Vital Signs – A Primary Healthcare Blog: GP Sustainability Loans – What is involved?
The GP Premises Sustainability Loan Scheme makes secured loans available to GPs that own their surgery Premises with the aim of aiding GP Practices with Premises issues and supporting Premises owning GP Practices as a whole.
GP Practices applying for a Sustainability Loan should be aware of the legal issues which will need to be addressed and the processes involved when putting the Sustainability Loan in place.
Legal advice and assistance is an essential part of taking a Sustainability Loan.
Ownership of the surgery premises
To be eligible for the Sustainability Loan the Premises need to be owned by the GP Partnership or held in trust by at least one of the Partners for the Practice. Before even applying for the Sustainability Loan Practices should check the legal ownership of the surgery Premises to confirm the titles accurately reflect the current Partners. It is common that when Partners retire or resign from the partnership that the title deeds are not updated to reflect the changes to the Partnership. If former or retired Partners are still named on the title deeds for the Premises, the title deeds must be updated before a Sustainability Loan will be granted.
Liability for GP Partners
The Sustainability Loan will be a significant liability for the Practice. It is essential that the Practice gets advice on how the liability will be shared among the current Partners. Equally it is essential that the Practice is clear what liability a new Partner joining the Practice will have and the treatment of an existing Partner who retires or resigns after the Sustainability Loan has been granted. Where there is no Practice Agreement or the Practice Agreement does not deal with the liability of retiring Partners, the Practice Agreement should be reviewed to make sure that liability for the Sustainability Loan is properly and accurately recorded. Where there is no Practice Agreement in place, or the Practice Agreement is out of date, the Practice should seriously consider putting in place a modern Agreement designed for use by GPs. There are sound business reasons for doing so which are not just limited to Sustainability Loans.
Terms and Conditions of the Sustainability Loan
Like any other loan or mortgage the Sustainability Loan will have terms and conditions attached. Before agreeing to the Sustainability Loan, Practices should get advice on the terms and conditions of loan. As the Sustainability Loan will be in place indefinitely any terms and conditions could bind the Practice for years to come and the Practice should consider the long term implications of the Sustainability Loan. For instance, it is understood that a condition of a Sustainability Loan will be that the Health Board can purchase the Premises in the future at an “appropriate value”. Will this prevent the Practice disposing of the Premises to someone else potentially for a higher value than the Health Board will pay (e.g. for residential development)?
Registering the Security
When a Practice has been awarded a Sustainability Loan it must first be secured over the surgery Premises. This means that the loan will have to be registered in the Land Register of Scotland over the GP premises, in the same way that a mortgage would be registered over a house. To have the loan registered it is necessary for a standard security document to be prepared, agreed with the Health Board and submitted to the Land Register of Scotland for registration. If the Premises have not been registered in the Land Register of Scotland (i.e. the modern plan-based register) then the granting of the standard security will also trigger first registration of the title in the Land Register. This adds complexity and cost to the process.
Where Practices already have an existing mortgage it is highly likely that it will be necessary for the Practice to obtain permission from their existing lender to grant the necessary standard security over the Premises. The existing lender is likely to impose conditions to their consent to the new Sustainability Loan. For example, they may require some of the funds from the Sustainability Loan to be used to pay off part of the outstanding mortgage.
The existing lender will also want to ensure that their position is protected in the event that the Practice defaults on its liabilities. The Practice’s existing lender may require that the Practice and the Health Board enter into a ranking agreement with the lender giving the Practice’s existing mortgage provider priority over the Health Board in the event that the Practice defaults on its loans.
Where a GP Practice is using the Sustainability Loan (or part of the Sustainability Loan) to pay off their existing mortgage the Practice will require assistance with the discharge of the bank’s security over the property. Even if the mortgage has been paid off completely it continues to appear on the title deeds of the property until the bank grants a formal discharge of standard security deed and that deed has been registered with Land Register.
All of these aspects will require legal advice and assistance. In summary a Practice may require the following legal services:-
- Updating the Premises title deeds
- Title transfers from former partners to current partners
- Updating practice agreements or a new practice agreement
- Advising on the terms of the Sustainability Loan
- Creating, negotiating and registering the standard security
- Automatic Plot Registration
- Negotiating consent with existing lenders
- Creating, negotiating and registering a ranking agreement
Davidson Chalmers has unparalleled experience in assisting GP Practices with their premises issues. If your practice is considering applying for the sustainability loan the Healthcare Team would be delighted to assist you in navigating your way through the issues that arise.