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Premises rent dispute

Q: We are three part-time PMS partners. Two of us, including me, own the premises. The third partner pays us rent. We have no written lease agreement. The other owner and I charge the whole partnership for use of the premises. The PCT pays a notional rent but it is much lower than the amount needed to cover the cost of our mortgage and to maintain the external part of the premises (landlords' responsibility). We would like to increase the rent to cover the mortgage cost and maintenance, regardless of the amount of notional rent. I wonder if the law allows this? We do not want to make a profit but we do not want to be left out of pocket either. I also wonder if we could set the rent based on our own preferences. What other options do we have?

I note that the notional rent that is received by you and your partner does not cover the cost of your mortgage plus the cost of your external repair liabilities.

I think it is reasonable for you to seek a level of rent that covers the cost of your mortgage interest charges (not the cost of capital repayment) with an amount towards external and structural repair maintenance.

This really should be the case if you are in a surgery that is of a reasonable quality and suitable for its purpose (having regard to the NHS requirements and minimum standards as shown in the 2004 Premises Costs Directions).

The fact that you do not receive this could mean the rent is too low, implying that the district valuer is undervaluing the market rent. You will only be able to ascertain this by getting specific advice from a specialist valuer.

The problem could otherwise be that the capital value of the property may be a lot higher based on its alternate use.

In some high-value residential areas, it is not uncommon to find conversions that have a residential value much higher than the general level of surgery values.

In making an assessment of the notional rent, the Premises Costs Directions allow the district valuer to take into account alternate use, which could go a long way towards overcoming your problem.

However, even if the district valuer takes into account alternate use, they then often make large deductions for reconversion costs. This practice is much debated and different valuers have different opinions.

In my view, such deductions are not appropriate for a surgery premises that is of high quality, where its continuous use as a surgery can be assumed for a number of years to come.

Conversely, this is probably the correct approach to take where a surgery is of mediocre or poor quality and in reality, in the foreseeable future, would be better located elsewhere.

John Hearle

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