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Improvement grant

Q: I am one of six GP partners, two of whom own the premises. We are considering applying for an improvement grant that we would mainly use for internal alterations to create more ground floor consulting rooms and move administrative offices upstairs. We are hoping for a grant of 30 to 60 per cent of the cost. Does the residual cost usually fall on the owners of the building or is it shared among the partners? Will there usually be an adjustment to notional rent following the improvements?

A: With a difference between the partners who own the property and the partners who are from the partnership, you need to clearly define the two. At some practices, property-owning partners create a tenancy where the partnership as a whole (all the partners) is the tenant and the property-owners are the landlord.

It is not actually necessary to create a lease and the different roles of the property owners and the partnership can be built into your partnership agreement.

Looking at your situation like this, you have two options.

The first is to treat the partnership as the recipient of the grant which can be for up to 66 per cent of the cost. The partnership would contribute the remaining project cost - the work would be regarded as 'tenant's improvements' and the partnership would receive any additional notional rent.

If the partnership gets a 66 per cent grant, any extra notional rent will be based on only around 33 per cent of the total increase in the notional rent in regard to the refurbishments - how to calculate this is shown in the NHS (GMS Premises Costs) (England) Directions 2004 at www.dh.gov.uk.

Treating the surgery alterations as a tenant's improvement means all the costs and benefits pass to the tenant.

The other option is for the landlord GPs to fund the 33 per cent balance and for them to receive any additional notional rent in full. In other words, the property-owning partners will get 33 per cent of any extra notional rent from the PCT on the refurbished areas, but the 66 per cent improvement grant is regarded as being for tenant's (the partnership's) improvement so no extra notional rent pro rata to the 66 per cent paid by the partnership goes to the landlord GPs.

In reality you should get about 10 per cent more than a simple 33 per cent apportionment, because there should be an addition to the notional rent for the additional repairs and insurance liability for the upgraded building.

John Hearle

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