GP rent abatements – all the essential questions answers by the experts.
Why is the surgeries notional rent subject to an abatement?
If a surgery has received external funds to contribute towards the costs of building or refurbishment work at the practice, the NHS will abate the notional rent in proportion to the level of contribution the surgery has made.
How long will the abatement apply for?
The length of time for which the rent abatement will apply to the GP practice is dependent upon when the works were approved by the NHS.
For works approved:
- Pre 1st April 2013, the 2004 Cost Directions will apply.
- Post 1st April 2013 onwards, the 2013 Cost Directions will apply.
Under the 2004 Directions, regardless of the total costs of improvements, the rent abatement will run for 10 years.
The 2013 Directions introduced a new proportionate scale dependent upon the total costs of the improvements:
- Works costing up to £100,000 – abated for 5 years.
- Works costing between £100,000 – £250,000 – abated for 10 years.
- Works costing more than £250,000 – abated for 15 years.
How is the abatement applied?
When the works are complete you should contact the NHS to instigate a new rent reimbursement review. The review date should be brought forward to the date the works are complete, as there has been a material investment in the property and the improved property is being used for the provision of care at that point.
In order to calculate the abated figure, the property needs to have been valued pre improvement and post improvement. The Current Market Rent (CMR) of the pre improved premises is then taken away from the CMR of the improved premises to find the value attributable to the improved works.
The amount of capital contributed by the practice towards the improvements is expressed as a percentage (with 10% added to cover landlord expenses). This percentage is then applied to the value of the improvement works, with the resultant apportioned value added to the pre improvement valuation figure.
As stipulated in the Premises Cost Directions 2013 – Schedule 3, Part 1 Notional Rent Abatements, the post improved notional rent is expressed as the following formula:
I’ (A+10)% + PU
The below GP rent abatement calculation includes an example of a GP practice that has carried out improvement works and contributed 66% of the capital to the works.
- (Pi) £100,000 – (Pu) £60,000 = (I) £40,000
- 66% + 10% = (A) 76%
- (I) £40,000 x (A) 76% = £30,500
- £30,500 + (PU) £60,000 = £90,500 (Total abated CMR)
Pi – Current Market Rent for the whole of the improved premises.
Pu – Current Market Rent for the premises prior to improvement.
I – Current Market Rent value of the enhancement.
A – The amount of capital provided by the practice as a percentage of the whole cost of the improvements
(10% is added to cover normal landlord expenses).
The abatement directions when applied properly ensure that the practice will receive additional rent for the fair proportion of works that they have funded and that the NHS only pay the fair proportion of value reflecting the non-practice funded proportion of the works.
If the NHS offer to fund my works 100% in exchange for contracting out of the premises costs directions, is this a good option?
There is nothing within the directions that indicate that a practice should be asked to sign away the right to receive rental uplift on improvement works. This may be deemed an unfair contract term and the directions are there to guide both sides as to reasonable expectations and conduct. Under the directions, a practice should still receive 10% of the value enhancement of the works even where NHS fund 100% of the works.
Before signing up to any such agreement, we would strongly suggest practices seek specialist professional advice.