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National Code of Practice for GP premises

Published: 13 Nov 2017
Part of:
Health and social care
ISBN:
9781788513715

This Code of Practice sets out the Scottish Government’s plan to facilitate the shift to a model which does not entail GPs providing their practice premises.

38 page PDF

366.0kB

38 page PDF

366.0kB

Contents
National Code of Practice for GP premises
Part B: GP owned premises

38 page PDF

366.0kB

Part B: GP owned premises

9. GP Owned Premises – Strategy

9.1. The Scottish Government is committed to supporting the gradual shift towards a model where GPs are not presumed to own their premises. This part of the Code sets out the Scottish Government’s plan to achieve this shift in a sustainable and affordable way.

9.2. The first priority is to ensure the sustainability of general practice by mitigating the effect of premises issues. This will be done by providing GP Sustainability Loans. During the period 2018 to 2023, all GP contractors who own their premises will be eligible to receive a GP Sustainability Loan out of the GP Premises Sustainability Fund. These loans will help support general practice as a whole. They will allow partners to release capital without destabilising their practice, reduce the up-front cost of becoming a GP partner, and make general practice more financially rewarding. The loans will encourage GPs to become partners in practices which own their premises.

9.3. The Scottish Government envisages that once the first cycle of GP Sustainability Loans is complete (2023), a further five year cycle will begin to further reduce the risk to GP practices which own their premises. The Scottish Government intends that these five year cycles of investment will continue until the transition to the new model where GPs no longer own their premises is complete (by 2043). The Scottish Government anticipates that Health Boards will complete the purchase of the GP owned estate from 2038 onwards. GP contractors should not expect their Health Board to buy their premises before then.

9.4. In order to achieve the change in the model of GP premises ownership, Health Boards must as part of their strategy for primary care (in addition to providing GP Sustainability Loans) over the next 25 years either:

  • purchase existing GP owned premises in a planned manner; or
  • provide alternative premises to allow GPs to sell their existing premises where that is in the best interests of patients and provide GPs with financial assistance with relocation.

9.5. This Code sets out two further measures to allow Health Boards to do this. Firstly, it will be a condition of a GP Sustainability Loan that the Health Board can purchase the GP premises at an appropriate value (except where that is not enough to clear the GP contractor’s other secured debts).

9.6. GP Sustainability Loans will create a financial incentive for GP contractors to remain in their existing premises even where it is no longer appropriate for them to do so. As a result, Health Boards will have a new power to withdraw (where it is appropriate to do so) Notional Rent and borrowing cost payments from a GP contractor owner-occupier who chooses not to re-locate to suitable alternative premises provided by the Health Board. The Area Medical Committee (in practice this is expected to be the GP Sub-Committee) must be involved in this decision and the alternative premises must be suitable for the provision of primary medical services. Health Boards must ensure that a GP contractor is given sufficient financial guarantees where the GP contractor is asked to move. These guarantees are set out in more detail in section 14.

9.7. Taken together, the measures outlined in this Part of the Code will stabilise general practice, make it more financially rewarding to be a GP partner and will enable the transition, over a 25 year period, to a model where GPs are no longer presumed to own their premises.

Flow Chart

10. GP Sustainability Loans

Introduction

10.1. From April 2018 to March 2023, all GP contractors who own their premises can receive a GP Sustainability Loan from their Health Board.

GP Sustainability Loans – Key points

  • All GP contractors who own their premises will be eligible for an interest-free loan including those in negative equity.
  • The loans will be for an amount of up to 20% of the Existing-Use Value of the premises and they will be secured against the premises.
  • Loans will be funded from the GP Premises Sustainability Fund.
  • Health Boards will have the power to top-up the amount of the loans where they decide that there are exceptional circumstances.
  • The loans will be repayable if the premises are sold or are no longer used by the GP contractor for the provision of primary medical services under a contract with a Health Board.
  • The loan will have no effect on Notional Rent or borrowing cost payments. There will be no abatements due to a loan.
  • A system for prioritising applications will be put in place to ensure that assistance is given first to those who need it most.

