If the property is ‘owner occupied’ it is either owned outright by the GP partnership or is subject to a mortgage or loan agreement. When the premises is owned outright the practice will receive notional rent reimbursements from the NHS. Whereas if the property is subject to a mortgage or loan, then the practice will receive either the notional rent, or a cost rent reimbursement. We also have surgeries where the GP partnership is a tenant in a building owned by a 3rd party, such as an NHS body, private owner, or ex-GP. Then the practice will receive a ‘leasehold cost rent’ from the NHS.
- This is where a GP practice owns their surgery and operates from it.
- The purchase or development of the surgery may be funded by a mortgage or loan agreement.
- As the surgery is owner-occupied, the GP practice receives a notional rent reimbursement for space used for NHS purposes e.g. GMS space, this is the standard type of contract held by GP practices. There is also a cost rent reimbursement which is calculated based on mortgage or loan borrowing costs.
- The GP practice therefore has full control over their buildings and land, and can therefore extend or alter as they wish this would of course be subject to the appropriate consents e.g. planning/building regulations etc.
- Any changes which result in an expansion of the surgery for GMS would need NHS approval for reimbursement.
- The GP practice will also have full responsibility for repairs and maintenance of the buildings.
GP practices who rent any of their space should have a Lease in place for this occupation. This clearly sets out the areas that are permitted to be occupied, and explains the obligations of the Practice as a ‘tenant’ in terms of repairs, maintenance etc. The GP practice therefore does not have the level of ‘control’ over the premises that they would if they owned the building. This would subsequently mean that they would require the permission of the landlord if they wanted to improve, change or extend the building.
- The two main types of Leases are:
- FRI (Full Repairing & Insuring) – An FRI lease is where the tenant takes on responsibility to repair and maintain the entire property including external areas, fabric of the building and structural parts of the building.
- TIR (Tenant’s Internal Repairing) – A TIR Lease is where the tenant takes on responsibility to repair and maintain internal aspects only, and the Landlord takes on responsibility for the external and structural elements.
- Surgeries that are Leased receive reimbursement that should be no higher than the actual lease rent paid, this would be adjusted to reflect the terms of the Lease and compared against the standard hypothetical terms of notional rent. The standard ‘adjustment’ to Lease rents tends to be in relation to repairing or maintenance obligations under the Lease.
- Notional rent is assessed on tenant internal repairing only basis, therefore if a GP surgery leases a surgery building on FRI terms i.e. where they as a tenant take on external and structural repairing obligations, then their reimbursement from the NHS has to be ‘adjusted’ to reflect the fact that their Lease, and thus their actual rent under the Lease, includes these extra obligations that aren’t included within the standard notional rent assessment.
- The adjustment required to reflect these additional tenant obligations therefore means that the reimbursement to the GP practice should be higher than the actual rent…as of course additional tenant obligations should equate to a lower rent. The difference between actual rent and reimbursed rent (or ‘CMR’) tends to be referred to as the tenant retention.
- The standard adjustment for purpose built (PB) surgeries tends to be 5%…i.e. the actual rent paid by the tenant under an FRI Lease should be 5% lower than the CMR reimbursement from the NHS. Thus, the GP practice should ‘retain’ 5% of their reimbursement to reflect these additional obligations.
- The standard adjustment for converted surgeries tends to be 7.5%…i.e. the actual rent paid by the tenant under an FRI Lease should be 7.5% lower than the CMR reimbursement from the NHS. Thus, the GP practice should ‘retain’ 7.5% of their reimbursement to reflect these additional obligations.
Should you have any questions or queries regards any of the above or would like to discuss your circumstances with one of our expert advisors please don’t hesitate to get in touch on 0114 4420098 and we would be more than happy to help.