Handing Back Your GMS/PMS Contract: The Hidden Risks
In my previous blog, I discussed what is meant by a practice “handing back” its GMS contract. As I explained it normally means the practice terminating its GMS contract. This blog considers what additional issues a practice (and the partners) may face. In particular, it considers what legal liabilities will remain notwithstanding termination of the GMS contract.
Third Party Liabilities
There will inevitably be other agreements which the practice will be party to and which will need to be dealt with such as:-
- If the practice leases its premises the lease will continue and the partners will be liable for the ongoing lease obligations including rent and rates. There is no guarantee the Health Board will take over the lease along with its liabilities for accrued dilapidations and the like. Even if the Health Board is willing to take over the lease or to negotiate a new Lease the National Code of Practice for GP Premises sets out clear parameters which must be complied with.
- If the practice has a loan over the premises the loan will continue and the partners will be liable for the ongoing loan repayments. The Health Board are extremely unlikely to take over the practice’s bank loan.
- It is only in exceptional circumstances that the Health Bord will either lease the practice premises from the partners or purchase them outright. Even where such circumstances do apply, again, the National Code of Practice for GP Premises sets out clear requirements which must be complied with.
- Where the lease, title deeds and/or bank loan documents have not been updated to reflect the current partnership former partners may also be liable.
- Rent and Rates Reimbursement
- If primary care services are not being provided by the practice, it will not be entitled to rent and rates reimbursement under the Premises Directions.
- The loss of entitlement to rent and rates reimbursement may be an automatic event of default under a lease or bank loan agreement. This would allow the landlord or bank to take immediate action against the practice and/or the partners.
- Even if the Health Board do temporarily “occupy” the practice premises and continue to run a medical surgery there is no guarantee that will be a long term relationship.
- Sustainability Loans
If the practice has taken out a Scottish Government Sustainability Loan handing back the GMS contract will trigger back repayment of the Loan. The Scottish Government does have a Sustainability Loan write off policy but often that will not apply in cases where the practice unilaterally hands back its contract.
- Employment Contracts
The practice will continue to have obligations to its employees by virtue of its employment contracts. There is no guarantee such staff will be taken on by the Health Board. The practice may be left with liabilities to staff including having to make staff redundant.
- Supply Contracts.
Most businesses have a variety of contracts in place which they rely on for their day to day operation. These include things such as utilities contracts, maintenance contracts for plant and equipment and the like, hire purchase agreements, cleaning contracts and so on. These will all need terminated and may involve relatively long notice periods or termination payments.
Additional Financial Implications
In addition, it is likely that the partnership itself will terminate. This will lead to the assets and liabilities of the partnership being assessed as at termination. Some partners may discover their drawings exceed their share of the profits of the business and will have to repay their excess drawings. Similarly, if the cessation accounts show a loss the partners may be required to pay into the practice to cover that loss.
Additionally, whilst partners may believe they have capital built up in the practice they will only be able to access that capital once all other debtors have been paid off and cessation accounts finalised.
Handing back the GMS contract and terminating the partnership may still be the right thing to do in the specific circumstances. However, practices should take steps to understand their overall position before embarking on this. Part of that should include taking appropriate professional advice from experienced lawyers and accountants. Davidson Chalmers Stewart has extensive experience in working with practices facing these issues and can provide sensible tailored advice which may prevent an already difficult situation turning into a catastrophe. For an initial informal conversation please contact me at email@example.com (0131 625 9191) or speak to another member of our specialist healthcare team.