GP Surveyors explore the key differences between leased and GP owned premises. The majority of GP practices in the UK are owned by general practitioners and are classed as owner-occupiers. However, the number of leased surgeries has seen a large rise in recent years. These surgeries are largely owned by former GP partners, private landlords or a company.
Owner Occupier (Freehold)
In situations where a GP practice owns its surgery and operates from it, the purchase of the surgery may be funded by a mortgage or loan agreement. The practice receives a Notional Rent reimbursement, based on the Current Market Rental value (CMR) for space used for NHS purposes, such as General Medical Services (GMS) space. Additionally, there are some practices receiving Cost Rent reimbursement calculated based on mortgage or loan borrowing costs.
The practice has control over their buildings and land and can make extensions or alterations, subject to appropriate consents such as planning and or building regulations. Any changes resulting in an expansion of the surgery for GMS purposes would require NHS approval to ensure the practice continues to be reimbursed rent. The practice is also fully responsible for the repairs and maintenance of the buildings.
Notional and Cost Rent Reimbursements
If the property is occupied by the owner, it is either owned outright by the GP partnership or subject to a mortgage or loan agreement. When the premises are owned outright, the practice receives notional rent reimbursements from the NHS. If the property is subject to a mortgage or loan, the practice receives either the notional rent or a cost rent reimbursement.
Leasehold
GP practices that rent any part of their premises should have an NHS approved lease in place for this use. The lease specifies the areas permitted to be occupied and outlines the responsibilities of the practice as a tenant, including repairs and maintenance. As tenants, GP practices do not have the same level of control over the premises as property owners, meaning they require the landlord’s permission to make improvements, changes, or extensions to the building.
Types of Leases
FRI (Full Repairing & Insuring): An FRI lease requires the tenant to repair, maintain and insure the entire property, including external areas and structural parts.
TIR (Tenant’s Internal Repairing): A TIR lease requires the tenant to repair and maintain internal aspects only, and the landlord is required to repair and maintain external and structural elements.
Leased Rent Reimbursement
The lease rent (actual rent) paid under the lease to the Landlord should not be higher than the NHS rental reimbursement the practice receives.
Lease rent is adjusted to reflect the terms of the lease if they differ from the standard hypothetical lease terms of Notional Rent. The adjustment can relate to lease length, repairing, insuring or maintenance obligations.
When a GP practice leases a building on FRI terms, their NHS reimbursement must be adjusted from CMR to reflect the additional obligations of the practice. The difference between a practice’s actual rent and CMR is usually referred to as the tenant retention.
The standard tenant retention for purpose-built surgeries is usually 5%. In real terms, this means the actual rent paid to the landlord by the GP tenant under an FRI lease should be 5% lower than their NHS reimbursement. The GP tenant retains this 5% for their additional obligations. The standard tenant retention for converted surgeries is usually 7.5%.
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