Purpose of GP Sustainability Loans

10.2. GP Sustainability Loans will increase the stability of general practice and increase the incentive of being a partner in a practice which owns its premises.

10.3. The retirement of a partner in a practice which has significant capital invested in its premises can have a destabilising effect on the practice and affect its sustainability. A GP Sustainability Loan would significantly reduce any destabilising effect the retirement of a partner may have. It would also reduce the up-front cost to new partners of joining the practice.

Example 1

The partnership has five partners and its premises are valued at £500,000. The partnership has no secured debts and it receives Notional Rent payments. Notional Rent is greater than the premises-related costs but it is expensive for new partners to join. Difficulties recruiting new partners threaten the sustainability of the practice.

An existing partner wishes to retire. The partnership receives an interest-free secured loan of £100,000 from its Health Board and uses it to pay-off the retiring partner.

The net value of the partnership’s assets is now £400,000. It is less expensive to recruit new partners as the value of the partnership’s assets is less. Notional Rent is still greater than premises-related costs.

Current Position Future Position
Continuing Partners Retiring Partners Total Continuing Partners Health Board Total
Example 1 (£000)
Assets:
Property 400 100 500 500 500
Debtors 0 100 100
Cash 0 -100 -100
Total Assets 400 100 500 500 0 500
Liabilities:
Bank Creditor 0 0
Health Board Creditor 0 -100 -100
Total Liabilities 0 0 0 -100 0 -100
Net Assets/(Liabilities) 400 100 500 400 0 400
Partnership Equity 400 100 500 400 0 400

10.4. GP practices with premises which are in negative equity can struggle to both recruit new partners and to repay their loans. A GP Sustainability Loan would reduce the amount of the regular repayments those practices have to make and give them a much better chance to eliminate their negative equity. They will also increase the attractiveness to GPs of becoming partners in the practice as GP Sustainability Loans are only repayable if the premises are sold or are no longer used for providing primary medical services under a contract with the Health Board.

Example 2

The partnership has five partners and its premises are valued at £500,000. The partnership has secured debts of £600,000. The net value of the partnership’s assets is -£100,000. An incoming partner will not have to contribute capital to buy into the partnership but negative equity puts potential partners off joining the practice. Notional Rent may not be enough to cover the partnership’s borrowing costs.

The partnership receives an interest-free secured loan of £100,000 from its Health Board which reduces its existing mortgage to £500,000. The partnership agrees to makes capital repayments on its pre-existing debt.

The net value of the partnership’s assets is still -£100,000. However, it only has to make repayments on £500,000 of its debts. Notional Rent is now more likely to cover the loan repayments.

Potential new partners can be reassured that the £100,000 loan to the Health Board will only have to be repaid if the premises are sold or no longer used by the GP contractor for providing medical services. There is now a much better prospect of the partnership eliminating its negative equity and attracting new partners to carry on the practice.

Current Position Future Position
Continuing Partners Retiring Partners Total Continuing Partners Health Board Total
Example 2 (£000)
Assets:
Property 500 500 500 500
Debtors 0 100 100
Cash 0 -100 -100
Total Assets 500 0 500 500 0 500
Liabilities:
Bank Creditor -600 -600 -500 -500
Health Board Creditor 0 -100 -100
Total Liabilities -600 0 -600 -600 0 -600
Net Assets/(Liabilities) -100 0 -100 -100 0 -100
Partnership Equity -100 0 -100 -100 0 -100

10.5. The up-front cost to new partners of joining GP practices which do not have significant capital tied-up in their premises is low. However, such practices may find that the payments they receive in Notional Rent are not enough to cover their premises-related costs. A GP Sustainability Loan would significantly reduce their borrowing costs and so increase their profitability.

Example 3

The partnership has five partners and its premises are valued at £500,000. The partnership has secured debts of £500,000 and receives Notional Rent. The net value of the partnership’s assets is £0. There is no up-front cost for new partners to join the practice. Notional Rent may not be enough to cover borrowing costs.

