Planning for tomorrow

Thinking about moving on? There may be a substantial amount of equity in your practice to be withdrawn, a successor to be recruited, a lease or mortgage to be managed…this is where a well-developed succession plan comes into its own. Marie Cahalane looks at some of the key issues you need to consider

According to Understanding pressures in general practice, the 2016 King’s Fund report, more GPs today are retiring – and retiring earlier. A 2015 national survey of GPs by the British Medical Association reported that 34% of GPs intend to retire within the next five years and 17% are considering a change to part-time work. And this is not a phenomenon just reserved for older GPs – younger practitioners are leaving their partnerships too. With this in mind, succession planning is a serious concern and, when it comes to managing property and extracting your investment, there is much to be considered.

Key considerations

Your succession plan will depend on whether you’re a solo practitioner or in a partnership and also whether the practice will continue without you or cease altogether. Adam Thompson, director of Primary Care Surveyors, points out that you’ll need to consider recruiting a successor or, if the practice is not to continue, provide patients with alternative practices and the premises will need to be sold or redeveloped for alternative use.

In terms of finding a successor, there are increasing recruitment difficulties to overcome, resulting in more practices hiring salaried or locum GPs. According to a 2016 report by The Health Foundation, Staffing matters; funding counts, anecdotal evidence shows that locums account for an increasing proportion of the workforce within general practice (it should be noted that complete data ‘are not available’). Plus, as Adam tells us, in a growing number of cases the retiring partner doesn’t sell his or her share, opting to remain the owner of the property post-retirement. “Likewise, younger doctors are often reluctant to buy-in and so sometimes stay as salaried doctors or become non-property owning partners,” he adds.

Ownership of property is a key consideration. If the practice is leased the leaving partner’s name must be removed from the lease agreement and the new partner’s added. If owned by the partnership the leaving partner will need to decide whether to keep their share or sell it to a replacement partner or the existing partners. It’s complicated…how can you make succession as painless as possible? There are a number of possibilities, one such is the sale and leaseback model.

Sale and leaseback

Lloyd’s Bank defines a sale and leaseback as follows: ‘Very simply, sale and leaseback means selling the practice’s premises to an investor, but continuing to work from the premises and paying rent to that investor who has become the landlord.’ An important point to make is that the rental amount should be covered by the NHS’ ‘Notional Rent’ reimbursement – this is to ensure the practice will never be unable to pay. So, for GPs who want to retire with minimal complications, sale and leaseback can be a good way of releasing money from the practice without the need for an incoming GP to buy them out.

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Richard Oates, director of Acquisition Consultants, outlines some of the benefits of opting for sale and leaseback, giving the example of a partnership of six GPs where two are considering retirement. A sale and leaseback would mean the departing GPs could get their equity out and transfer this to a pension scheme while paying very little tax. The remaining partners would be able to continue to practice on the premises without having to worry about repairs and renewals – which would now be handled by the new landlord – and new partners would not need to take a loan to invest in the practice – all attractive prospects. “In many cases, if partners want to move site because the practice is growing, the investors may actually help them do this, and aid them in constructing new, purpose-built premises,” Richard adds.

Circumstance-sensitive

Your long-term practice and succession plan is an important consideration here because, as Richard explains, sale and leaseback normally works on a 15 to 25-year lease, with three-year break clauses. A shorter lease will often mean a lower sale price and, conversely, a longer lease will usually mean a higher sale price so, while the shorter lease will maximise flexibility, a longer lease may be better in terms of working out the mortgage on the practice. Which way forward would be best for your practice?

When valuing equity, a combination of factors is considered. “One such is notional rent, but things such as the age of the building, whether it’s in a good state of repair, modern, if it’s purpose-built are also in the mix,” says Richard, and Adam points out that, in the case of older, house conversion-type surgeries, it may be unlikely that they will remain in use as healthcare facilities in the future. “This may need to be identified. Sometimes it’s appropriate for valuations to be provided on both bases. This should assist practices to ensure they get the correct value for their assets,” he says.

Selling surgery premises is complex and options will be dependent on the individual circumstances of the practice. Sale and leaseback isn’t a ‘one size fits all’ option so, while there are many benefits there may also be drawbacks. One parting piece of advice – if your GP practice is considering it make sure you speak to a specialist surveyor.

The BMA offers some useful guidance for succession and premises in The future of GP practice premises you can access this information here: http://ow.ly/M2j73091mOi

Under the Premises Cost Directions (2013) practice managers should be ready to serve notices in advance of succession

  • NHS England must be notified three months in advance about departing partners and must also be told about incoming partners.
  • Personal medical services (PMS) or general medical services (GMS) contracts will stipulate that the area team (AT) should also be notified when a partner gives notice and when a new partner starts.
  • If a practice is going to be left with a solo partner you will need to inform the AT 28 days in advance or the NHS can claim the contract has come to an end.