The decision to switch has never been easy for GPs. But now, increasing numbers of PCOs are pressurising practices to switch sooner rather than later. Cost rent — or borrowing costs as it is officially called -— is based on the cost to build, or convert, premises while notional rent relates to the surgery's market value.
John Hearle, a chartered surveyor and chairman of Aitch-ison Raffety, says that PCOs believe they can stretch their budgets further by switching practices to notional rent.
'It's in PCOs' interests to get rid of some of these cost-rent schemes,' he says. He adds that while notional rent is often lower than cost rent, it can fluctuate depending on commercial property market trends.
GMS contract changes
PCOs began to adopt a more aggressive stance on cost versus notional rent from April 2004 when the new GMS contract, which includes a new premises funding rules, was introduced. Previously notional rent came from central non-cash-limited GMS funds.
'Suddenly PCOs are trying to think of everything and anything to avoid paying cost rent,' says Mr Hearle.
According to the GMS Premises Costs Directions 2004, practices are free to decide when, or if, to move to notional rent. Unfortunately some PCOs are using the greater control and discretion put at their disposal to 'persuade' practices to give up cost rent.
Mr Hearle advises GPs not to be bullied, a view backed by GPC negotiators.
Lynne Abbess, a partner at Hempsons solicitors in London, concurs, saying the cost rent agreements that practices entered into originally must stand until the practices decide otherwise. 'It's not open to PCOs to force practices to accept a lower amount,' she says.
While the new GMS contract changed some cost rent and notional rent rules, it did not alter the right of GPs, and not PCOs, to opt to transfer to notional rent.
As in the past, practices should be confident that they are likely to be better off financially under notional rent for a considerable period of time.
They should be aware that short-term changes in interest rates are unlikely to adversely affect this gain. This is because once a practice opts for notional rent, the regulations do not allow for a return to cost rent.
‘The rule of thumb is to wait until notional rent is a good 10 per cent higher than the cost rent before moving because notional rent could go down,' advises Ms Abbess.
GPC negotiator Dr Peter Holden says that, at a time of rising interest rates, practices receiving cost rent need to consider when they want to move to notional rent.
'In all instances the practice has the right to make the decision. As I always say, if a PCO comes along with proposals, ask them to point you to the regulations that cover them.'
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