GP surgeries: the drift towards leasehold occupation.
Most GP practises have historically been owner occupiers of their surgery premises. Whilst it is still the case that a significant number of practices remain owner occupiers, over the past 20 years there has undoubtedly been an increase in occupation of GP practice premises on a leasehold basis rather than as owner occupiers.
There are a number of reasons for this change, and a number of implications. The main reasons for the change are as follows:
The desire on the part of the Department of Health for an improvement of the Primary Care estate which involved moving practices from poor quality converted premises into modern purpose-built surgeries. The implementation of this policy involved a number of forms of procurement, some of which were based on the model of practice occupation as tenants (for example, third party developments and LIFT). Whilst it is true to say that this policy initiative allowed GP practices to procure new purpose-built premises whilst retaining ownership, there has been a significant increase in the number of leasehold occupations of practice premises as a result of this policy initiative.
The desire on the part of many GPs not to commit to property ownership of their practice premises. The reasons for this are varied but relate in part to the significant increase in property values in U.K. over the past 30 years, which has led to an increased burden on GPs contemplating investment in their practice premises in the earlier stages of their career.
As a result of the above, significant numbers of GP practices have entered into sale and leaseback arrangements with third-party investors. In addition to addressing the problems relating to the burden of property ownership and the reluctance of increasing number of GPs to take on this responsibility, this arrangement has also benefitted many GP owner occupiers who have received significant capital receipts as part of this transaction.
There have also been significant number of retiring GP partners who have been unable to dispose of their interest in their practice premises as a result of the reluctance amongst younger GPs described above. GP partners who retain property ownership following their retirement effectively become third-party landlords. Following their retirement, they would be well advised to arrange for a lease to be put in place as this can protect their interests and gives clarity and certainty to both parties. As part of my work with GP practices, I am aware of many situations where leases have been created following the retirement of a GP.
Protecting your rent reimbursement
One of the significant changes to the Premises Directions update in 2013 by the Department of Health was the requirement for GP practices to seek prior approval from NHS England prior to entering into a new lease. This requirement for prior approval is significant in that rent reimbursement to GP practices is conditional on it.
The effect of this is that GP practices are no longer just required to agree a new lease with the landlord, but must also be careful to ensure that the proposed lease terms (either in the form of a heads of terms document or as a draft lease) are submitted to NHS England for approval prior to entering into lease terms with their landlord. Following receipt of proposed lease terms by a practice, NHS England typically refer the matter to the District Valuer for his approval. The District Valuer will either confirm approval or recommended alterations to the proposed terms. Practices should be aware that whilst this process can be relatively straight forward, negotiations with the District Valuer may be required so as to ensure approval of the proposed lease, which is important in the context of ensuring continuing rent reimbursement to the Practice.
Whether you are entering a new lease relating to a new surgery development, or as part of a Sale and Leaseback arrangement, or even entering into a new lease on an existing property, it is critical that as a Practice you follow the procedures outlined in the Premises Directions described above. You can find a copy of the Premises Directions here [Premises Costs 2013.pdf]
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Wootten Dean is an established property consultancy led by Bryan Wootten who has over 15 years of experience as a valuer and general practice surveyor. Bryan is an RICS Registered Valuer who deals with a range of property types and has a special interest and focus on the NHS primary care environment.