Exploring the options for prospective partners
For prospective GP practice partners, there is much to consider before entering a partnership. The decision of whether to enter a partnership that requires a practice property buy-in or signing a lease can be a difficult one. In this article, we will explore the many factors that should be taken into consideration when making a decision regarding the GP property.
Buying into a GP practice property
Buying into a GP practice property has many advantages for prospective partners. One of the main benefits is the ability to gain ownership of an asset, which can provide long-term financial benefits. On the whole primary healthcare properties provide stable investments with secure returns, as the investment is underpinned by government back rental income. This income is called notional rent and is funded directly by the NHS. A practice’s notional rent is reviewed tri-annually and reflects the current market rent.
Another benefit of investing in GP practice property is that the partnership has more autonomy concerning improving or developing the building as well as accessing NHS funding for such projects. It is wise to exercise caution in this regard though. Partners should always obtain NHS approval for major improvements to ensure the changes would be included in the notional rent reimbursement.
A property-owning partner also stands to benefit over the lifetime of the investment, provided the property value has increased when they leave the GP partnership and sell their share.
While owning a stake in the GP practice building has its advantages, it also comes with its own set of challenges. A GP partnership, including property ownership, is a significant investment that not everyone can afford. It is important to note that buying into a GP practice requires a significant amount of cash or a mortgage, which may not be feasible for some. For example, a 25% share in a modest GP surgery could be as much as £250,000.
The flip side of the autonomy of ownership is there can be ongoing or unexpected costs associated with the upkeep of the building and its facilities. Coupled with a potentially large mortgage, these financial responsibilities, alongside running a practice, can be daunting.
The key considerations when buying into a practice property
Before purchasing a property, it is key to consider the following; valuation, affordability and succession planning.
Firstly, the valuation. The healthcare property market is a specialist area and as such a specialist healthcare surveyor should be instructed to carry out the valuation when buying into or disposing of a share in the property. A fundamental element of the valuation is the basis of the valuation, which should be detailed in the Practice Agreement. For example, a new partner could buy in with a valuation based on alternative use, only to be in a position later down the line, when the practice needs to be sold as an ongoing surgery. In this example, the price to buy in could be higher than the selling price and the individual could lose a substantial amount of their initial investment.
Secondly is affordability. Factors to consider are the valuation (including the valuation basis), the level of finance available (factoring in current and future interest rates), and the practice’s income. it’s advisable to seek independent financial advice.
Finally, succession planning. As a new partner, retirement is probably in the distant future, but what about the rest of the partnership? It is important to consider this factor because if all the partners are approaching retirement age and wish to sell their shares, the youngest partner could be left as the last man standing.
The last man standing does have a few options open to them, before the worst-case scenario of the practice dissolving and the building having to be sold on an alternative-use basis. One option is to recruit enough partners to buy out the existing partners. Option two would be to merge with another practice. Option three would be sale and leaseback, a lease would need to be put in place and the property is then sold to a third party. In this instance, all shares would need to be sold and at least one partner recruited to co-sign the lease as tenants. Option four – If the partners were willing to retain their shares in the property and become landlords, a minimum of one partner would need to be recruited to co-sign the lease. In this scenario, the last man standing could retain their share and be a landlord and tenant.
As well as the demographic profile of fellow partners, the number of partners should be taken into consideration. As a rule, there’s safety in numbers as the probability of being the last man standing is reduced.
In summary, owning a stake in the GP practice building can be an excellent investment, but it comes with its own set of challenges and responsibilities. It is essential to weigh the pros and cons carefully and mitigate your exposure to financial risk by seeking specialist advice before committing.
Signing a lease for a GP practice property
Taking a lease on a GP practice can offer several benefits for new partners. One of the most significant advantages is that it eliminates the need for a large upfront investment, which can be a considerable barrier for some individuals.
Another advantage of signing a lease is that it provides a partner more flexibility to move if needed. This is especially important for new partners who may not be entirely sure about their long-term plans with the practice. Before the outgoing partner can be removed from the lease, another partner may need to be found to sign the lease.
The key considerations before signing a lease
Before signing a lease, it is key to consider the following, it is NHS approved, the lease type, length and terms.
Is the lease NHS approved?
An NHS-approved lease should protect the Tenant’s reimbursement position and the right to receive NHS rental reimbursement for the duration of the Lease. The lease, having passed the NHS value-for-money considerations should also ensure that there is no shortfall between the NHS rent reimbursement and the rent payable to the landlord. An NHS-approved lease will also mean the practice can qualify for NHS improvement grants.
What type of lease is it?
Is the lease a Tenants Internal Repairing (TIR), or a Full Repairing and Insure (FRI). A TIR lease is an internal repairing-only lease, where the tenant is only responsible for internal repairs and maintenance, and not for the cost of external repairs and building insurance. An FRI lease places the responsibility on the tenant for internal and external repairs and insurance. FRI lease repairs are undertaken directly, or a service charge can be levied. Broadly speaking the financial responsibility for the practice is less with a TIR than FRI.
The length and terms of the lease
Consider how long is left on the lease and the number of co-signers. While the article has covered the flexibility of leases these two factors will assist you in establishing how much flexibility you have. Regarding specific terms a medical practices lease will contain many terms, clauses and terminology that can’t possibly be covered in a single article, you really require a specialist to assess each individual lease.
Overall, leasing a GP practice can be an excellent option for a new partner who is looking to enter a partnership without a significant financial investment. It provides flexibility and reduced responsibilities, making it an attractive choice for many. However, it is essential to obtain specialist advice from an experienced healthcare solicitor and or surveyor before signing the lease.