The partnership receives a loan of £100,000 from its Health Board. The loan is used to repay £100,000 of the partnership’s secured debt.

The net value of the partnership’s assets is still £0. There is still no up-front cost for a new partner to join the practice. However, the practice only has to make repayments on £400,000 of its debts. Its borrowing costs could reduce by up to 20% while its Notional Rent payments remain the same.

Current Position Future Position
Continuing Partners Retiring Partners Total Continuing Partners Health Board Total
Example 3 (£000)
Assets:
Property 500 500 500 500
Debtors 0 100 100
Cash 0 -100 -100
Total Assets 500 500 500 0 500
Liabilities:
Bank Creditor -500 -500 -400 -400
Health Board Creditor 0 -100 -100
Total Liabilities -500 -500 -500 0 -500
Net Assets/(Liabilities) 0 0 0 0 0 0
Partnership Equity 0 0 0 0 0 0

10.6. GP practices which do not have substantial capital tied-up in their premises and receive Notional Rent payments which exceed their premises costs would also benefit. A GP Sustainability Loan would significantly reduce a practice’s borrowing costs and so reduce their overall expenses. This increases the sustainability of the practice by making it more attractive to new partners.

Eligibility

10.7. All GP contractors who own their premises will be eligible.

Amount of loan

10.8. The GP Sustainability Loan will be of an amount up to maximum of 20% of the Existing Use Value of the premises.

10.9. Initially, the Existing Use Value of GP premises will be calculated using 2017 values for Notional Rent to ensure this commitment is affordable. This will be reviewed annually. These values are provided by the District Valuer.

10.10. Health Boards will be able to provide loans to GP contractors with money provided by the Scottish Government for that purpose. All loans will be funded from the GP Premises Sustainability Fund. Health Boards may, when they consider the circumstances are exceptional and entirely at their discretion, top-up the amount of the GP Sustainability Loan from their own funds but only if their resources allow it.

Repayment of loans by GP contractors

10.11. GP Sustainability Loans will be repayable in the event that the premises are no longer used by the GP contractor for the provision of primary medical services under a contract with a Health Board. The property cannot be sold without repayment being made.

10.12. The repayment obligation cannot be assigned by the GP contractor without the Health Board’s consent. Changes in the membership of the GP contractor’s partnership or reincorporation by the GP as a limited liability partnership will not trigger repayment of the loan.

Conditions which must be satisfied to obtain a GP Sustainability Loan

10.13. The GP Contractor must grant a standard security over its premises to secure the loan.

10.14. Where the GP contractor’s premises are in negative equity, it must have or enter into an agreement with its pre-existing lenders to repay the capital of its pre-existing loans before the GP Sustainability Loan is made. Health Boards are entitled to review all existing loan and security arrangements when deciding an application for a GP Sustainability Loan.

10.15. The pre-existing debt owed to a holder of a pre-existing security would be paid off before the Health Board in the event that the GP contractor defaulted on its mortgage. A ranking agreement, on terms acceptable to the Health Board, with any pre-existing secured lenders is required before the Health Board makes an interest-free loan. Confirmation of the amount outstanding under any pre-existing secured loans is also required.

Conditions attached to GP Sustainability Loans

10.16. The GP Sustainability Loan will give Health Boards the option to purchase GP premises at an appropriate value, as assessed by the District Valuer as close as practical to the date of purchase. This value will depend on the type of the premises. For some premises, the value will be the Market Value. For others, it may be the Existing Use Value of the premises. The basis of valuation will be agreed in the loan documentation. The option to purchase will not be exercised if the purchase price is not sufficient to clear the GP contractor’s other secured debts and an arrangement cannot be reached with the GP contractor’s other secured lenders.

10.17. The Health Board will have an obligation to lease the premises back to the GP contractor where it exercises its option to purchase.

10.18. GP contractors who are not in negative equity must not increase their total secured borrowings to deliberately enter negative equity.

Payment of loans by Health Board

10.19. Where a GP contractor has pre-existing secured debts, the Health Board must pay such an amount of the loan directly to the pre-existing lender as is necessary to prevent the GP contractor from entering negative equity.

