracts to engage their salaried GPs on employment contracts that are ‘no less favourable’ than BMA model terms, it is likely that most salaried GP contracts will include a similar clause.
As a consequence, if a salaried GP moves to a claims-made indemnity policy, they may be unwittingly breaching the terms of their employment contract.
Our recommendations
As a first step, we would advise all practices and salaried GPs to look at their employment contracts and Staff Handbook, to see whether there is a requirement for employees to have an occurrence based indemnity policy.
If the requirement is included, practices need to have procedures to ensure compliance. The BMA model contract states that salaried GPs should provide “written proof and evidence of such membership”, so practices would be free to request this.
If there is currently no written requirement, practices should consider whether they are content to allow salaried staff to move to a claims-made contract or not, and employees should consider whether they wish to make the move. This is a question of understanding the risks involved, such as whether the employing practice is exposing itself to more risk by permitting claims made policies. All parties would be well advised to speak to a specialist IFA to fully understand this.
Practices which do not currently require occurrence based policies but wish to do so going forward will need to consider making changes to their employment contracts. We recommend that you always seek appropriate legal guidance before doing this.
If you are at all unsure about any of the issues we have covered here and how they might affect your practice, 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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Can you challenge the CQC?
Despite increasing pressure being placed on frontline care teams, the Care Quality Commission (CQC) has revealed that GP practices are providing a consistently good quality of care, with 93% rated good or outstanding.
Practices are also significantly more likely to maintain their rating upon reinspection than other NHS providers.
But what if an inspection takes place and you disagree with its findings? What are your options for challenging the ratings given?
CQC inspections
All GP practices are subject to a comprehensive inspection by the CQC at least once every three years. This consists of inspectors collating information externally and then being on site for a day to observe. Further follow up inspections may also be undertaken, if a particular concern has been raised in a previous inspection.
Inspectors assess all practices on the following points:
- Are they safe?
- Are they effective?
- Are they caring?
- Are they responsive to people’s needs?
- Are they well-led?
They also look at how services are delivered to people in specific population groups, such as the elderly, people with long term conditions and those experiencing poor mental health.
‘Evidence’ will be gathered from multiple sources. This may include looking at feedback and complaints, assessing local and national data, speaking to service users and staff, and any insights gained through the onsite inspection. From this evidence, a report and ratings will then be produced.
When can you challenge a CQC report?
Draft report
A draft copy of the report will be sent to the practice and it is as this point that you will be invited to provide feedback on its ‘factual accuracy’.
At first glance, the term factual accuracy may suggest that you can only correct stated facts, such as the number of staff they have recorded. However, in reality this is your chance to challenge all inaccuracies in the report and its findings, including questioning the evidence base and how it has been construed to justify the conclusions drawn.
Time is short. You will only have 10 working days to review the draft report and submit any comments.
Published report
Once a report has been published, you can also ask for a review of the ratings if you feel inspectors did not follow the correct process and procedures. You must tell the CQC of your intention to do this within 5 working days of the report being published.
Drafting your response
While there may be things in the report that you disagree with or feel are unfair, that alone is not enough. Any challenge must be based on specific issues with the evidence and how it has been interpreted, or the process that inspectors have followed.
If you believe a report to be an unfair representation of the level of service you provide, then how you word your response is important.
- Your aim is to describe why the service provided does not justify the rating it has been given, in relation to the Provider Guidance descriptions. It is therefore important that you refer back to the specific items in the Guidance (available on the CQC website).
- Don’t worry about fitting your comments within the boxes provided on the form. It is more important that you lay out your case clearly, so feel free to write on a separate sheet.
- Show you understand the whole process and all guidelines by making reference to The Fundamental Standards, The CQC Provider Guidance and The CQC Enforcement Policy
- Always avoid including any comments that are emotive (‘this is completely unfair’) or just opinion, (‘it’s impossible with the funding we have’). You need to demonstrate how a different opinion could/should have reasonably been reached by looking at the facts more carefully.
Our recommendations
While it is true that many challenges are not upheld, it is by no means uncommon for challenges to succeed. The key is always in the preparation of the supporting documentation.
If you are unhappy, make sure your concerns are submitted within the deadline. This is difficult in itself as the deadlines are so tight.
We’d always recommend that you prepare fully for the inspection itself, and present the strongest evidence you can. Try to gauge at the inspection itself whether there are any concerns, since you will only have 10 days to respond once you receive the draft report and this is very little time to gather any additional evidence. Then, if you are faced with a report and ratings you feel are unfair and inaccurate, ensure you document your response in the right way.
If in doubt, ask for advice as quickly as possible from an experienced legal team, as they will be able to help you prepare your challenge, giving you best the possible chance of it being upheld.
For more information, please contact Daphne Robertson on 01483 511555 or email d.robertson@drsolicitors.com
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Due Diligence – is it worth the effort?
For any major commercial transaction, you need to know exactly what you’re getting into and ensure (as far as is possible) that there aren’t going to be any nasty surprises further down the line.
In the same way that you would call on the services of a surveyor when thinking about buying a house, due diligence when you are merging or acquiring a practice can help you see what’s below the surface and avoid you making a costly mistake.
A GP practice merger or acquisition will typically involve:
- Legal due diligence – which focuses on all legal arrangements associated with a practice; and
- Financial due diligence – which examines the accounts and all financial dealings, usually from the last 3-4 years
For this blog, we are going to focus on legal due diligence.
Who can carry it out?
You may choose to carry out due diligence yourself, or ask your solicitor to deal with it. Using a solicitor has the benefit that everything will be documented in a business transfer agreement, with appropriate legally binding warranties and indemnities.
While certain issues are easy to identify, others are not. An experienced solicitor will know what to ask and recognise potential risks which you will want to know about.
What kind of risks may be identified?
In a GP practice merger or acquisition, the biggest risks will often be associated with:
- property
- the core contract
- staff
- pensions
but there may be others and it is important to undertake suitable investigation and raise enquiries.
Examples of issues you need to be aware of are onerous business contracts, unresolved disputes, and pending or threatened legal actions. Some of these will be documented, but others might not be.
Warranties & Indemnities
If there is any uncertainty, then you have the option to ask for a warranty from the partners, whereby they legally confirm what they have said is true. This may offer some comfort, but you may also want a series of indemnities to protect you from future liabilities crystallising. Just bear in mind that an indemnity is only as good as the financial standing of the person who gives it.
Our recommendations
At the end of the due diligence exercise, you should feel confident that you understand any risks and can make one of three choices: accept the position, mitigate the risks or walk away.
Undertaking a merger or acquisition is a big decision. The benefit of due diligence is that it can help you identify early on where the high-risk areas may be. It isn’t something you have to do, but we would always recommend it.
Fortunately, most practice mergers go through without incident and due diligence doesn’t reveal any problems. However, for those unlucky few where a major problem is highlighted, it will have been time and money well spent. Think of a due diligence exercise as similar to taking out an insurance policy.
For more information, please contact Daphne Robertson on 01483 511555 or email d.robertson@drsolicitors.com
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Is your practice prepared for the changes to IR35?
Significant changes to tax legislation IR35 are likely to come into force from April 2017. These changes have implications for any practice that engages workers, such as locums, through their own companies.
Here’s what you need to know: