It’s not all tied up
GP practice budgets are under pressure and uncertainty hangs over funding. Now’s the time to assess potential income-generating practice assets, such as premises, and ensure you’re making the most of what NHS England has put in place
It was the best of times, it was the worst of Dickens’ a Tale of Two Cities now ring true for GPs and their practices; pressure is mounting due to severely stretched budgets and increasing demand on services, yet we are seeing more innovation in the sector and the NHS is taking measures to support primary care, as evidenced in the Five Year Forward View (FYFV) and specified in the GP Forward View.
It has long been recognised that many GP premises have not seen substantial or sufficient investment of late; through the FYFV, NHS England sought to encourage investment by, for example, paying indemnity costs before 2020 – up to 100% reimbursement of premises and premises development – as well as initiatives – such as the Estates and Technology Transformation Programme. Practices are eligible for different rent reimbursements depending on whether the practice is owned by GP partners or another party; understanding what’s available and how you can optimise it is important.
The type of reimbursement GP contractors are entitled to depends on who owns the building. Where the building is owned by the GP, notional rent is applicable. The British Medical Association website explains what it’s based on: ‘The amount of notional rent to be paid to the contractor is based upon the current market rental (CMR) value for the property, as determined by a surveyor. The CMR is assessed based on notional lease terms (hence the term notional rent), which assume a 15-year term and tenant internal repairing obligations with the landlord responsible for external and structural repairs together with insurance.’ It also specifies that the level of CMR and the notional rent paid must be reviewed every three years, a task undertaken by the district valuer (DV). The motivation behind this is to refund GPs the cost of their accommodation – so long as they’re providing NHS services and are on a GMS or PMS contract. This is a great support to GPs providing a fair and reasonable rent for the accommodation used to provide contracted medical services.
“Notional rent can be challenged – if a practice thinks that the DV’s survey and valuations of their premises are different from theirs – this could result in some differences in payments,” Survindar Chahal, group content and customer experience manager, First Practice Management notes. There may be a discrepancy between the DV’s survey and valuations of the premises, which will impact the amount being reimbursed, such as property square footage or its condition. Survindar points out that something as simple as recording an incorrect floor area can affect the amount reimbursed. “Not checking a rent review from the DV practices could potentially be losing out on significant income – some practice managers have said they’ve been able to receive anything from £500 up to £4,000 more, so it’s worth making the effort.” A professional surveyor should be employed to evaluate the CMR.
“By not challenging a rent review from the DV practices could potentially be losing out on significant savings”
GPs who rent their premises are eligible to receive reimbursement in respect of their rental costs. ‘Actual rent’ is assessed on tenants’ internal repairing (or TIR) terms by the DV; but there are also GP practices occupying premises under full repairing and insuring (FRI) terms. In an FRI lease the tenant is responsible for structural and external repairs and insurance – either executing works themselves or paying a landlord’s costs of doing so as part of the service charge. “We try to ensure that practices under FRI terms retain around five per cent from the ‘actual rent’ reimbursement amount to reflect the FRI lease,” Victoria Armstrong, partner at Sintons LLP, says. This percentage can vary from case to case and is also assessed by the DV. Victoria explains that this is because the rent that would be assessed in the market for premises, taking into account specific terms of an FRI lease, would usually be lower than the rent which is assessed by the DV for the same premises under the Premises Directions – which aim to ensure consistency in terms of rent reimbursed. “Therefore, the amount of reimbursement received under the Premises Directions will generally be higher than market rent as it does not reflect the fact that the practice is taking on responsibility for the additional items, such as structural repairs and (in some cases) insurance,” Victoria continues.
When looking at a lease in such situations, Victoria recommends one of two approaches. Practices should look to ensure that the lease specifically states that only 95% – approximately – of the reimbursement amount should be paid to the landlord – in order to reflect the practice’s additional liabilities for certain items. “If a GP FRI lease is not carefully drafted, we could end up in the situation where the practice is paying the full reimbursement amount to the landlord and picking up costs of maintenance for the structure or buildings insurance, for example, in addition to that as part of the service charge,” Victoria clarifies.
As an alternative, if the full amount is paid to the landlord, it is advisable that certain services should be excluded from the service charge provisions, for example, structural and external repairs and maintenance. This is to ensure that the practice is not charged for such services separately. ‘Tenant’s retention’ is designed to reflect the fact that a practice’s lease is on FRI terms and that it’s taking on responsibility for additional items that would usually have the effect of reducing rent payable under a lease in the market; specific drafting must be included in the lease if a practice is to benefit from this.
NHS reimbursements are there to assist GP practices and to ensure that your practice is supported, so don’t be hesitant about asking questions. Ensuring you are receiving the correct amount has the potential to enhance your capital value.
This article was published in Practice Business Nov/Dec 2016