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Added: 20/02/2023 Read time: 5 mins
There are a number of property challenges facing GP practices. These can range from everyday practice matters, such as keeping titles and leases up-to-date to reflect partner contractor changes and complying with CQC and health and safety regulations, to more strategic matters including succession planning, premises improvement, merger/ integrated working models, property transactions and consideration of the merits of incorporation.
Many property decisions require specialist legal, accountancy and surveying advice and, more often than not, will involve existing funding arrangements and the need to consider possible refinancing options. A review of current practice property ownerships will establish whether refinancing will be possible and beneficial, and what steps are needed to achieve the desired outcome.
Many GP partners own their freehold or long leasehold subject to mortgages in favour of one or more funders. Practices should regularly consider the merits of refinancing as part of effective practice planning. There are many important, positive reasons for doing so and proactivity is key to putting practices in the best position to make any changes.
This is critical for any business. For GP partnerships owning their property, the affordability of buying out a retiring partner and/or enabling a new partner to buy in should be considered well in advance of likely retirement dates. Succession may involve a change to the partners named on the legal title to the property.
It will always involve a valuation of the share to be sold if the remaining partners wish to buy and, vitally, are able to require the outgoing partner to sell. This will also mean a new declaration of how the equity is to be held in the legal form of a Declaration of Trust. If the legal title owners change, a legal transfer will need to be completed. Advice on available stamp duty land tax exemptions should be sought.
It is essential that any partnership agreement is up to date and contains provisions relating to the sale of the exiting partner’s share. These should include who controls the share – those staying or leaving – as well as valuation methods, mechanisms for resolving disputes and apportionments of abatements or rental income. Not having an updated agreement, or no agreement at all, leaves the partnership exposed. It may be acceptable to continue with a retired partner as a co-owner of practice property and with a lease to the remaining partners.
Keep on top of legal property housekeeping:
"If recruitment of new partners is challenging or there is no appetite among potential recruits to buy in, then sale and leaseback options may be a solution.“
Lisa Geary, Partner, Capsticks
However, if this is undesirable, and the partnership agreement fails to outline what can be required of a retiring partner not wishing to sell, a protracted dispute may ensue with no guaranteed outcome. Assuming agreement is reached on the exiting partner’s sale, those remaining may need to refinance to purchase and any new partner buying into the property may need secured bank lending.
If recruitment of new partners is challenging or there is no appetite among potential recruits to buy in, sale and leaseback options may be a solution. Converting the practice property from freehold to leasehold would avoid the need for capital transfers or buy-in for future succession. This may require early refinance ahead of any potential sale to address onerous penalties of existing mortgages, and conversations with lenders to discuss redemption.
It is worth considering terms with new lenders. Modern GP loans often allow flexibility for incoming/ outgoing partners without a full new legal charge by way of a Deed of Variation and often reduced due diligence. Surgery to loan value may have improved significantly, giving rise to more favourable financial terms for the practice.
Above all, having all your property interests in the correct names, up to date notional rent/borrowing cost reviews, leases or licences with third party occupiers and being aware of any legal issues which may prevent a sale or refinance and how to mitigate them is essential to give succession planning options. Being on top of legal property housekeeping is key.
Mergers or practice acquisitions may lead to new larger partnerships with varying freehold ownerships and finance packages. If the new partnership requires more parity in capital shares and funding of any changes, then refinancing existing ownerships may be the only option to realign capital shares. This may involve legal transfers, declarations of trust and a new partnership agreement.
Where existing properties are not fit for purpose and need modernising or extending, practices owning buildings and commissioning their own works may require private finance, possibly in addition to public finance through the Premises Costs Directions. This will require additional legal due diligence and a review of the building contract and any warranties.
If a practice is moving to a new property, either as an existing practice or as part of a merger or new build, then purchase finance may be needed. Early involvement of prospective lenders and legal/surveying advice on title and value of the new site is recommended. If the move is being funded by the sale of existing property, a legal and valuation assessment is important to determine any restrictions on alternative uses.
This may be an option for some practices. If a practice proceeds, it may transfer the Personal Medical Service (PMS) / General Medical Services (GMS) contract to a company but keep the property vested in the former individual partners.
An NHS England approved lease will need to be granted to the corporate contractor and, if the freehold is mortgaged, lender’s consent will be required to the lease. If the property is transferred too, refinancing may be necessary. Early discussions with lenders are important to highlight any requirements (e.g. personal guarantees) as part of the overall assessment of the merits of incorporation.
Lisa Geary is a partner in the primary care team at Capsticks Solicitors, working with and advising GP practices, GP Federations and Primary Care Networks to provide ongoing advice and support. To find out more about how Capsticks Solicitors can help visit their website.