10.20. Where a GP contractor is in negative equity, the entire amount of the GP Sustainability Loan must be paid directly by the Health Board to the pre-existing lender.

Effect of loan on Notional Rent or borrowing cost payments

10.21. The provision of a GP Sustainability Loan will have no effect on recurring financial assistance paid to the GP contractor under the Premises Directions (i.e. Notional Rent and borrowing cost payments). These will not be abated due to a loan.

What happens when a GP Sustainability Loan becomes repayable?

10.22. A GP Sustainability Loan is repayable in one of two circumstances – where the premises are sold or are no longer used by the GP contractor for the purposes of providing primary medical services under a contract with a Health Board. Changes in the membership of the GP contractor’s partnership or reincorporation by the GP as a limited liability partnership will not trigger repayment of the loan.

10.23. Where the premises are sold either by the GP contractor or another secured creditor, the GP Sustainability Loan is repayable in full. The Health Board will however write-off part of the GP Sustainability Loan in certain circumstances (see 10.27).

10.24. If the premises are no longer used by the GP contractor for the purposes of providing primary medical services under a contract with the Health Board, the Health Board must agree to defer repayment for up to 12 months to allow the GP contractor to market the property.

10.25. If repayment has not taken place within the agreed period the Health Board is entitled to sell the property as a secured lender. Once all secured creditors are paid off, the balance of the sale price will be paid to the GP contractor. For the avoidance of doubt, the Health Board is entitled to refuse to discharge its security on a sale if full repayment is not taking place, unless the write-off provisions below apply.

10.26. The Health Board may also decide to exercise its option to purchase the premises. In this case, the value of the loan must be off-set against the purchase price.

In what circumstances will a Health Board write-off a GP Sustainability Loan?

10.27. Where the GP contractor sells its premises and the sale price is not enough to pay off the full amount of the GP Sustainability Loan, the part which cannot be paid off will be written-off by the Health Board if:

10.27.1. the Health Board is satisfied that the premises were placed on the open market with proper marketing to sell them at the maximum price achievable;

10.27.2. the Health Board is satisfied, having taken professional advice, that an increased offer (i.e. an offer that was better than the one that was in fact accepted for the premises) could not reasonably have been achieved;

10.27.3. the Health Board is satisfied that the premises have not been sold to a person connected to the GP contractor; and

10.27.4. the GP contractor did not deliberately increase its borrowings so as to enter negative equity in the period between the granting of the GP Sustainability Loan and the marketing of the property i.e. the negative equity is due to market conditions, not GP contractor additional borrowing.

10.28. The GP contractor’s debt will not be written-off if the GP contractor was in negative equity when it drew down its GP Sustainability Loan and it remained in negative equity from that point until the point the premises were sold.

10.29. A GP Sustainability Loan will not be written-off where the premises are sold by another secured creditor. The payment by Health Boards of Notional Rent and borrowing costs grants to GP contractors means that practices should never default on the repayments of their secured debts.

Prioritisation

10.30. If there are more applications at any one time for GP Sustainability Loans than there is funding available, applications will be prioritised according to need.

10.31. The system of prioritisation will be designed to ensure that loans are given first to those who need them most.

10.32. It is anticipated that the GP Premises Sustainability Fund will only be open to priority applications for its first six months. Further guidance on the system of prioritisation will be issued in early 2018.

Future purchase of premises by Health Board

10.33. In the event that the Health Board decides to purchase the GP premises after the GP contractor has received a GP Sustainability Loan, the value of the loan must be off-set against the purchase price.

Further loan applications

10.34. Once a GP contractor has received a GP Sustainability Loan, it will not receive a further loan for a period of at least five years, except in exceptional circumstances. This is to allow all premises owning GP contractors the opportunity to receive assistance by 31 March 2023.

