NHS England to require regularisation of GP property occupancy agreements by April 2020
The level of service charges payable by GP practices who are occupiers of premises owned by NHS Property Services (NHSPS) or Community Health Partnerships (CHP) can be quite an issue. In fact, some GP practices have found themselves facing large service charge increases since 2013 when NHSPS and CHP took over management of the former PCT-owned properties. This is because both NHSPS and CHPs are mandated to fully recover service costs. Some 1 in 5 GP practices are potentially affected by this issue, so it is one that NHS England has been seeking to resolve.
How is the NHS looking to address this issue?
NHS England and NHS Improvement have just issued a “Dear Colleague” letter attempting to address this and other issues associated with property occupation – read a full copy of the letter here
This letter actually goes further than dealing purely with the service charge issue: its content goes much wider. The starting point is set out in the opening paragraphs of the letter which say that:
“The Department of Health and Social Care is committed to initiatives to improve property utilisation and value for money”; that “As part of this, they are supporting a regularisation of tenancy arrangements of NHS owned and leased properties”; and that “NHS England ….is encouraging GPs and Providers of all types to formalise their tenancy agreements.”
Is the NHS offering any flexibility in regularising occupancy agreements with GPs?
It is clear that the NHS’ preferred arrangement for such properties is a full lease granted to the GP practice or other provider occupier. However, the letter does recognise that a full lease may not always be appropriate e.g. because of existing agreements over service charges, and therefore proposes three options:
– A full, formal lease document covering everything that a lease of health sector property will need to, including rent, service charge and property management;
– A “rental agreement letter”. This is intended to be an interim measure whilst further work is carried out with the practice or other occupier to agree lease terms, facilities management and other services. It will though provide clarity on rent in return for rights of occupation; and
– Use of the NHS’ “Open Space” digital platform for the sessional booking of available space within the NHS estate. Practices and other providers will be given the option of a suitable form licence to access the platform and the premises available through it.
What are the benefits of fully documented lease agreements for GPs?
Agreement on service charges may come as a product of this work but that would appear to be only one part of the exercise, and it is regularisation by full leases of the estate that is the real goal. There are indeed many advantages to a properly documented lease agreement between a landlord and tenant. We would always advocate having property arrangements properly set out. Some of the advantages of a full lease are set out in the letter and include:
– Both parties know what property the tenant has the exclusive right to use, for how long and at what cost;
– Any rights that the tenant has over other parts of the building are clearly set out and agreed;
– The services that the landlord is to provide are fully set out with corresponding clarity of the tenant’s service charge payment obligations;
– Repairing obligations in relation to the property will be fully set out to clarify who is responsible for what and ensuring that the property is maintained and kept in proper repair;
– Liability for compliance with statutory obligations are agreed and set out so that the tenant knows the property will be safe and legally complaint;
– A procedure for any review of the rent is agreed and set out;
– Property insurance obligations will be agreed and set out; and
– Instead of being personal to the individual practice (as would be the case with an Open Space licence or a rental agreement letter), a lease may be transferred or may allow others to occupy the property (either as subtenants or by sharing occupation). Agreement on such matters will be set out in the lease providing clarity for both parties.
The letter also highlights the importance of noting that reimbursement under the Premises Costs Directions 2013 (Directions) is subject to “the Board [being] satisfied …., where appropriate in consultation with the District Valuer Service, that the terms on which the … lease is to take effect represent value for money” (paragraph 31 of the Directions). Now “lease” is not defined and a lease does not have to be in writing to create a binding tenancy agreement. However, a formal, documented agreement setting out the terms of occupation and the rent payable in return is clearly the best evidence to satisfy the requirements of the Directions.
Finally, please also note the reminder in the letter that premises improvement grants under the Directions, grants made under the ETTF Fund, and grants made under the STP capital programme are all subject to the requirement for practices to evidence that they have security of tenure to deliver NHS services for a minimum period of 5, 10 or 15 years (depending upon the cost of the improvement) (paragraph 12(4)(e) of the Directions). Again, a formal lease for the requisite minimum term will satisfy this requirement (whereas it is unlikely that letters, licences or other forms of property agreement would).
Legal consequences for GPs who fail to engage with NHS England and NHS Improvement
This drive to regularise occupancy arrangements is not new and has actually been ongoing since 2013. It is however clear that NHS England and NHS Improvement now want to get all occupancy arrangements on a more formal footing. The letter warns that “GP Practices and Providers are expected to enter open discussions with NHSPS, with a view that by April 2020 all tenants will occupy under one of the forms of agreement as outlined above”; and that “Where it is evident that GPs and Providers are failing to engage, the Department of Health and Social Care and the NHS bodies may seek legal recourse.”
GPs urged to act early and take legal advice
It is believed that regularising occupancy arrangements in this way will deliver a number of benefits to the NHS, including an improved understanding of the true cost of occupation, more informed decisions about service location, and incentives to encourage better space utilisation. While this may be the case, a regularised tenancy agreement may not be the right solution for all practices. Practices should not be forced into just accepting any agreement put to them if it is not right for them. Similarly, disagreements over service charges should also not be used to force a practice’s acceptance of inappropriate terms. Practices will need to take great care when presented with any documents relating to their occupation of property. It can be a complex area, and in order properly to protect the practice’s position, legal advice should always be sought from an early stage in any negotiations for a new lease or other property arrangement being put forward.
Rix & Kay’s dedicated Heathcare Team is led by Stewart Gregory. Stewart has more than 20 years advising GPs on issues surrounding the primary care estate in the UK. For an informal discussion please email firstname.lastname@example.org