General practice leases – are there real risks involved for practices in the face of a new lease?

Dementia Care
August 18, 2017

The most recent tranche of NHS England ETTF (Estates Technology and Transformation Fund) has been the enabler of a number of large projects relating to schemes to rehouse practices in larger, better quality premises. In some cases, this will involve practices/partnerships taking on a lease for 10, 15 or 20 years or longer on the premises as required by the current – but soon to be rejuvenated we are reliably informed – General Practice Premises Directions (2013).

These days some GPs report not feeling as secure in general practice as they perhaps once did especially when it comes to increased workload, reduced work-life balance, a shift in how income is earned, higher costs and increasing central and visible performance management of the services they provide – as well as the extra work involved in some areas in respect of CQC regulation. This less optimistic mood, in turn, can have an effect on their approach to committing to what they regard as a long lease on new premises no matter how much they want to expand and improve the quality of their practice accommodation.

This diminished confidence in general practice has made some partnerships reluctant to take on, say, a 20-year lease with no break clauses due to the level of investment involved in developing the premises and the need for the developer to recoup those development costs. Some practices are concerned about the sustainability of the partnership where partners are nearing retirement and recruitment is challenging while others are simply concerned they might end up with what is perceived as a potentially fatal rent bill if they give up their GMS contract before the end of their lease term.

Somewhere along the way the message that leases on GP premises should not be or become a burden has been lost in translation for a growing number of partnerships. The reality, however, is that once NHS (co-commissioning CCG or NHS England as appropriate) approval has been granted, the lease will attract NHS Recurring Premises Costs Reimbursements to cover the financial liabilities under the lease.

Clinical Commissioning Groups (CCGs) are legally prohibited from taking on or holding leases for third parties. NHS Property Services is not currently a vehicle for the holding of new leases on behalf of general practices although this may change in the foreseeable future – albeit there is no timescale at the moment. There are cases where large acute or community providers have agreed to take on leases for new practice premises when this has been supported by local commissioning and estates strategies and does not present a risk for any of the provider organisations concerned.

Where CCGs have taken on co-commissioning they have assumed the role of NHS England in respect of determining whether new or varied leases are affordable and represent value for money. It is only when these criteria have been met in relation to the lease terms (based on a report from the District Valuer’s office as commissioned by the CCG or NHS England on behalf of the NHS as appropriate) can the practice, as a tenant, apply for funding approval (to secure rent reimbursement). These steps must be completed before any GP premises lease can be signed with a landlord in order to check and confirm the proposed agreed terms are fair, reasonable and consistent with leases on other GP premises that attract NHS funding.

The NHS approval of the lease represents a long term NHS financial commitment to reimburse the contractor tenant for the entire term of the lease recognising the contractor tenant may change.

If the contractor decides to give proper notice and then withdraw from their contract, there will be provision in the lease for it to be surrendered or assigned (to a new provider). The underlying NHS strategic commissioning intention to retain general practice at the premises as a result of the significant capital investment for, say, 10, 15 or 20 years (depending on the length of the lease and with standard levels of rent abatement as set out in the GP Premises Costs Directions mentioned above) will involve the new provider taking on the lease for the remaining term, together with the primary medical services contract and the benefit of the agreed ongoing rent reimbursement.  In essence, the process from project to lease involves a number of steps which lead to safe long term arrangements for each party to the transaction whereby financial risk is minimised.

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Leah Biller

General Practice Specialist

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