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Practice notional rent could be halved by change to 'alternative use' guidance

Hundreds of GP practices in high-value retail, business or residential areas are at risk of losing as much as half of their notional rent payments because of a change to how some premises values are calculated, it has emerged.

Chartered surveyors specialising in GP premises have told Pulse that some of their GP clients ‘may be not be financially viable’ after upcoming rent reviews.

Practices that have historically been valued on an ‘alternative use’ basis, typically in expensive districts of major cities, can now only be classed as a ‘GP surgery’ meaning they will be valued in line with other surgeries rather than local market prices.

Although the change to rules came through with the 2013 premises cost directions many GPs have yet to learn of the hit to their practice because they have not had a rent review in the interim period. Meanwhile, GP practices that have since gone through their rent review, typically carried out every three years, are now having to lodge legal appeals to address the cuts to their notional rent, the surveyors said.

GP Surveyors, a chartered surveyors firm specialising in doctors’ surgeries, warned that the issue ‘has the potential to affect hundreds of GP practices’.

Director Andrew O’Dowd, said: ‘We have a number of GP clients whose triennial notional rent reviews are looming and we are extremely concerned that their reimbursement will be reduced so dramatically that it will be impracticable for their surgeries to remain open.

‘In situations like this, the GP premises [in high-value areas] would be correctly valued by looking at comparable office, residential or retail rents rather than comparable GP surgery rents.’

It comes as Pulse has previously reported that the GPC is in a stand-off with the Government over the premises cost directions.

GPC premises lead Dr Peter Holden accused the Government of being ‘incompetent’ and not understanding the consequences for GP practices when scrapping the alternative use clause.

He said: ‘It’s no good NHS England turning round and saying we think these properties are worth sixpence, when you’ve had to buy the property and the land on the open market and pay £100,000.

‘If you have specialist premises, however old, and however defective to date, they are nevertheless specialist premises. You have to reflect the fact that the land they’re standing on may be worth more than the premises themselves, and that’s what alternative use valuation is there to reflect.’

Dr Holden said GP practices, as small businesses, should be paid the market value or else could ‘flog it off for a block of flats’.

He added: ‘I would argue anyone who’s done this is incompetent. Incompetent because they don’t know the rules, incompetent because they don’t understand the market and incompetent because they don’t understand the consequences of their diktat.’

A spokesperson for NHS England told Pulse: ‘NHS England is aware of the issue and is considering the implications for GP practices and the delivery of primary care medical services in some areas. It would not, however, be appropriate to comment further in advance of negotiations with the GPC regarding further revision of the Premises cost directions.’

Readers' comments (12)

  • but if the NHS had had to build surgeries instead they would have had to buy and maintain the same property portfolio and would have done it much more expensively (think PFI). GPs have taken this risk for them and notional rent paid is a saving on what the NHS would have had to build or maintain.

    GP owners have saved the NHS and tax payers miilions of pounds as well as taken a risk that the Govt hasn't had to bear

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  • Let’s start with the term ‘notional’ rent. It is the amount paid to an owner-occupier based on the hypothetical lease set out in the Premises Directions. (This does not affect rent paid to developers – that is lease rent, which follows the actual lease.) Almost of all these premises were bought with the NHS reimbursing the borrowing costs, after which the GP owns the building.

    Once the level of notional rent exceeds the borrowing costs - the GP receives the higher amount. And despite the financial support it has given, the NHS continues to pay ‘rent’ for the building ad infinitum!

    So, the borrowing is covered – otherwise the practice would still be receiving ‘Cost Rent’ or borrowing costs. This is about the profit over and above that. The NHS has a curious way of covering premises ‘costs’. The reimbursement has nothing to do with premises cost, but strays into the property market and assesses the ‘market rent’ - funding it as asset.

    The change is that the valuation is now restricted to the 'surgery market' which is right and proper. Why should a shabby, ill-equipped, poorly laid out surgery, receive a high rent just because if it wasn’t being used as a surgery, it would make a jolly nice house. In streets in the more expensive parts of London, practices used to get a high rent due to the pressure on the housing market. Far from being ‘specialist premises’, these sorts of premises are often in an appalling condition.

    When ‘Alternative Use’ was considered, often it was not paid because the surgery market was the highest option available. If premises are now losing out - it is because compared to other surgeries they have been found lacking. Perhaps the solution is to finally invest in improving the premises. Despite having the responsibility for the internal standard of the building, practices have also benefitted from huge amounts of money over many years to improve the inside of their premises, so there is no excuse for those who didn’t bother – usually because they wouldn't contribute their proportion of the cost of the work – which was often just 33%!

    No other business, or NHS provider, gets this sort of support.

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