5/8/20 – Healthcare: What effect could a third-party occupier have on your Rent Reimbursement?

A third-party in occupation within your premises should not have a negative effect on your overall rent. In simple terms, if they are occupying under a lease, then the rent paid should at least cover the Notional Rent that has been deducted from the overall reimbursement for this space.

For a number of years, we have assisted Practices who have lost potential income due to the fact that they were unaware that the Notional Rent would be affected if they agreed to allow a third party to occupy or use rooms within the premises. Any room(s) that are exclusively used by a third party are likely to be removed completely from your Notional Rent. In addition, if the third party is bringing in new patients and using the medical centre’s facilities, the CCG/District Valuer may discount the shared area (e.g. reception) and remove car parking spaces from the Practice’s rent reimbursement to reflect this. At a time when Practices are being asked to consider allowing other occupiers to use space in order to enable the medical centre or surgery to provide a wider variety of services, it should be noted that these agreements will most likely affect your Notional Rent Reimbursement and should therefore be carefully considered at an early stage. However, if assessed correctly the Practice can receive an appropriate rent from these third parties to reflect the usage of the space.

Assessing the Notional Rent Reimbursement
Notional Rent Reimbursement is assessed based on a rate per sq m on the basis of a 15-year lease with internal repairing obligations and three yearly rent reviews. Any differences in the lease terms agreed with a third party could materially affect the rate per sq m and overall rent secured for the space. Examples can include break clauses or review patterns, which could both result in an increased level of rent being secured. If the third party occupier uses any of the Practice’s facilities including the reception, you would also expect a further contribution to reflect this. This can be via a service charge provision in the lease or in terms of a higher overall rent which incorporates this. The use of car parking facilities should also be reflected. The Practice should achieve the same or a potentially higher contribution from any third party to counter any loss in reimbursement but it should be noted any figure secured will also depend upon the lease and the terms agreed.

When might the assessment differ?
Where a third party occupies exclusively, the arrangement can be very straightforward. However where the occupation is sporadic the situation can be more difficult to assess. For example where a third party only uses a room part of the time and the Practice continues to use it for the remainder, this may not affect the Notional Rent. If one room is used by a variety of third-party occupiers, then this room may be removed entirely from Notional Rent. In both situations, the Practice will not need to agree a lease, but a service charge level agreement is recommended, which means that the occupiers will then contribute to the cost of the building and the services.

The Practice should also be aware that if a third party is in occupation, and the room(s) are removed from reimbursement, it may be difficult to bring these rooms back into the Notional Rent scheme at a later date, as NHS England may consider that the Practice do not require all the space within the property for GMS purposes. This could mean that if the current third party vacates and you are not successful in re-including the space within the Notional Rent reimbursement, there may be a period when these rooms are empty and not bringing in any income.

Any Practice considering taking on a third-party occupier will need to consider the future implications of this and Aitchison Raffety can assist with this.

If you would like further information, please contact Georgina Silk, Senior Healthcare Surveyor, on 020 7907 3727 or email to georgina.silk@argroup.co.uk.