Key Differences between the 2004 and 2013 Premises Costs Directions

When the new Premises Costs Directions came out in 2013 there was a commonly held belief that all GP Practices on GMS Contracts would have their ‘premises costs’ automatically governed by the 2013 Directions and the previous 2004 Directions would, as a result, become defunct. After several years of Notional Rent reviews being undertaken, decisions made and determinations arrived at as to premises reimbursement for GP Practices (in some cases including significant reductions in reimbursement due to these changes) it has now been determined that a large proportion of practices across England should still be governed by the 2004 Directions.

This is following a dispute resolution case dealt with by The NHS Resolution Authority involving the interpretation of the Directions themselves. This centred around the determining of value (Current Market Rent) for a GP surgery, the approach and the appropriate NHS Directions to adopt.

Paragraph 56 (1) of the 2013 Directions states:

“…Where immediately before 1st April 2013, a Primary Care Trust was making payments to a contractor under part 4 (grants relating to the relocation of a contractor), 5 (recurring premises costs), or 6 (supplementary provisions) of the 2004 Directions, the Board must continue to make those payments as if the 2004 Directions, as in force immediately before 1st April 2013, continued to apply, and those Directions are to be treated as directions to the Board”

The NHS Resolution report stated within the decision itself that the relevant Directions to be applied will be the 2004 Directions where the practice in question was receiving reimbursement for the same premises prior to the coming into force of the 2013 Directions. The above ‘transitional provisions’ section of the 2013 Directions was specifically quoted by the Authority.

We believe there could potentially be hundreds, if not thousands of surgeries affected by this decision with some surgeries greatly benefiting from being reviewed under the 2004 Directions instead of 2013.

Surgeries in London and similarly high value areas

Schedule 2, paragraph 33 of the 2004 Costs Directions states that premises can be valued for practice purposes and for any other purpose for which planning permission has been granted or might reasonably expect to be granted. The 2013 Directions removed this ‘alternative use’ provision and thus only allow surgery use to be considered in the assessment of Notional Rent. This could alter the Notional Rent review valuations on premises which were historically valued under the 2004 Premises Costs Directions adopting alternative residential or commercial values but where the Notional Rent has been reduced under the 2013 Directions.

Surgeries with tandem car parking spaces (spaces that are blocked in by other spaces)

The 2004 Directions do not include Schedule 2, Part 1, paragraph (d) which was one of the additions to the 2013 Directions and which effectively excludes tandem spaces from the assessment of Notional Rent. This could result in practices having tandem spaces re-included within their reimbursement who have had them removed since the publication of the 2013 Directions.

Surgeries with abatements due to extensions or improvements

Under the 2004 Directions ALL practices receiving NHS funding for improvements/extensions are subject to an abatement period of 10 years. Under the 2013 Directions Part 5, paragraph 43 the length of the abatement period is dependent on the cost of the scheme. For total project costs exceeding £250,000 (regardless of the actual proportion of NHS Capital funding used towards that project), the abatement period was increased to 15 years, whereas for projects costing less than £100,000, the abatement period was reduced to 5 years.

Surgeries with Air-Conditioning

An interpretation of the 2013 Directions Schedule 2, Part 1, paragraph 3 (e) by certain NHS area teams and District Valuers meant that air conditioning installations were disregarded from the Notional Rent assessment. The 2004 Directions did not include this additional provision and so again this could potentially result in practices having air-conditioning re-included within their reimbursement who have had that removed since the implementation of the 2013 Directions. It should be noted, however, that value enhancement due to the presence of air conditioning is a valuation practice that varies across the country and is influenced by the degree to which the installations overcome inherent overheating issues.

Leasehold Surgeries

The 2004 Directions essentially enabled the Landlord to negotiate and agree surgery rent reviews directly with the District Valuer (DV) which meant that the Tenant had the security of knowing that their CMR reimbursement would automatically have due regard to the agreed rent as authorised by the DV. The 2013 Directions Schedule 2, Part 2, paragraph 4 (c) (IV) however, require the Tenant to have their own representation for rent reviews and the DV can only be instructed to negotiate and agree reimbursement levels following the completion of formal rent review memoranda. Unless the lease is worded appropriately, the Tenant is therefore potentially at risk in agreeing a rent with the Landlord that may not be fully reimbursed by the NHS. Also, the Tenant now faces additional costs as a result of instructing professional representation for the negotiation of rent reviews.

GP’s undertaking non-NHS activities/private work from their surgeries

Part 5, paragraphs 49 and 50 of the Premises Costs Directions 2004 have been removed – the change in Directions gave GP’s more freedom to enable enhanced, alternative, complimentary or private work alongside the core GMS usage. Under the 2004 Directions GP Practices earning more than 10% of their income from ‘associated private work’ could have had their reimbursement from the NHS abated (although in our experience this was very rarely enforced).

Final Thoughts

It is unclear at this stage whether some of the above changes will be corrected automatically during triennial reviews or whether surgeries will have to go through a challenge to their reimbursement in order to have their Notional Rent figures amended in line with the NHS Resolution decisions. We suspect it will be the latter and that the approach will vary across the country at the discretion of the individual Area Teams as to how they deal with such matters.

Our recommendation is to seek professional valuation advice and representation when it comes to accepting your Notional Rent assessment so that all the relevant factors can be taken into consideration when reviewing your assessment.