10.35 A Health Board will accept its standard security ranking second to a commercial lender’s standard security. This is the case even if the GP contractor only applies for a commercial loan after it has drawn-down its GP Sustainability Loan. This will allow GP contractors to continue to access the commercial loan market. The GP contractor must not, however, enter negative equity due to its additional borrowing.

11. The Lease Of GP Owned Premises To Health Boards

11.1. Health Boards should only agree to lease premises from GPs in exceptional circumstances. There are few, if any, premises issues which will not be substantially addressed with a GP Sustainability Loan.

11.2. GP contractors with premises issues should apply for a GP Sustainability Loan before asking their Health Boards to lease their premises.

11.3. A GP contractor which wishes its Health Board to lease its premises due to premises issues must explain to the satisfaction of the Health Board what those issues are and how a GP Sustainability Loan or other measures would not address them.

11.4. If a GP contractor’s request for the Health Board to lease its premises does not relate to premises liabilities, the Health Board and the GP contractor must explore alternative measures to address the issues facing the GP contractor.

11.5. Where a Health Board does decide to lease premises from GP contractors or former GP contractors, the Health Board must not agree to pay a rent higher than the market rent (for a lease of that type for a property of that type and condition) as assessed by the District Valuer.

11.6. This also applies where the premises are owned by a partner, former partner, shareholder or employee of the GP contractor or a family member or employer of such a person. [4]

Conditions of the GP owned premises before the Board leases it

11.7. The premises must be suitable for the provision of primary medical services, be sufficient to meet the reasonable needs of patients and meet the minimum standards in the Premises Directions before the Health Board agrees to lease them.

Terms of the lease

11.8. Further details on the terms on which Health Boards should lease premises are set out in Part C of this Code.

12. Outright Purchase Of Gp Owned Premises By Health Boards

12.1. Health Boards should only purchase GP premises in response to a request by a GP contractor in exceptional circumstances. There are few, if any, GP premises issues which will not be substantially addressed by a GP Sustainability Loan. The purchase of GP premises is a time-consuming process. The high costs involved could be used instead to fund the construction of new primary care premises to meet population growth pressures or provide better facilities for existing practices.

12.2. A GP contractor with premises issues should apply for a GP Sustainability Loan before asking its Health Board to purchase its premises.

12.3. A GP contractor which wishes its Health Board to purchase its premises due to premises issues must explain to the satisfaction of the Health Board what those issues are and how a GP Sustainability Loan or other measures would not address them.

12.4. If a GP contractor’s request for the Health Board to purchase its premises does not relate to premises liabilities, the Health Board and the GP contractor must explore alternative measures to address the issues facing the GP contractor.

Condition of the premises

12.5. The premises should be suitable for the provision of primary medical services, sufficient to meet the reasonable needs of patients and meet the minimum standards set out in the Premises Directions before the Health Board agrees to purchase them. If the premises do not meet the required standards, the Health Board may choose not to purchase them.

Price

12.6. In order to ensure a fair price for both the GP contractor and the Health Board, Health Boards may only purchase GP-owned premises at the property’s value as determined by the District Valuer. If the GP contractor is unwilling to sell at this price, the Health Board will not purchase the premises.

12.7. This also applies where the premises are owned by a partner, former partner, shareholder or employee of the GP contractor or a family member or employer of such a person.

Other conditions of purchase

12.8. All other normal conditions of purchase, such as conditions relating to title, building warrants, planning permission, statutory notices, moveable property, IT and telecom, and discharge of standard securities, must apply.

Terms on which GP contractors continue in Board owned premises

12.9. Where the GP contractor continues to occupy the premises it will do so on a lease or licence to occupy. Further details on the terms and conditions on which GP contractors should occupy Health Board provided facilities are set out in Part C.

13. New Notional Rent And Borrowing Cost Grant Applications

13.1. The cost of providing modern primary care facilities is significant and it is no longer reasonable to expect GPs to invest their own money in building them. It has been very rare for GPs to do so for some time.

13.2. Therefore, Health Boards will, in most circumstances, no longer approve applications by GP contractors for Notional Rent or borrowing cost payments under the Premises Directions for new GP owned premises. This rule only applies to premises which do not already receive Notional Rent or borrowing costs payments under the Premises Directions.

