GP refinancing: the value of preparation

Taking time to properly prepare ahead of a refinance by a GP partnership can drastically reduce the timescales and stress. David Naughten explains how to best prepare for the legal process

This article was first published in AISMA Winter 2019

There are several scenarios where a partnership may choose to refinance:

  • To release equity to the partners
  • To benefit from better terms available from another lender
  • To buy-out a retiring partner’s property share
  • On the introduction of a new partner to the partnership
  • As part of a merger

Practices often think that on a refinance, especially one where it remains with an existing lender, the legal work should be minimal because they already own the practice premises and it is primarily an arrangement with the bank. Sometimes solicitors are engaged relatively late which can create difficulty in achieving desired timescales, especially where a specific date is being worked towards.

But with the right amount of preparation and engagement, it is possible to significantly reduce the risk of delays on the transaction and ensure the process proceeds smoothly.

Engage with your solicitors early on

Your lender will always require you to instruct solicitors about a refinance, both to attend to carrying out any legal due diligence it requires for the practice premises and also to deal with practical completion and registration of documents.

Depending on the circumstances and value of the property and/or loan, your lender/s may also instruct their own solicitors.

The earlier that solicitors are engaged, the earlier they can order any property searches needed and ascertain if there is anything that needs doing to meet the lender’s legal requirements. Results can take weeks.

There is no set period that a solicitor requires to do their part of the process but it is prudent to engage them at least two months before any proposed completion date. Preferably it will be done at the outset when you first talk to the lender.

Earlier engagement is likely to be needed if you are taking a second mortgage over the property with another lender, for example if there is an existing mortgage with Aviva who no longer lend to GPs. This will require additional underwriting and legal documentation between both lenders.

Make sure that there is a joined-up approach

Practices will typically end up engaging with several professionals over the course of a refinance, including their lender, solicitors, valuers and accountants.

They should ensure that all professionals involved know who else is advising, and on what, to prevent work duplication or oversights.

One common example of this becoming an issue relates to tax advice. For instance, where the refinance is being carried out due to partners leaving or joining the partnership and property shares are being bought and sold, there may be a resulting stamp duty land tax liability.

Proper engagement between the solicitors and accountants should ensure any issue is identified early and properly dealt with. Generally, it is important for your professional advisors to be GP sector specialists.

Is the partnership deed, declaration of trust and property title up to date?

To limit the risk of costly disputes when partners retire, do ensure the practice has an up-to-date partnership deed and declaration of trust which will govern arrangements for buying a retired partner out.

Even then care should be taken to ensure documentation is followed and all your advisors are aware of the terms.

Key questions include whether the partnership has agreed that the valuation of a retiring partner’s property share should be timed to coincide with the retirement date although the buy-out may take place after then.

Also, between the date of retirement and completion of the buy-out, is the retired partner to continue to receive a share in the notional rent or interest on the capital?

Tensions and disputes often arise if these points are not agreed in advance or where the partnership documentation is not complied with. Occasionally, former partners may have left the partnership without their names being removed from the legal title to the property.

This can mean problems tracking them down if they have moved away and getting urgent papers signed.

Are any third-party consents required?

Commonly it is found that the third party’s consent is needed to complete a refinance, especially if there are changes to the names on the legal title.

Typically this is where the practice premises are leasehold, and the landlord’s consent is required by the lease terms. Third-party consent may sometimes be needed if land was transferred to the practice by the local authority or an NHS body.

Obtaining the consent of third parties is often a formality. But delays can arise if there is difficulty identifying whose consent is required, and then tracking them down. Often the practice will need to meet legal costs of the third party in connection with the consent.

Who holds the title deeds?

Most GP premises will be registered at the Land Registry but the lender or solicitors may need to see the original title deeds.

This is because some agreements may not be required by law to be registered at the Land Registry, such as wayleave agreements with utilities companies, short leases or sessional licences for use of rooms by third parties. Or maybe not all the deeds were presented to the Land Registry when the premises were first registered.

The deeds may be held by the practice, an existing lender or solicitor and tracking them down early on often saves time and money.

Ensure you are complying with all regulatory requirements

As part of the due diligence process, the lender will want to ensure the practice is complying with any applicable legislation or regulations relating to the premises.

The most obvious examples are having an up-to-date asbestos survey and actioning any findings, a current fire risk assessment, and obtaining and complying with planning permission for any works. Significant time can be saved if the practice has all this information and documentation readily available for solicitors to review, and this also ensures it is in proper order.

Factor in availability of the partners

A prudent practice will have spent much time and energy exploring its options before settling on a loan arrangement and lender. Unfortunately, that will not be the end of the engagement required from the partners, as both the lender and the solicitors will have things for them to sign.

To avoid last minute delays, notify your advisors and lender of the availability of signatories. There will always be someone on holiday in the week you wish to complete!

In some cases, workarounds can be found such as getting an absent partner to sign a Power of Attorney before going on leave. Your practice can, assisted by your specialist GP professional advisors, minimise the risk of refinancing delays and additional costs. And free-up much needed partner time too.

This article is for information purposes only and should not be relied on as legal advice. Neither the author nor Hempsons will be liable for losses arising from reliance on the information in this article.