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At the heart of general practice since 1960

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If you need more space, there are plenty of funding options for building new premises, writes Dr John Couch

Whether you rent or own your practice premises, if you want a completely new building what are the options? There are a plethora of private finance initiative (PFI) companies vying to build for you in exchange for the attractive rewards of primary care property ownership. There is also still a viable option for property-owning practices to finance a building and keep those rewards for themselves.

Why new build?

There are two main reasons that practices decide a new surgery is required ­ space and efficiency. Most progressive practices need more space every few years, around 10 years on average. Small buildings on small sites or premises that have already reached their limit of extendibility leave only one option.

Many GP surgeries are adapted houses. Even the most innovative improvements and extensions will rarely match premises carefully designed for the business of primary care. Clinical and non-clinical functionality, patient and staff experience should all be enhanced.

Current limitations

Funding for new buildings is now trickier. First, significant improvement grants are past history. The days when up to two-thirds of a large project could be funded by the Department of Health have gone.

Whoever is paying for the build ­ a PFI company, other third party or the partners themselves ­ they cannot proceed unless there is a guarantee of an appropriate level of rent reimbursement.

Funds for new project rent reimbursement are now cash limited. Before any progress can be made an outline bid must be approved by the appropriate PCT. This is unlikely to be your local organisation as one PCT now acts for several others as a 'stakeholder'. This means that they face demands from many other areas for cash.

Before spending too much time on a project it is therefore vital to discuss plans with the 'stakeholder' PCT via your own PCT. There will be an overall 'strategic plan'. Knowledge of this may help you tailor your project to increase the chances of acceptance. Plan well ahead as many areas have yet to get their act together and most are still unsure of the funds available.

Non property-owning practices

Even if you do not already own premises you can still take the financial plunge. Organisations such as the General Practice Finance Corporation will lend reasonably cheaply at around 0.5 per cent over base rate. Loans attract tax relief and the return on capital via rent reimbursement can be up to 8 per cent per annum in some areas. The prospect for at least medium to long-term capital growth via increasing property values is also good. However, if you were a born premises owner, you would not be renting now!

Assuming you want a financial backer your options are a PFI company or the local authority. Unless you are already in local authority-owned premises and you want to use the same site, a PFI company is your likely route ­ however, many of the following comments also apply to local authority builds.

The advantages of a third party build are obvious.

·They arrange the build so you do not have the major hassle of finding a site (if necessary), plans, planning permission, project management and above all the combined cost.

·You should find it easier to attract partners (as opposed to salaried GPs) as fewer young GPs want to take on a financial commitment whether or not they appreciate the financial advantages.

·Structural maintenance will be the responsibility of the owners.

The best routes for finding a reputable PFI are via the PCT, LMC or BMA. Many advertise in the medical press. Make sure you look at several PFIs and check references carefully with practices they have already worked for.

You must appoint a partner and/or your practice manager to liaise at all stages of the project. You will also need a solicitor experienced at negotiating leases to ensure you get a good deal. Expect the PFI company to ask for a long lease of around 20 years and make sure rent increases are underwritten by the PCT.

The lease should also state clearly what your responsibilities will be. Moving into the new building, furnishings and (probably) fittings will all be your problem and expense. You must also ensure that the PCT will fund a new or upgraded computer system. Remember also that if the building is on your existing site you will still face the hassle of portable buildings, noise and dust for several months.

Owned premises.

If you are going to fund the build yourself, examine the financial aspects first. Assuming permission for rent reimbursement has been granted you must study the proposed rent per square metre. Calculate the total forecast costs remembering to include:

·building costs

·architect, solicitor, valuer and accountant fees

·VAT

·cost of land if relevant

·cost of internal fittings, fixtures and new equipment

·cost of moving in.

Once you have this figure, use it to calculate the likely loan repayments. If you are selling your existing site, you can use the forecast profit to reduce the new loan.

Now compare the annual loan cost against the annual forecast rent reimbursement, allowing for tax relief at your top rate on loan interest and income tax payable on rent reimbursement. Unless you can trim building costs sufficiently, any deficit will come from your own pockets until rent reimbursement increases sufficiently. Make sure you get several quotes for all the above costs; there can be large variations which may save you well into six figures.

Finally, find out from your valuer what the likely value of the completed building will be and compare this with the total cost. You may be in negative equity for the first few years until property values increase. Make your financial decision to proceed carefully. You may decide to plan a building large enough to encourage other health agencies to rent your space. This will further improve the financial picture and can reduce VAT costs.

Take careful advice from the professionals listed above and ensure they are experienced in medical builds. The process for planning and building is the same as above: however, you will be much more directly involved. Ensure that you give plenty of dedicated time to whichever member of your practice does this.

If no land is available, or the cost of a new build is prohibitive, you may have to consider redeveloping your current or an alternative building. If so, most of the above still applies.

As dentistry has shown, even if fewer practices own their premises, there will still be a hard core of entrepreneurial GPs who want to stay in control, and those young GPs of similar ilk will naturally gravitate towards them. However, owning or not, it is clear that GPs can still upgrade to a new building if they are prepared for the effort.

John Couch is a GP in Ashford, Middlesex

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