Sale and Leaseback – can you have your cake and eat it?

Readers of my recent blogs will be aware that an increasing number of GP Surgeries are now occupied under occupational leases. Sale and leaseback transactions have been a significant factor in this transition from owner occupied GP surgeries to leased premises. Countless GP practices will have no doubt carefully weighed up the pros and cons of this proposition, which can be briefly summarised as follows;

For a significant number of GP practices, it is clear that the advantages referred to above have outweighed the disadvantages and as a result a large number of GP practices have entered into such an arrangement.

There remains a number of GP Practices who have thought long and hard on this matter before deciding that Sale and Leaseback is simply not in their best interests. The reasons for arriving at this conclusion will vary, and will often be affected by local issues such as the particular composition of their practice.

Based on many conversations with GP Practices on this subject,

‘The single most common reason for not choosing to proceed with a Sale and Leaseback is the long term lease commitment that the GP partners are usually required to enter into.’

Typically this is more of an issue for smaller GP practices, which is understandable given the standard requirement from most investors in the market for a minimum of 2 GP partners remaining on the lease – this is far more onerous a requirement for a partnership of 2-3 GPs than it is for a partnership of say, 8 GPs. The other significant factor which is likely to deter GP practices entering into a long term Sale and Leaseback arrangement is the age of the individual GP partners. Understandably, a partnership comprising 3 GPs in their 50s are unlikely to have a huge appetite for a Sale and Leaseback arrangement involving a 25 year lease and a requirement for at least 2 partners to remain on the lease at a time when there are considerable problems involved in the recruitment of new partners.

Is there an solution to this problem ?

It is quite likely that for many GP partners, the best option is to remain as owner occupiers of their practice premises.

As an alternative to this, it is becoming clear that some investors in the Primary Care sector recognise the difficulties of long term leases for some GP practices and are becoming increasingly flexible in the length of lease term they are prepared to accept as part of a Sale and Leaseback arrangement.

‘It is becoming clear that some investors in the Primary Care sector…. are becoming increasingly flexible in the length of lease term they are prepared to accept’

It is likely that where shorter lease terms are offered, the purchase price of the freehold interest in the property will be affected, but it is possible that many practices will be prepared to accept this as a reasonable compromise where the shorter lease term is of paramount importance to them.