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How much is your surgery worth?

Market rent value is crucial to setting GP practices' premises reimbursement levels but how is it worked out? Medeconomics premises expert John Hearle explains.

Legal covenants and partnership deeds restricting the surgery's use can depress its value (Image: iStock)
Legal covenants and partnership deeds restricting the surgery's use can depress its value (Image: iStock)

Fundamentally, the value of a property is derived from the ‘use’ to which it can be put – residential or industrial; as a retail outlet, office, healthcare or facility, for example.

In turn, use is determined by the physical aspects, location and quality of the premises; restrictions contained within any planning permission, legal restrictions such as covenants on the land.

Or, indeed, restrictions place on use contained in a practice’s partnership deed.

Physical aspects

Size is often regarded as a key element with a rate per square metre being applied to the ‘net internal area’ in order to arrive at a rental value.  

A valuer then ‘capitalises’ (puts a figure on) this rent after taking into account factors such as investment market yields and lending rates.  

However, the resulting capital or market value of GP premises is not simply based on size.

The capital or market value also takes into account the property’s quality by considering whether it meets the minimum standards of the Premises Costs Directions 2013.

Or, with new premises, the valuer takes into account the more extensive documentation formerly on the Space for Health website - click here for where to find it now.  

Undoubtedly quality is becoming much more important in terms of spatial design, fixtures and fittings and state of repair. 

Location

Where the surgery is located is also a key element, hence the phrase ‘location, location, location' beloved of the property world to describe a building's or site's desirability.

The location factor means there can be a substantial difference in market value between a non-urban, remote surgery in a deprived location compared to one in a sought after commercial or high value residential area.

Limitations on use

Planning permission, legal covenants and partnership deeds can curb the use of GP premises so that a valuer will only take account their use as a surgery.  

With purpose-built and most modern GP premises, this will not cause concern.  

But as a property gets older and it becomes less fit for its purpose - or where alternate use values for similar properties in the area rise rapidly - a restriction limiting it to surgery use can cause a problem.

An example of this would be a restriction to surgery use only on an old 1970s surgery premises in a prime area for residential redevelopment.  

The market value might relate to the high intrinsic value of the site as a residential plot of land if there is no legal covenant on the land and no condition in the partnership deed restricting it to surgery use only. Otherwise the value might much reduced

Another example where such a restriction may dramatically reduce the market value would be in a sought after residential area where a GP surgery is in a converted, majestic Edwardian dwelling house.

Here the quality of the premises as a surgery could well be substantially below the building’s undoubted high value as a residential dwelling house.

Valuers

To assess the true market value of your surgery, the valuer (a surveyor) must not just be a competent valuer.

They also need to specialise in the healthcare field and fully understand the Premises Costs Directions plus all the quality standards with which a GP surgery must comply.   

Amongst other things, the valuer needs to:

  • Determine whether any notional rents are too high or too low.
  • Assess the quality of the surgery compared to the relevant NHS guidance and, in turn, determine the longevity of the premises as a surgery.
  • Consider the potential for redevelopment or improvement of the surgery.
  • Factor in the alternate use(s) of the premises or potential redevelopment of the site.
  • Be aware of any NHS or postgraduate deanery grants or abated notional rent that needs to be taken into account.
  • Have a substantial database of agreed rents to refer to in the locality/area concerned.

Premises Cost Directions drawback

Historically, notional rent reimbursement was calculated having regard to the surgery use of the property or to any other such use for which it could be reasonably assumed that planning permission would be granted. 

The new Premises Costs Directions that came into force on 1 April 2013 have changed this as the valuer no longer has the ability to take account of alternate use when assessing the notional rent level.

In the light some of the points above, this restriction could have the effect of seriously dampening the market rent value of existing surgeries - and therefore the practice's notional rent - where the alternate use value has risen above that of the building as a surgery.

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