Notional Rent / Cost Rent / Rent Reimbursement

Practices are eligible for rent reimbursements, with different terms depending on whether they own the premises or not;

  • If the Partners own the building outright, it is ‘notional rent’
  • If there is a mortgage, it is known as ‘cost rent’ or ‘BCR’ (borrowing cost reimbursement)
  • If they are tenants in an NHS property, they can get ‘leasehold cost reimbursements’

In May 2016, GPs renting from NHS Property Services were told they could have their stamp duty reimbursed by NHS England, and would also have the ability to break their lease if the practice loses its core contract under a new agreement. This was to run up until October 2017.

Notional rent

Notional rent is the reimbursed rent provided by Primary Care Organisations to Practices where the GPs own the premises. Notional rent is based on the current market rent of the premises. It is based on current market rental value (or CMR)of the property, which is determined by a surveyor (several offer a free Notional Rent Assessment to establish if a practice has been funded appropriately). The CMR is based on the notional lease terms of the property,which assumes there is a fixed term or tenancy (a standard is 10-15 years) with additional obligations for repairs and maintenance by the tenant and landlord (the tenant usually responsible for internalt repairs, the landlord for external buidling & structural work).

The level of CMR requires re-assessment every three years by the District Valuer or a surveyor acting on behalf of the CCG. This can be done sooner if there is a change of use to the premises, or any major development work to the premises.

Borrowing Cost Reimbursements ('Cost rent')

The Cost Rent Scheme is no longer used. It previously existed for new extended or refurbished surgeries. However, many surgeries do still remain on this scheme, as this is how they have been historically reimbursed and have never swapped to Notional Rent. The Cost Rent Scheme, as its name implies, is more closely associated to the costs involved, as opposed to the associated rental levels. Its purpose was to reimburse the cost of finance from providing new or considerably modified buildings.

If a Practice is paying a mortgage or loan, premises can be eligible to have their costs paid by the Local Area team to cover loans made for buying, building or making major refurbishments to the property. The Practice will need to contact the Local Area team and make the arrangements, but also if there are any changes to the loan (the amount, payment terms or changes to interest payments for example). It is the Practice's responsibility to notify their Local Area Team of any changes to the Terms & Conditions of their mortgage or loan, which also includes the change of lender.

Borrowing Cost reimbursements should be for a fixed period of time, and once the loan has been paid off then the practice will no longer be eligible for this kind of reimbursement, and need to notify their Local Area team so they can be moved to a Notional Rent scheme. Failure to notify them about changes may result in the Area Team making clawbacks to any overpayments the practice recieves.

Leasehold Rent

Practices can get their rental costs reimbursed depending on the CMR or the current rent being paid (whichever is the lowest). This can change if there is a rent review on the lease by the landlords, but the practice will need to give the Local Area team a 'Rent Review Memorandum' notifying them of any rent changes by the landlord.

The CMR will be assessed by the District Valuer - under the 2013 Premises Cost Directions, practices must inform the Local Area teams of any changes (as above).

Maximise surgery income through NHS reimbursement

Things like Notional Rent can be challenged – if a practice thinks that the District Valuers survey and valuations of their premises are different from theirs then it could result in some big differences in payments. Simple things like the correct floor area can affect the amount reimbursed by a few thousand pounds, sometimes much more. Adding a pharmacy to the practice’s services can greatly increase its market value, but obviously major changes like this need careful consideration and research.

By not challenging a rent review from the District Valuer, practices could potentially be losing out on some significant savings – some Practice Managers have said they’ve been able to get anything from £500 up to £4,000, so it is worth making the effort.

There are ‘Sale and Rent’ plans available, where the premises can be sold to and then rented back over an agreed lease period from a specialist property management company. There are pros and cons to this, but it is worth getting specialist advice from the practice accountants on the long-term value of such as scheme. These schemes will promote the benefits of releasing equity and reinvesting into the services, but it’s a big change that will need careful consideration from the partners.

NHS England have said they will consider underwriting lease arrangements or buying out GP or third party owned premises, my guess is that this with a caveat that there will be more services provided by the GP practice as proposed in the FYFV. Any proposals for improving the building or moving to a new site may be eligible for funding – speak to your local CCGs for more information.

The Five Year Forward View and Practice Investment

The FYFV promises to invest in premises and pay for indemnity costs before 2020 – up to 100% reimbursement of premises and premises development (which should start in Sept 2016). NHS England created the ‘Estates and Technology Transformation Programme’. All this investment looks to be done with a view to their plans for Multi-Disciplinary teams – if they come in post, then they will need a base of operations which are likely to be in ‘community settings’ (which basically means GP Practices).

From May 2016 to October 2017 NHS England will pay towards Stamp Duty for Practices, VAT on premises and help with payments if they are in an NHS Property Services facility and they’ve had an increase in charges (paying the ‘transitional costs’, which is the increased charge this year compared to last year).

Assistance for practices

There are many specialist surveyors who can assist Practices with rent reimbursement valuations.

In October 2015 NHS England launched the £1bn Transformation Fund to make improvements to premises or fund new buildings. The CCGs will lead on proposals and identify any development opportunities for the practice premises, whether it means relocating services, building developments or better use of the existing premises. They will consider any proposals from practices about funding, but with a view to promoting the long-term NHS plans in the Five-Year Forward View, like improving what they call ‘out-of-hospital’ health services.

There is also the Prime Ministers’ GP Access Fund (formerly the Challenge Fund), which will provide £50m towards improving access to general practice and new innovations that will contribute to ‘transformational change’. Most applications for funding were related to patient access, integrated care or wellbeing schemes, but some of them involved improvements to premises as part of the proposals.

Further information

 

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