What do the NHS Premises Costs Directions 2024 mean for practices?

Will it be easier to access funding for surgery improvement and how much can we apply for?

The headline change is that it is now possible to apply for an improvement grant for 100% of the costs of a scheme. This has the potential to simplify projects that previously had to be financed by a combination of NHS grant monies and other sources of capital (eg bank loans or partner capital contributions).

However, the reality is that there is limited capital available in the system which will continue to affect access to grants. As and when pots of money become available, well-structured business cases, demonstrating the need for the improvements and benefits to the wider system, particularly to enable integrated care, will be essential.

What are the changes to the type of schemes that improvement grants can be used for?

The directions will now allow grants to be made not only for building extensions to existing surgeries but also for the purchase of land required for such extensions. Funding can additionally be sought for the stamp duty land tax payable for the land.

Another welcome change is that it is now, in theory at least, possible to seek grants for improvements designed to reduce the environmental impact of the premises (such as solar panels, replacement windows, doors or facades). However, this is caveated by a requirement that the commissioners must be satisfied that these improvements ‘provide a net financial benefit to the health service’.

Practices that are taking leases of new premises will also be able to apply for a grant in respect of the fit-out works to these premises. For the first time, the 2024 directions also allow for grants to be paid to the landlord, in return for new or significantly refurbished premises and a reduced rent.

There is some tightening of the rules that prohibit grants associated with compliance with the ‘minimum standards’ that apply to GP premises. These are statutory and contractual standards set out in Schedule 1 of the 2024 directions and include those relating to the repair of the building and infection control. There are very limited exceptions to this rule relating to the reasonable extension of telephone facilities or improvements to comply with new statutory requirements.

What are the changes to the terms on which the grants are made?

There are new thresholds for the ‘guaranteed minimum period of use’ of the improved premises that practices must commit to. These are:

• less than £144,000, at least 6 years;
• £144,000 or more but less than £360,000, at least 9 years;
• £360,000 or more but less than £660,000, at least 12 years;
• £660,000 or more but less than £1,200,000, at least 15 years; and
• £1,200,000 or more, at least 18 years.

Similar thresholds and periods now apply to the abatement of notional rent.

These new thresholds are certainly an improvement on those that came before and should benefit GPs. For instance, under the previous rules a grant of £300,000 would have required a 15-year commitment by the GPs and a similar period of abatement of the notional rent. Now the period for a grant of this size would potentially be nine years.

What will be less popular amongst GPs are new rules requiring the repayment of the grant if the GMS contract is terminated within the guarantee minimum period of use. While in recent years it has not been uncommon for NHS England to attach repayment conditions to grants, this is now formalised for the first time under the 2024 directions. Commissioners will have some discretion as to whether to enforce repayments.

The provisions do allow for this to be avoided if a successor contractor agrees to take on the grant obligations going forward. This highlights the need for practices to have proper succession plans in place where at all possible.

In addition, there is for the first time a specific direction under which commissioners may require practices to enter into a formal grant agreement, converting the grant conditions into contractual obligations owed by the partners. These agreements can include ‘any other conditions NHS England considers necessary to ensure value for money’. While such grant agreements have become increasingly common in recent years, they add another layer of formality and personal liability upon which GPs should seek legal advice.

Will rent reviews be easier going forward?

All rent reviews for notional rent and rent reimbursement will be conducted under the 2024 directions.   This may be seen as a positive, given that the previous process under the 2013 directions was difficult to navigate, but it will take time to assess the extent to which the new rules are an improvement.

The 2024 directions do away with the requirement on lease rent reviews for the practice to submit a signed rent review memorandum (which under some leases is legally binding in terms of setting the new rent) before the new rent was assessed for reimbursement. Instead, the new rules require information to be submitted as to the proposed rent, along with evidence of the negotiation between the contractor and the landlord (which may or may not include a formal valuation).

It is also positive that the commissioners are now obliged to invite the landlord to make representations regarding the level of the reimbursement. Hopefully, this will allow for arguments to be put forward as to the appropriate market rent levels at an early stage.

On the other hand, the new rules also state that the commissioners are not to negotiate directly with landlords or those acting on behalf of landlords during this process. This does suggest practices and their own valuers are likely to have to remain quite heavily involved throughout the process, rather than handing over negotiations to the landlord and the commissioners.

One further interesting change is that commissioners are now permitted by the directions to seek advice on rents from not only the district valuers office but also any other suitably qualified person registered with the Royal Institution of Chartered Surveyors.

Given the backlog of reviews and a perceived shortage of district valuers, widening the pool of valuers from whom the commissioners can take advice is certainly welcome on paper. However, the question remains whether there will be sufficient specialist valuers to support the system in a way that improves turnaround times.

Has the ‘last partner standing’ issue been addressed?

There is, for the first time, welcome provisions targeting the risk of partners being left with lease liabilities after a practice closure. NHS England is required to establish a protocol for determining whether to recommend that the lease in question should be assigned to itself or its nominee (perhaps the ICB or NHS Property Services). This would be in circumstances where the contractor wishes to retire and is unable to secure a successor or another contractor to whom the lease may be assigned.

We will of course need to see this protocol before any judgment can be made on how helpful and wide ranging these protections will be in practice, but in any event they should be seen very much as a last resort and no substitute for a good succession plan. The fact that it is to be a protocol under which NHS England may ‘recommend’ assignment of the lease indicates it will fall short of being a panacea.

Are there any other changes to be aware of?

There are adjustments to the rules surrounding reimbursement of VAT on rent. Most leases will allow landlords to elect to charge VAT but GPs now need to be careful, particularly where signing up to sale and lease back arrangements, to try to negotiate a provision under which the landlord agrees not to charge VAT. Otherwise, there is a risk that if VAT is charged (currently 20% on top of the rent) it may not be reimbursable.

Practices and commissioners are for the first time required to consider ‘whether any opportunities exist for additional, multi-functional use of the premises’. Also, GPs can for the first time seek reimbursement of costs for putting agreements in place with third parties with whom the premises may be shared.

Clawback provisions now apply for overpayments made to practices. They cover payments made by commissioners in error, where entitlement criteria are not met, or where a reimbursed charge is later refunded. While not controversial in and of themselves, these provisions do highlight the need for practices to be careful to ensure claims are correct and, if overpayments are received to ensure the commissioners are notified and monies returned.

Should GPs be encouraged?

The 2024 directions no doubt provide some reasons to be cheerful, particularly around the rules governing improvement grants. The advent of 100% grants and new thresholds will help but it seems clear there will be more formality and conditions attached, which GPs will need to consider carefully with the aid of specialist professional advice.

Questions remain to be answered on the extent of the ‘last partner standing’ protections.  Time will tell whether the new directions make a positive difference to primary care and help deliver premises that are fit for the future.

Bryn Morgan is a commercial property partner in our real estate team. If you have any questions or concerns about any of the issues in this article, contact the team today.