Top tips to maximise income from your surgery premises

First published in AISMA’s Spring 2023 edition. 

Could your building earn you more in these challenging financial times? Bryn Morgan provides some tips to consider.

It has never been more important for GP practices to maximise income generated from their surgery premises while also minimising expenditure.

There are various steps to achieve this.

NHS premises funding

The main source of premises income for most practices will be either notional rent (if owner occupied) or rent reimbursement (if leased) and so it is important to understand how this funding works and is assessed.

It is normally available to practices with a GMS or PMS contract under the Premises Costs Directions 2004 or 2013.

Usually, it will be equivalent to a market rent for the space used for the NHS services, including an element of funding towards the costs of external and structural repairs along with buildings insurance. The amount is determined by NHS England/ICB on the basis of a valuation by the district valuer.

Business rates, water and sewerage charges and clinical waste disposal costs are also reimbursable. But various costs are not, such as for internal repairs and decoration, utilities (electricity, gas, telephones and data), and facilities management like cleaning and security.

Notional rent paid to owner occupiers is reviewed on a three yearly cycle. The review dates should be diarised by the practice and reviews initiated promptly because the process can take months and sometimes years to settle.

It is wise to engage your own specialist primary care valuation surveyor to negotiate with the district valuer and, if necessary, to assist you with the appeal process.

If your premises are leased, then your lease will set the review dates and should have been approved by the commissioners in order to qualify for reimbursement. Ideally your lease’s terms will say that the rent on review should not exceed the reimbursement.

If not, there is a risk that any rent increase on review may not be matched by the reimbursement – leaving a shortfall for the practice to meet from its own resources.

To avoid this, when agreeing lease terms and also during the rent reviews, it is important to use specialist primary care surveyors and solicitors to help secure the right protections.

Tips

• Understand what is and is not funded by the NHS, and budget accordingly

For owner occupiers

• Diarise and promptly action notional rent reviews with the help of a specialist valuer.
• Use the appeal process if you do not agree the district valuer’s assessment.

For tenants

• Make sure lease terms are approved by the commissioners and negotiated by specialist valuers and solicitors to include rent review protections.
• On rent reviews seek advice and make sure you comply with the process.

Other income sources

If you are fortunate enough to have surplus space not required for your NHS contracted services then you may be able to lease or hire it to others, such as a pharmacy, dentist or other healthcare provider.

The terms should be well negotiated with assistance from a specialist valuation surveyor and solicitor, to ensure you obtain the best rent with appropriate rent review terms and, where possible, can pass on certain costs.

This may be via a service charge, or the tenant may be given direct responsibility for repairs and decoration.

Ideally, these terms should be formalised before the tenant goes into occupation because afterwards this can become much harder and as the landlord you may be on the backfoot. Undocumented lease arrangements are unfortunately fertile ground for disputes so are best avoided.

It is especially important to be careful not to rent out space for which you already receive NHS funding as this could amount to fraud if you are receiving double income for the same space.

This does not mean you cannot share the reimbursed space with others which may be desirable for good reasons, such as
collaborating to provide integrated care. In such circumstances you should be able to legitimately charge the user of the space a proportion of the non-reimbursable costs.

If you lease your premises, you must check if the lease allows you to enter arrangements with third parties and if so on what terms. Failing to comply can in the worst cases lead to forfeiture of the lease.

When leasing space to third parties, good management of the arrangements should also help you recover the maximum rent and appropriate service charges. In most cases rent reviews are triggered by the landlord so you should diarise the review dates and engage a specialist valuation surveyor to help you achieve the best outcome on reviews.

If existing leases are ending it is important to be pro-active and not let arrangements drift or you could be leaving money on the table.

Ideally, take advice on your options at least 12 months before the lease is due to expire. If the lease has security of tenure, then the default position is that the tenant may be able to hold over at the same rent potentially indefinitely if no action is taken.

Tips

• Leasing or sharing space with others can be a good way of increasing income but first check impact on NHS funding and (if applicable) your lease terms.
• Ensure lease terms are well negotiated with the help of a specialist valuation surveyor and solicitor – avoid undocumented arrangements.
• During the terms of the lease make sure rent reviews and service charges are managed well to maximise income.
• Review and seek advice on options at least 12 months before the lease expires.

Mortgages

For owner occupiers with a mortgage it is important to keep the terms under review.

Seek advice from a specialist mortgage broker to check whether you are on the best terms or whether there are opportunities to perhaps remortgage to reduce costs.

Tip

• Regularly review mortgage terms with assistance from a specialist broker.

Importance of good housekeeping to minimise partnership disputes

Unfortunately, partnership disputes are rising and often centre around the premises.

In many cases I have seen, practices could have avoided, or at least minimised, significant costs (tens and sometimes
hundreds of thousands of pounds). And that is not to mention the aggravation and breakdown of relationships between
partners if they failed to agree clear property arrangements in their partnership agreements.

For owner occupiers this will include basic terms such as who owns a share in the premises and how this is to be valued
on retirements.

Who contributes to the costs of repairs and maintenance is another important issue which is often overlooked and affects
both owner occupiers and tenant practices.

Once agreements are in place it is important to follow them and review and update them when partners come and go. Good housekeeping can prevent a positive income generating and valuable asset morphing into a troublesome and costly headache.

Tips

• Agree and document premises arrangements in your partnership agreements.
• Review and update them when partners come and go.