Wright Johnston and Mackenzie Solicitors

Leases and Health Centre Licences

Leases and other occupancy agreements of GP premises differ from leases of other types of property, principally because of the NHS regulations that apply to them. We list some of these issues below:

Rent reimbursement and review clauses:

A practice will wish to ensure that rent payable following a rent review will never exceed the amount of rent reimbursable to the practice under the relevant Statement of Financial Entitlements and Premises Directions in force from time to time for both GMS and Section 17 contracts. As private landlords have an interest in maximising rent for the benefit of their investors, some robust negotiation is often required over the precise wording of clauses of the lease. In all cases, it will be the District Valuer acting on behalf of the relevant health board who agrees the open market rental value for the surgery premises with the landlord.

A well drafted lease should make clear that the maximum rent at rent review should not exceed the open market rental value, having regard to the terms of the lease, as distinct from the total amount payable to a practice through operation of the rent reimbursement scheme (a GP practice will, typically, be entitled to a slightly higher level of reimbursement than the actual rent payable under the lease, as the relevant Premises Directions contain different assumptions for determining the occupancy costs than the actual terms of the lease, including, in particular, the repairing liabilities).

Repairing obligation:

Whilst a practice is able to recover rent from the health board, it is not able to recover any costs for repairs, whether directly for repairs it instructs or indirectly by payment of a service charge for a building, part of which is being leased to the practice.

A practice would be best advised to negotiate limitations to its liability under a repair clause – for example, by excluding repairs which fall within a particular scope of repair or by annexing a surveyors’ schedule of outstanding defects (a ‘schedule of condition’) to the lease and all latent or inherent defects. 

Exit clauses from the lease:

There are three scenarios when GPs may want to have special rights to exit a lease early:

(a) Those individual GPs who are partners may want specific safeguards built into the lease, so that the individual GPs can exit the lease. This may take the form of revisions to the lease document or the developers agreeing to give “back letters” to GPs, or both.

Although the GMS Contract offers significant incentives to GPs who wish to lease their premises under GMS or PMS arrangements, a practice should specifically request for exit clauses to be included in the lease or back letters.

(b) Where a practice has lost its GP contract or has ceased to qualify for rent reimbursement in whole or in part, it would want to have a right to terminate the lease early.

(c) The tenant should also have the right to assign to the relevant local health board in terms of the 2018 GMS Contract and the National Code for GP Premises

Construction of the building and design defects:

GPs as tenants are responsible under the lease for rectifying any design defects. This is one of the most significant issues for tenants taking on a lease of a new medical centre building. A practice should make every effort to restrict the liability of GPs to rectify any potentially expensive design defects.

Our firm can provide a solution to GPs in two ways. First, we negotiate hard with the developers on the terms of the GPs’ repairing obligation under the lease. Second, we can, if required, insist upon satisfactory construction guarantees from the building contractor and other professional consultants involved in the construction of the new medical centre. In a number of recent transactions, we have succeeded in significantly restricting GP and NHS Board repairing obligations.

GPs’ partnership agreement:

A lease or other form of occupancy agreement does not exist in isolation. As part of any lease/licence transaction, a practice ought to ask their solicitor to review the practice partnership agreement, so that adequate account is taken of the terms of a new lease or other form of occupancy agreement. As an additional service we can offer to review the whole agreement, in order to ensure the practice is well regulated.