Surgery rent reimbursement: changing times for GP tenants?

Are you aware of your entitlements and responsibilities when occupying your GP practice premises as a tenant? Bryan Wootten, director of Wootten Dean Chartered Surveyors explores the issue of rent reimbursement where the GP is very much involved in the rent review process and the negotiations involved – prior to the review of the reimbursement rent

bryan WottenIt has been notable over recent years that an increasing proportion of GP practices are now occupying their practice premises as tenants under the terms of a lease – rather than as owner occupiers. Whilst this change can be significant for an number of reasons, the principle of NHS rent reimbursement to GP practices continues to underpin both forms of occupation as a means of ensuring the provision of surgery accommodation from where NHS services will be delivered.

Occupying as a tenant

For GP practices occupying their premises as tenants there has always been a sense that the amount of rent they are charged for their surgery occupation is less important than the principle that the rent is fully reimbursed to them. However, rent reimbursement has become more of an issue for GP tenants in recent years.

Until the introduction of the 2013 Premises Cost Directions GP tenants invariably had very little involvement in the rent review process, as the landlord negotiated the rent at review directly with the Primary Care Trust’s surveyor (usually the District Valuer). As long as the reimbursement rent covered the lease rent, the GP practice had no real reason to get involved.

The changes to the arrangements for reviewing surgery reimbursement rent introduced in April 2013 meant that GP practices were, inevitably, far more involved in the rent review process. As a result of the changes the lease rent review now has to be agreed between the parties prior to the review of the reimbursement rent.

The significance of this change is that it exposes GP tenants to the risk that the reimbursement rent might be assessed at a lower level than the lease rent – thus undermining the fundamental principle of full rent reimbursement referred to above.

Mitigating the risk of insufficient cover

Whilst there are a number of steps that GP tenants can take to mitigate this exposure, the potential for such a deficit is unwelcome news for those GP practices affected. In terms of the best way to deal with the uncertainty created by rent reviews, and the changes that have been implemented, Bryan’s advice to GP tenants is to seek assistance from a surveyor who has experience in dealing with leases where GP practices are tenants.

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Navigating uncetrtainty

It is fair to say that there has been considerable uncertainty created by these changes; in part this uncertainty relates to the fact that the changes introduce procedures for reimbursement rent reviews that are inconsistent with the rent review provisions contained in the majority of leases to which many GP tenants are contracted.

In most situations, the difficulties created by the changes to reimbursement rent procedures for tenanted properties have been resolved by the pragmatic approach adopted – in particular by landlords – who, for the most part, have retained a focus on the resolution of the rent review rather than the difficulties of the legal interpretation of leases in light of the 2013 Premises Directions.

One of the reasons why many landlords have adopted such a pragmatic approach is that, despite the changes introduced, they generally have an interest in retaining the close relationship between lease and NHS reimbursement rent.

Not only will this help to maintain the confidence of GP practices in surgery lease arrangements but there is also recognition of the fact that, as long-term investors in primary care property, the value of their assets are significantly enhanced by the covenant strength of GP tenants and the additional security of NHS funding support.

The truth of the situation

The tension which is at the heart of the changes introduced by the Department of Health (DH) in 2013 represents a challenge to a previously implied understanding between GP practices and the DH. GP practices have long held to the belief that the principle of full reimbursement of the cost of their accommodation is a fundamental element of their contract with DH while, on the other hand, the DH appears to be of the view that, as independent contractors to the NHS, GP practices should now be prepared to accept a transfer of risk regarding the accommodation costs reimbursed to them.

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