By Louise Misiewicz
Article relevant to the tax year 2017/18
Are you a GP surgery that is losing out on valuable income because your rent reimbursement is too low?
What is rent reimbursement?
Notional Rent is a method of reimbursement for GPs who own their own GP surgery premises and use it for approved NHS purposes.
The Premises Costs Directions 2013 explain what things should be taken into account when considering a GP practices’ Notional Rent and how this should be calculated.
- Where the GP owns the building, this is known as ‘notional rent’;
- Where the GP is paying off a mortgage, this is known as ‘borrowing cost reimbursements’ (historically known as ‘cost rent’);
- Where the GP is a tenant in a building owned by an NHS landlord or a private owner, they receive leasehold cost reimbursements.
A GP Practice is entitled to apply to the Health Board for a notional rent payment. Note, it is only a GP Practice (i.e. the contractor) that can make the application.
The assumptions made are:
- A lease term for 15 years with 3 yearly upwards only rent reviews;
- The tenant is liable for internal repairs and decoration and the landlord liable for the costs of buildings insurance and for external repairs and maintenance;
- The tenant does not pay any service charge for upkeep, maintenance, cleaning and heating of common parts;
- There is vacant possession;
- Rates are payable;
- The tenant can assign or sublet the whole of the premises subject to landlord’s consent not to be unreasonably withheld;
- The premises can be used for practice purposes and for any other purpose for which planning permission has been or is expected to be granted.
Never assume your Notional Rent will automatically increase if you make premises improvements. In a lot of cases, NHS England will only amend your reimbursement for improvements if they have been pre-approved.
The issue of rental reimbursement valuations
Between 2012 and 2014, GP Surveyors negotiated average Notional Rent increases of 10% per surgery (over and above NHS England’s initial valuation). This amounts to an average increase of £2,520 a year and £7,560 over the three year Notional Rent period. This goes to show the importance of seeking a second opinion.
One of the largest increases in 2014 was 53% equating to £66,375 over three years. By comparison, the report found average increases of 9% (£3,602 per year) in 2013 and 9% (£3,291 per year) in 2012.
A Notional Rent rise can increase the capital value of your surgery (i.e. the price it will sell for on the open market). This is very important for partners who are thinking of selling their premises (including a share) or retiring in the future.
You must make sure you use a surveyor who specialises in valuing GP surgeries. They will have the expert knowledge necessary to assist in their negotiations with the DV.
GP practices contractually have three years to appeal their Notional Rent
The rent reviews on GP surgeries generally occur every three years whether the Landlord is NHS England or a private landlord.
Paragraph 99 of the NHS GMS Regulations 2004 states that: ‘the contractor and the Primary Care Trust must make every reasonable effort to communicate and cooperate with each other with a view to resolving the dispute, before referring the dispute for determination in accordance with the NHS dispute resolution procedure.’
This means NHS England must endeavour to discuss and resolve Notional Rent appeals at a local level. If an agreement cannot be reached, then the matter can be referred to the NHS Litigation Authority (NHSLA) to follow the NHS Dispute Resolution Procedure (LDRP).
When completing the appropriate forms please be careful to make sure that you include all the accommodation that is used for the practice. This is particularly important as the DV will invariably use the information when assessing the Notional Rent reimbursement. If a practice forgets to include a couple of rooms, or parking spaces it is likely that their rent reimbursement will be reduced accordingly.
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Issues of challenging the rent reimbursement value
You may pay more in rent than you will be reimbursed during the challenge process if you disagree with the rent reimbursement.
You would have to finance this shortfall yourself until you are paid by NHS England, which could be a long time. Furthermore, interest is payable on any rent arrears payable and this is unlikely to be recoverable from NHS England.
Making more of your GP surgery
You could be sitting on a gold mine if you have empty rooms or empty storage cupboards. Instead of leaving this space empty why not sublet the rooms out. This has a number of benefits:
- Rental income for your practice;
- Ability to share utility expenses and repairs of the surrounding areas;
- Referral work from the tenant, if they have complimentary services.
You do need to be careful that the rent reimbursement from the NHS is not impaired because you have rented out one of the rooms. We suggest you to take professional advice from the surveyor before embarking on this opportunity.
NHS Property Services Update February 2017:
NHS England is coming to the end of a process to confirm the funding needed by CCGs to cover increased costs resulting from the move to market rent.
Following our work to agree the correct figures, 75% of CCGs have received their funding from NHS England. This funding is provided with the expectation that each CCG will pass it on to tenants, and with the direction that it should only be used to clear NHS Property Services costs.
Our local finance teams have been made aware of the funding allocations and are ready to support CCGs where they can. We will continue to work with the remaining 25% of CCGs to confirm the level of funding they require, a process we expect to be completed by mid-March.
Please contact your CCG team for more information. If you are a CCG and have not yet confirmed that the information we supplied is in line with your expectations, please contact england.PSmarketrents@nhs.net as soon as possible.
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