Introduction
Across premises used for primary cares services, the Commissioner pays, or reimburses, reasonable property costs to the GP practice as a contractor. This model has applied since the NHS was formed, since many GPs at the time were operating from the front room of their house and when the NHS was formed, the NHS then paid rent for the room being used for the newly formed NHS. As doctors’ practices then expanded, more and more of the GP’s residence was being used for surgery premises which is why many GP surgeries to date have been essentially houses converted for medical use.
This approach of paying rent for GPs own premises continues to date. It remains the case that the majority of premises used for the provision of primary care services are owned as partnership assets. In such instances the NHS pays rent with this being referred to as either Notional Rent or Current Market Rent.
Alternatively, practices may lease their premises from a private landlord. It is for the GP practice, as the occupier of the property, to pay rent to the landlord with the NHS then reimbursing to the practice either the actual rent or what is considered to be the reasonable rent (as advised by the District Valuer, or appointed valuer), with this being referred to as Reimbursed Rent.
This payment of rent is defined within the NHS Premises Directions, with the most recent version issued in May 2024.
There is a third type of rent, being Cost Rent. This type of rent rarely applies these days and largely dates back to new premises being built during the 1990s where the level of rent that would be payable by way of Notional Rent would not be adequate to cover the cost of building the premises, with there being a higher level of rent required to reflect the actual cost. In most instances, the mortgages that originally funded the construction of the medical centre have now expired, with the practice then losing their entitlement to Cost Rent and switching to Notional Rent, or alternatively, the level of Notional Rent has now exceeded what the Cost Rent would have been, resulting in the practice making the irrevocable decision to switch from Cost Rent to Notional Rent.
Rent Reviews for Owned Premises
Notional Rent is to be reviewed every three years with each practice having their own individual rent review date. The process commences by the practice completing and submitting a CMR1 form to the ICB (Integrated Care Board). The ICB then instructs in the District Valuer (or appointed valuer) to provide their opinion of Notional Rent. This is notified to the practice by way of a letter (CMR6) which normally provides a detailed analysis of the proposed Current Market Rent. It is then for the practice to either accept this proposed rent or to challenge it. Under the latest Premises Directions, any challenge is to be submitted within 12 weeks of the date of this letter or such other period of time as stipulated within that letter.
If a challenge is submitted, a requirement under the new Premises Directions is this needs to be written by a Chartered Surveyor appointed by the practice and is to set out details of comparable evidence that the valuer considers to be appropriate to seek a higher level of rent. The ICB will then reinstruct the District Valuer (or appointed valuer) to enter into negotiations with the surveyor appointed by the practice and hopefully a negotiated settlement will be reached.
In the event that agreement is not reached, the parties need to undertake the Local Dispute Resolution process. If this still does not reach an agreement, the practice may then apply for the rent to be determined by NHS Resolution. It is important to note that any application to NHS Resolution needs to be submitted within three years of the date of the CMR6 letter (not the date of the rent review).
Rent Reviews for Leased Premises
The rent review process is normally stated within the lease and it is the lease that takes precedence rather than the NHS reimbursement system. This means that it is normally the case that it is the landlord that will commence the rent review with the ICB not being entitled to unilaterally review the reimbursed rent .
Once the landlord commences the rent review, the new Premises Directions stipulate that the practice is then to appoint their own Chartered Surveyor to undertake negotiations with the landlord (or the landlord’s appointed surveyor) to see if agreement can be reached. The new Directions no longer require there to be a signed Memorandum at this stage but once a new rent figure has been provisionally agreed for the tenant to submit the provisionally agreed rent to the ICB, along with evidence that negotiations have taken place.
The ICB will instruct the District Valuer (or appointed valuer) to consider the proposed rent. A letter is issued to the practice (CMR4) setting out the District Valuer’s (or appointed surveyor) proposed rent. If this differs from the rent that the landlord and tenant had provisionally agreed, the District Valuer will engage with the tenant’s appointed surveyor, but not the landlord’s appointed surveyor. This places the tenant in a position of possibly having to renegotiate with the landlord, whilst also possibly negotiating with the District Valuer with the intention of there being tripartite agreement to the proposed level of rent.
Again, if agreement cannot be reached, the parties will often seek to undertake the local dispute process with there being potential recourse to NHS Resolution. Alternatively, most leases include a dispute resolution process and it may be that the lease dispute process is the one that is followed, although in most instances it is the NHS dispute resolution process that is followed.
