Vital Signs – A Primary Healthcare Blog: NHS Notional Rent – What is it?
The system for funding NHS GP Practices can sometimes appear to be a complex web with streams of income coming from a wide variety of sources. The funding of property costs is an important part of any practice’s income. The basis on which funding is provided often appears opaque. This briefing note aims to provide more transparency on one specific topic namely notional rents for owner-occupiers.
In simple terms it is the responsibility of each GP Practice to provide suitable accommodation for the provision of the primary care services they are contracted to provide. Such accommodation could be premises owned by some or all of the partners, leased from third parties (whether former partners or property investors) or be health board owned premises (such as a health centre). In each case in return for providing such accommodation the GP Practice is entitled to be paid or “reimbursed” rent by the Health Board. The key legislation setting out the terms and conditions on which such rent is reimbursed is the Primary Medical Services – (Premises Development Grants, Improvement Grants and Premises Costs) Directions 2004.
In the case of owner-occupied premises the rent that is reimbursed is known as a “notional rent payment”. This is because the practice is not paying the reimbursed rent on to some third party as such but rather the payment is “notional”.
Information explaining the position for those Practices leasing their surgery premises from Third Party Landlords can be found here.
Who can apply for a notional rent?
A GP Practice is entitled to apply to the Health Board for a notional rent payment. Note it is only a GP Practice (i.e. the contractor) that can make the application.
Is the Health Board obliged to grant an application?
The Health Board in turn must consider and “in appropriate cases” must grant the application. The term “appropriate cases” is not entirely clear but can take into account the Health Board’s budgetary targets. In practice provided the premises in respect of which a notional rent payment is sought are fit for purpose Health Boards invariably appear to grant the application.
How is the level of notional rent assessed?
The amount payable by the Health Board is the current market rental value of the practice premises. The Premises Directions set out how the current market rental is to be assessed. In simple terms it is the rental figure which might reasonably be expected to be paid by a tenant for the practice premises at the relevant date assuming a willing landlord and tenant. As no actual lease exists the Premises Directions makes certain assumptions as to the terms of the notional lease for which rent is to be assessed. This is because different levels of rent will be payable depending on the terms of the lease; for instance a tenant will pay more rent for a lease where the landlord is liable for maintenance and repair than would be the case for a lease where the tenant is liable.
The assumptions made are:
- A lease term for 15 years with 3 yearly upwards only rent reviews;
- The tenant is liable for internal repairs and decoration and the landlord liable for the costs of buildings insurance and for external repairs and maintenance;
- The tenant does not pay any service charge for upkeep, maintenance, cleaning and heating of common parts;
- There is vacant possession;
- Rates are payable;
- The tenant can assign or sublet the whole of the premises subject to landlord’s consent not to be unreasonably withheld;
- The premises can be used for practice purposes and for any other purpose for which planning permission has been, or can reasonably be expected to be, granted.
Who sets the notional rent?
It is the District Valuer that sets the level of notional rent.
Can the notional rent valuation be challenged?
A Practice need not accept the District Valuer’s assessment of notional rent but can challenge it. If a Practice wants to challenge the District Valuer’s assessment it should instruct a valuer experienced in valuing GP practice premises.
When is the notional rent reviewed?
The notional rent is normally reviewable on a three yearly basis.
Are there any deductions from the notional rent?
Health Board funded works.
If the Health Board have contributed towards the cost of building or refurbishment work in respect of the practice premises then the notional rent will be abated over a period of 10 years. The level of abatement is assessed according to a fixed formula set down in the Premises Directions.
Third Party contributions.
Where the Practice allows a third party to occupy some or all of the practice premises (e.g. a pharmacist) and that person makes a contribution towards running costs or pays rent then this contribution is deducted from the notional rent.
Where the Practice premises are used for the provision of medical services to private patients or for other non-public bodies then the notional rent is abated according to a set formula. However, there is no abatement where the practice income from such sources is less than 10% of total practice income.
There are different rules for assessing rents payable for cost rents and for third party landlord rents. The rules applying to such rents are the subject of another briefing note.
The Davidson Chalmers team has extensive experience in advising primary care GPs on a range of premises related issues. For an initial informal conversation please contact me (firstname.lastname@example.org / 0131 625 9191) or any of the Davidson Chalmers partners.
Davidson Chalmers is organising a free seminar on 23rd September 2015 to bring together legal, finance and property experts to give practical advice and tips to GPs and Practice Managers regarding their premises. If you would like more details on the just click here.