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Sale and leaseback of GP premises: The pros and cons

What GPs need to know about sale and leaseback of their premises. By Paul Conlan.

Sale and leaseback is becoming a popular option for partnerships (Picture: iStock)
Sale and leaseback is becoming a popular option for partnerships (Picture: iStock)

With countless GP practices struggling to recruit new partners and many GPs taking early retirement or emigrating, sale and leaseback is fast becoming the solution of choice for partnerships having to make decisions about their property. 

Sale and leaseback involves the GP partners selling their premises to an investor and then leasing the premises back from that investor while still remaining in practice.

This option is becoming more popular because it eliminates some of the barriers to recruitment and can make the process of moving practices or retirement much more straight-forward. However, as with every solution, there are positives and negatives which will apply in varying degrees depending on your circumstances.

Some of the pros and cons are detailed below. But, we would advise all GP practices who are considering sale and leaseback to contact their specialist surveyor who will be able to run through your specific circumstances in more detail and answer any questions that you or your partners may have.  

Pros of sale and leaseback

People

  • Recruitment: Recruiting new partners becomes easier because they no longer need to part with such a large amount of money in order to ‘buy in’. Moreover, the lease can be structured to allow succession and to mirror changes to the partnership. This means that partnership changes do not require landlord approval or a new lease to be drawn up and signed.

  • Retirement: Partners can retire without the hassle of selling their property equity share of the building. This is a big advantage because it is becoming increasingly difficult to find new property-owning partners to replace retiring GPs. 

  • Patients: You can continue to operate as normal throughout the sale and leaseback process and you will maintain responsibility for the running of your practice – meaning that patients are completely unaffected.

Money

  • Equity: Sale and leaseback allows you to release the money that is tied up in your GP surgery premises now. This gives you additional cash resources that could be used to improve your services, invest in opening a branch surgery or create a pension pot for the future. Sale price: There are a lot of investors interested in buying GP surgery premises – partly because they are seen as secure investments due to the practice’s rent reimbursement. This security drives up the price that investors are willing to pay. Many of these investors have bought GP practices before and so are fully aware of what’s involved.

  • Tax: The transaction should be exempt from stamp duty land tax (assuming all owners become tenants). However, you should always consult your accountant about this at the beginning of the process. HMRC has more information about this. There can also be tax benefits following the completion of the sale and leaseback because the rent can be offset as an operating expense.

  • Rent reimbursement: Your notional rent reimbursement should cover the rent that you pay to your landlord. Your surveyor will be able to advise you on this. This means that your rent payments should be cost neutral.

Premises

  • Responsibility: Some of the responsibility for maintaining the premises can be transferred to the landlord. This means you should have more time to spend caring for your patients

  • Relocation: At the end of the lease term, you can relocate the surgery to a different premises more easily than if you still owned the premises, or you can sign up for another term on much the same basis as before.

  • Improvement works: Your new landlord is often in a position to help finance improvement works and should work with you and NHS England to keep the premises operating efficiently.  The landlord would likely expect to reclaim the expense of these improvement works over the outstanding duration of the lease. However, if NHS England approve the works, it is likely that the practice will be in a neutral financial position, as rent reimbursement will increase to reflect the improvements.

Cons of sale and leaseback

People

  • Leaseholders: Leases can be long (typically 15-25 years), which can sometimes put people off signing. Shorter leases can be negotiated and agreed, however a shorter term may have a detrimental effect on the purchase price and the rent the practice pays. You usually require more than one GP to sign the lease and to remain on the lease at all times to secure the best sale price. Therefore, sale and leaseback can be more difficult for single-handed GPs. However, there are solutions and you should speak to your specialist surveyor. 

  • NHS England: The Premises Cost Directions require any new lease to be approved by NHS England. This can often take a long time. Therefore, your surveyor should start the ball rolling on this straight away to ensure that there are no hold ups. Not obtaining NHS England approval is not a bar on progressing with a sale and leaseback, but it does open up the possibility of the practice receiving a lower rent reimbursement than the rent demanded by landlord. Refusal from NHS England is often due to being tied into a building for a longer period than it deems suitable.

  • Partners: There can be issues if some of the partners are more on board than others. It is important that everyone buys into the sale and leaseback approach – especially given that the remaining partners will need to sign the lease together. 

Money

  • Income: If you currently lease space to a pharmacy (or other organisation), you can continue to sublet the space following the transaction. However this may affect the sale price that you can achieve and potentially increase the rent that you pay to your new landlord.

  • Rent reimbursement: The alterations to the Premises Costs Directions in 2013 mean that NHS England will no longer guarantee that your notional rent will cover your actual rent. You will need to play an active role in the rent review process to ensure that this doesn’t happen. More information about this can be found here: http://www.gpsurveyors.co.uk/knowledge/blog/1468 

  • Equity: All equity is relinquished. Therefore, any future rent payments are made as cash and will not contribute towards equity in the future. 

Premises

  • Permission: You will need to seek permission from the landlord to carry out any future refurbishment/maintenance works. The level of permission required will depend on the terms of your lease. 

Seek expert advice

The sale and leaseback process for GP practices isn’t necessarily the same as in residential or commercial environments. Therefore, you need to make use of a specialist solicitor, surveyor/agent and accountant/tax adviser who have been through the process before. This will help to ensure that you have a bulletproof lease tailored to your GP practice, you benefit from any tax allowances and you sell your practice for the maximum price. 

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