The same timeframes to reply to the CMR4 letter are as for the CMR6 letter (12 weeks, unless otherwise stated). Likewise, an application to NHS Resolution needs to be made within 3 years of the CMR4 letter.
Improvement Grants
There have been major changes made to the quantum of Improvement Grants that may now be granted. Previously the maximum contribution an ICB could make was 66% towards the total cost of the works. This has now been increased with the ICB having the opportunity to contribute up to 100% of the cost of the works (although lower amounts may still be more commonplace). There is now a revised period of time for which any additional rent that is derived from the improvements is then abated (discounted), with this now having a period of between six and eighteen years, depending on the total project costs.
What is a Lease?
A lease is a contact between the landlord of the property and the occupier of the property. The granting of a lease gives the tenant the exclusive right to occupy a property for a defined period of time (a rolling agreement is not a lease). The tenant is typically obligated to pay the landlord rent in exchange for the landlord giving the tenant the exclusive right to occupy the property. Depending on the term of the lease, there may then be a rent review during the term of the lease.
A lease will contain various clauses and conditions. This should detail who is responsible for repairs to the property, which in turn may be separated between who is responsible for internal repairs, and who is responsible for external repairs. In more recent years there has been a move towards most leases for premises in the primary care sector being on internal repairing terms whereby the tenant is responsible for the interior only, with the landlord being responsible for the exterior. However, it is not always possible for leases to be granted on internal repairing terms. Where a lease is being renewed with the original lease being on fully repairing terms (i.e. where the tenant is responsible for the interior and exterior of the building), it is often the case that any renewed lease thereafter will likewise be on fully repairing terms.
Dilapidations
Dilapidations is the responsibility of the tenant to return the property to the landlord in the same condition it was in as when the tenant’s occupation was originally commenced. If a lease is being renewed, then often there is not a claim for dilapidations at that point in time with the liability continuing throughout any subsequent lease until such time as the tenant’s occupation is coming to an end. Even at that point in time, any liability for dilapidations may depend on the future use of the property once the tenant’s occupation is coming to an end. It may be that if the property is going to be demolished, that there is no liability for dilapidations.
Service Charges
There is much consternation about service charges which largely relates to the estate as owned by NHS Property Services Limited where these have been a rather contentious issue. In essence a service charge is only applicable where the property is multi-occupied with there then being shared areas and common parts. It may be that the extent of the common areas and shared parts may be limited to the interior, but may also include the exterior, which may include the roof and structure of the building or, indeed, the external areas such as car parking. The list of items that are subject to a service charge should be listed within a lease, with it being clearly stated as to what items may then be chargeable by the landlord to the tenant.
Adam Thompson (November 2024)
Display Energy Certificate (DEC) – change in requirements
A DEC will be required where the total useful floor area of the building exceeds 250m² which ‘is occupied in whole or part by public authorities and frequently visited by the public’. DECs last for 10 years when the floor area is over 250 metres squared and up to 1,000m².
Where the building has a total useful floor area of more than 1,000m², the DEC is valid for 12 months. The accompanying advisory report is valid for seven years.
We asked the BMA legal department for a view on whether they think practices would be covered. They have said that for the purposes of a GP practice the definition of a public building is likely to include surgery premises, as GP practices are in receipt of public funds and provide a public service to large numbers of people who visit regularly.
They have added that their opinion is that it would be for the occupier of the building, rather than the owner to arrange the DEC (the use of the building will usually be dictated by the occupier so it would make sense for them to arrange same if the above criteria is applicable to them). However, the position might be different if NHS Propco owns the building, rather than a private landlord, in which case they will probably be responsible for obtaining and paying for the DEC. The guidance does also state that where there is doubt over whether a DEC is needed, it is good practice to obtain one (Guide to Display Energy Certificates and Advisory reports for Public Buildings). The DEC is purely based on the overall output of a building and not each single piece of equipment.
The assessment must be undertaken by an accredited energy assessor using the methodology approved by the Secretary of State. To find details on assessors, check gov.uk at: – https://www.gov.uk/get-new-energy-certificate
To view the Regulations please visit:
http://www.legislation.gov.uk/uksi/2012/3118/regulation/14/made
ASI Environmental can be contacted via telephone or email: 0800 161 3384 or enquiries@asi-surveys.co.uk . All prices include a full Assessment, Lodging of Display Energy Certificates and Advisories.
However, we are also aware that there are other local Chartered Engineers who offer this service so it may be worth shopping around or working with other local practices to obtain a discount.