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Surgery valuations

I bought my share in the surgery five years ago on joining the partnership. I was shown two values: one based on what the surgery's building costs; the other calculated on the notional rent paid by our PCT. I opted for the latter as it was lower. Since then a partner has retired and we recently took on a new partner. But our accountant says that our partnership deed clearly states that the cost of buying into the premises must be based on either the current market rent (CMR) value or building costs less improvements grants. As the option I chose cannot be re-used, is it OK to use our notional rent to calculate a value?

Using a formula to calculate the surgery's value based on the notional rent as a substitute for a CMR calculated by a specialist surveyor is dangerous. The CMR of a property will, amongst other things, take into account the rental value. Any valuer you employ should look at the current notional rent as assessed by the district valuer (DV) on the PCT's behalf and then make their own assessment of the CMR as at the date of valuation.

Your valuer's assessment needs to take into account any non-GMS (or non-PMS) accommodation and depending on the the partnership deed's exact wording, any alternate use your premises could be put to - as offices or a residence, for example.

In the past, various rules of thumb were used such as multiplying the notional rent 'x' or 'y' times to arrive at an approximate surgery value. But this is flawed and such a method should never be used for a contractual valuation as it inevitably discounts any element of alternate use and any part of the property not in GMS (or PMS) use.

Of more concern is that the multiple used will relate to current investment yields and interest rates so will continually change.

Considering the multiple used as recently as two years ago when the UK economy was stronger, even with a modern surgery it is now likely to be some 25 per cent less. For older-style, converted surgeries, the difference could be even greater.

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