13.3. This rule does not affect existing payments under the Premises Directions or any increases to them. It does not prevent GPs who receive assistance with their borrowing costs from switching to Notional Rent payments instead.

13.4. The change reflects the reality of investing in new primary care facilities. GPs may continue to invest in existing GP owned premises.

14. Relocation Of GP Contractors

14.1. Under the 2004 Premises Directions, Health Boards can provide financial assistance to GP contractors who are relocating to modern leasehold premises. Health Boards will now be able to provide financial assistance to GP contractors who are relocating to any premises provided by the Health Board, other public bodies or community trusts.

14.2. The types of financial assistance that a Health Board can provide to a GP contractor who is relocating are: a guarantee of a minimum sale price for the GP contractor’s existing premises; a mortgage deficit grant (to clear negative equity); and a mortgage redemption fees grant.

14.3. Taken together, these powers to provide financial assistance provide comfort to GPs in relation to their capital investment in their existing premises where they relocate to premises provided by the Health Board, another public body or a community trust.

Guaranteed minimum sale price

14.4. Where a GP contractor is relocating to premises provided by the Health Board, another public body or a community trust, the Health Board will be able to exercise its existing power to guarantee a minimum sale price for the GP contractor’s existing premises.

14.5. The effect of the guarantee is that where the actual sale price is less than the guaranteed minimum sale price, the Health Board will provide financial assistance in the form of a payment equal to the difference between those two prices.

Mortgage deficit grants

14.6. Where a GP contractor is relocating to premises provided by the Health Board, another public body or a community trust, the Health Board will be able to exercise its existing power to provide a mortgage deficit grant. This means the Health Board can pay-off the GP contractor’s negative equity. It ensures that negative equity is not a barrier to GPs relocating.

Mortgage redemption fees

14.7. Health Boards have the power to provide grants to GP contractors who are relocating in order to pay any mortgage redemption fees that the contractor incurs as a result of the sale of their existing premises.

Health Board’s powers to relocate GP Contractors

14.8. GP Sustainability Loans are a significant intervention by the Scottish Government in the GP owned estate. They would, on their own, act to prevent the shift to a model where GPs do not provide their premises. A GP practice which owes a significant part of the value of its property to the Health Board (which it does not have to repay while the premises are used for primary medical services) and still receives Notional Rent would have a powerful financial incentive to remain in its existing premises and not move to alternative modern premises. Notional Rent payments would be much greater than the premises-related expenses and there would be little capital tied-up in the premises.

14.9. The intention behind GP Sustainability Loans is not to prevent the shift to a model where GPs do not provide their own premises – it is to support the GP owned estate and to smooth the transition to the new model.

14.10. Therefore, Health Boards will have a new power to withdraw Notional Rent and borrowing cost payments where all of the following conditions are met:

a) the Health Board has asked the GP contractor to relocate from its current premises to premises provided by the NHS Board, another public body or a community trust;

b) the new premises are suitable for the delivery of primary medical services, sufficient to meet the reasonable needs of the contractor’s patients, and comply with the minimum standards in the Premises Directions;

c) the new premises are within a reasonable distance of the current premises;

d) the Health Board guarantees a minimum sale price;

e) the Health Board agrees to provide a mortgage deficit grant in the event that the actual sale price is not enough to clear the GP contractor’s secured debts;

f) the Health Board agrees to provide a mortgage redemption grant if there will be mortgage redemption fees;

g) the GP contractor chooses not to relocate; and

h) The Health Board has involved its Area Medical Committee (in practice this is expected to be the GP Sub-Committee) in its decision-making process.

14.11. A decision to withdraw Notional Rent or borrowing costs payments will be appealable to the Scottish Ministers under the contractual NHS Dispute Resolution Procedure.

14.12. This new power will allow Health Boards to provide fit-for-purpose premises to GP contractors within a reasonable distance of their current premises while providing comfort for GP contractors in relation to the value of their investment in their current premises.


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