In recent years general practice has seen a significant number of GP partners taking early retirement and with the proportion of GP partners aged over 55 rising above 30% for the first time, this trend is set to continue. With many practices undergoing partnership change or set to, GP Surveyors examines what to consider regarding property.
GP property valuations and partnership change
The first option for most partnerships to consider is to buy out the exiting partner or to seek incoming partners to buy into the partnership.
However, recruiting new partners has become more problematic in recent times, with GPs unable or unwilling to buy into partnerships. The responsibility and risks related to property ownership and or the perception of risk are widely stated as the main reasons alongside financial limitations.
If existing or new partners do wish to buy out an exiting partner, the process can be quite straightforward. The practice will simply need to ensure that an accurate Market Valuation is obtained from a specialist GP surveyor. Instructing a specialist is important because the valuation of a GP surgery differs from the valuation of other commercial premises. It is prudent to ensure the firm of surveyors undertaking the valuation possesses a substantial number of comparable GP premises valuations to arrive at a fair price for the subject property.
Sale and Leaseback
If the property-owning partner/s are retiring and the remaining partners do not wish to buy out the exiting partner/s, or new partner/s cannot be found to buy in, then Sale and Leaseback can be an attractive solution.
In a GP practice Sale and Leaseback transaction, the freehold or leasehold of the property is sold to an investor. Subsequently, a lease is granted back to the GP partners, enabling them to continue occupying the premises and providing medical services.
GP Practices should thoroughly evaluate the following factors when determining whether Sale and Leaseback is a suitable option for them:
Are all the property-owning partners happy to sell? If yes, Obtain a Market Valuation from a specialist GP surveyor, and if all the partners are happy to sell at the proposed price, the process can begin.
Who can/will sign the Lease? A minimum of two Tenants are needed to sign the lease. Many investors will not be interested in purchasing the practice building if there is only one signatory, as they would view the building as an insecure investment.
Transferring the GMS Contract
If there are no Tenants in place to sign a lease, transferring the GMS contract can be a viable solution. If the remaining partners want to remove the liabilities and risks of becoming Tenants and signing a long-term lease, transferring the contract is also an attractive route.
Numerous options exist for transferring a GMS contract to an alternative GP provider. These include GP Federations, Primary Care Networks (PCNs), other practices (through practice mergers), third-party organisations, or the NHS.
Establishing a Lease Agreement
An alternative option to sale and leaseback is establishing a lease between the retired GP partners and the current GP partners. This option allows GP partners who wish to keep ownership of the premises and their investment to do so.
When putting a lease, both Tenants and Landlords need to be aware of the following key considerations:
NHS Approvals: It is key for Tenants and Landlords that the lease is fully approved by the NHS before signing. This approval ensures the terms are fit for purpose and there is no rental shortfall between the NHS reimbursement and the rent being paid under the lease.
Rent Reviews: Landlords and Tenants should always obtain professional advice before signing a lease and when a rent review is instigated. This ensures that the practice is safeguarded against agreeing to a rental amount that may not be reimbursed by the NHS. This also ensures the Landlord protects their investment as the rent is set at an appropriate level.
Repairing Obligations: It is essential for both the Tenant and the Landlord to understand their repairing obligations under the lease before signing. There are two main kinds of lease, a Tenants Internal Repairing (TIR) and a Full Repairing and Insuring (FRI) lease. Under a TIR lease the Tenant (GP Practice) is responsible for the internal repairs only. Under an FRI lease the Tenant (GP Practice) is responsible for the entire building.
Landlord & Tenant Act 1954: All parties should be aware that upon the expiration of the lease, Tenants have the right to automatically renew their lease under materially similar terms to the existing lease. Unless this right is specifically excluded from the lease agreement.
Alterations: It is essential that Tenants fully understand any limitations under the lease before undertaking any property alterations. The Landlord may require the Tenant to remove any alterations that are not permitted under the lease agreement.
Service Charges: It is crucial for Tenants to fully understand the scope and estimated costs associated with any service charges. As the lease may require a Tenant to pay additional charges for services such as cleaning, decorating, repairing, and maintaining communal areas, especially in multi-occupied buildings. These service charges can be significant expenses for a practice and are not recoverable from the NHS.
Summary
Which ever route is chosen by practices, it is advisable to seek guidance from specialist primary care surveyors, accountants, and solicitors to make informed decisions that benefit yourself, the partnership, the practice, and the patients.
Contact us
If you have any questions concerning you GP Property and partnership change, please get in touch and one of the team will be happy to help.