A number of GP surgeries continue to be reimbursed by NHS England on a Cost Rent basis. This scheme was originally provided to GPs who own their premises and incurred costs such as paying off a mortgage or the cost of a loan for repairs.
Cost Rent is no longer available in relation to new schemes but still applies to a number of existing practice premises.
Reimbursement under the Cost Rent Scheme is fixed at a figure specific to the Practice and calculated on borrowing costs.
What many practices do not realise is that the onus is on themselves to notify NHS England when their Cost Rent is due to expire. Failure to do so can and has resulted in having to pay back significant amounts of funding where the Practice was no longer eligible to receive reimbursement on this basis.
The conditions which require consideration are in the NHS Premises Cost Directions 2013 Part 5, however essentially the practice is to inform NHS England and discuss with them if any of the following apply:
The mortgage has been repaid
There are any changes to the terms and conditions of the loan
The original partnership is no longer in place
Other circumstances surrounding the practice or premises change
Notional Rent Reimbursement
A GP practice will need to switch to Notional Rent when their Cost Rent is due to expire or alternatively they can choose to switch to Notional Rent reimbursement at any time before it is due to expire if it is beneficial to do so.
Notional Rent reimbursement is based on the Current Market Rent (CMR) as defined in the Premises Cost Directions and is determined by the District Valuer on behalf of NHS England and is linked directly to market rental levels. It is therefore also important to monitor the market to ensure whether Cost Rent is still appropriate.
The right time to switch would usually be when the rent reimbursement level under market conditions falls at a higher level than the current fixed Cost Rent income. It is important to note that once transferred from Cost Rent to Notional Rent, the switch is permanent and therefore it is important to seek professional advice on the right time to do this.
Notional Rent Reimbursement Assessment
Initially, the assessment of Notional Rent reimbursement is determined by the District Valuer, and a professional adviser such as Aitchison Raffety can then advise if this falls at expected levels and progress an appeal to maximise the figure. Notional Rent can go up or down in line with market conditions, whereas Cost Rent is fixed.
Most practices would therefore require some comfort that there is no risk of the Notional Rent falling below the previous Cost Rent level in the future. Historically a percentage excess of 10% was considered appropriate. These days with a strong healthcare market and continued rental increases over recent years, the percentage does not need to be quite as high as this, although ideally, you would still want it to fall comfortably above the level of Cost Rent before switching from one scheme to the other. As commented on above, it is important to note that the initial District Valuer proposal is not always the best offer and can be appealed with the assistance of specialist advisers.
Alternatively, if you are required to switch from Cost Rent to Notional Rent for one of the reasons noted above, the Notional Rent figure may still fall substantially below that of the Cost Rent and an appeal can be undertaken to minimise the shortfall of income to the Practice.
If your practice would like to discuss the potential of moving from Cost Rent to Notional Rent reimbursement then please contact us on 01727 844 555, via email email@example.com or fill out our contact form.
If NHS England is moving you to Notional Rent due to practice changes and you wish to discuss the initial District Valuer’s proposal, then Aitchinson Raffety would be more than happy to assist.