Comment: Implications of the new NHS lease agreement

Edwina Farrell of Weightmans explores the impact of a new template lease agreement with NHS Property Services

Edwina Farrell

The British Medical Association has negotiated a new template lease agreement with NHS Property Services (NHSPS). In this article, Edwina Farrell, partner at Weightmans, looks at the legal implications of this move

The problems faced by general practices operating businesses from NHS premises have, for various reasons, been perceived to be on something of a back burner in recent years.

The prospect of a new lease will bring benefits, significantly because it will set out clearly the basis of occupation, removing many of the uncertainties as to their entitlement to be in the premises and the parties’ responsibilities

It is well documented that much of the NHS estate has not received adequate investment over recent years and the newly-published template lease and the likelihood of amended Premises Costs Directions around the corner signals a fresh focus on property matters.

It is suggested that NHS Property Services does not wish to consider significant amendments to the document and, with this in mind, notwithstanding the very-positive step in the right direction; it does need to be approached with caution.

For some who had a long-standing informal arrangement with their NHS landlord, there may be an element of concern at the thought of signing up to a written contract in the form a lease and raft of clear obligations imposed on them.

A BMA report highlights that 60% of NHSPS occupying premises are not fit for purpose, with around 40% of these being entirely unwritten. However, tenants should not forget that a written lease also provides the tenant with many valuable rights designed to protect them. With this in mind, the prospect of a new lease will bring benefits, significantly because it will set out clearly the basis of occupation, removing many of the uncertainties as to their entitlement to be in the premises and the parties’ responsibilities. It also aims to promote consistency in the approach taken to GP tenants in order to treat practices the same. The template lease attempts to address a number of areas where lack of clarity has led to problems for practices.

The template lease attempts to address a number of areas where lack of clarity has led to problems for practices

For example, in extreme cases a problem caused by lack of clear repairing obligations between the parties can be an expensive experience. That lack of clarity as to whose responsibility a repair should be can cause delay in dealing with the problem leading to further deterioration of premises. In cases of no lease, ultimately the cost of repairing may prove to be the responsibility of tenant, who not only has a bigger bill than he might have done should repair have been undertaken more swiftly, but may also have incurred additional profession costs in order to understand his own obligations.

As the condition of premises comes under more and more scrutiny through CQC inspections and a strict interpretation of the current requirements of the Premises Costs Directions clarity is key to enabling practices to understand what they must do and empowering them to insist that landlord obligations are complied with.

The template lease proposes clear responsibilities with regard to the repairing obligation in certain cases and will include a schedule of condition with a limitation on the tenant’s responsibility for repair so they do not need to place the premises in any better condition then they were at the date they went into occupation.

Given historical problems with the state of repair, and any evidence with regard to the condition at the date of occupation, this poses an obvious problem in that identifying the condition at the date of first occupation may prove difficult. Ideally, the limitation should be from the date the lease is signed. In addition, it is suggested that this will not be offered to all tenants, but only those who negotiate the same during pre-lease discussions, which may lead to inequality between some tenants.

Tenants should be aware that they will need to negotiate the inclusion of the schedule. Tenants should also look very closely at the extent of the leased property and whether it is a lease of just the interior or includes the exterior and structure as this will also have a bearing on their overall exposure to cost.

The template lease proposes an extremely-wide range of services, some of which will not always be appropriate; but it is very clear that some tailoring may be required on a case-by-case basis with regard to the services and service charge

One of the most-widespread problems in connection with non-documented occupation of NHS premises has been with regard to the entitlement of the landlord to, and payment by, the tenant of the service charge. Historically, some primary care trusts charged little or nothing for an unclear selection of services. The invoices sent to practices in the last few years are considerably higher and often appear to contain little detail as to the services they relate to. In some cases no apparent entitlement to service charge appears to exist. In these instances, the absence of written obligations (with regard to both the nature of the services, together with the costs) means disputes between landlord and tenant have been ongoing. Not only are these costly they take up a significant amount of practice management time at a time when resources are scarce.

The template lease proposes an extremely-wide range of services, some of which will not always be appropriate; but it is very clear that some tailoring may be required on a case-by-case basis with regard to the services and service charge. As it stands the template does not allow tenants to negotiate the nature of the services, nor does it require NHSPS to obtain best value. Ideally a tenant should be permitted, where it can do so in a more-economic way, to provide certain services for itself. In addition, the lease proposes a landlord’s right to nominate the supplier of certain services for which the tenant would otherwise be responsible. This is at the landlord’s direction and again may place tenants in a weaker position where they are facing higher bills then they need to.

In some ways linked to this is the confusion existing with regard to the nature of the type of lease tenants are being offered leases without security of tenure outside legislation designed to protect the ongoing occupation of a business tenant at the end of their lease. In many cases practices in exclusive occupation for significant periods of time may be able to establish more and different rights than the template proposes and ask the court for a lease on the basis of the terms of their occupation to date. This may be more advantageous than those now on offer. This position cannot be overlooked, especially in the light of the new lease approach to services and service charge.

It is clear that the template designed to encourage practices to enter into informative discussions is a positive message that real estate issues are receiving attention

One clear advantage the template lease provides is a break right in the event that the tenant loses their core contract. In many past cases (with both public and private sector landlords), it has been challenging at times to persuade a landlord to agree the where the tenant obtains no income from an NHS core contract he should be allowed to break the lease. The template removes this problem, giving both parties an opportunity to bring the lease to an end if the core contract is lost. Of course, where a tenant is providing a significant level of health and social care service as envisaged under the Health and Social Care Bill this may prove problematic as without the core contract he will be unable to remain in the premises. Presumably, given that only the core contract attracts rent reimbursement in any form the landlord’s portfolio may be adversely affected where properties are not likely to attract such reimbursement and accordingly the landlord as well as the tenant is given a break right for the loss of the GMS/PMS/APMS contract. The positive outcome is of course that the tenant can walk away if he loses his core contract without the worry of ongoing liability in the face of a loss of income.

A clause-by-clause analysis of the lease is outside the scope of this summary, but there are a number of points that will need careful negotiation and are unlikely to suit everyone. In addition there are elements, such as the rent review provisions, that do not appear to work alongside the current costs directions, but the long-awaited template lease has been the result of much discussion and much negotiation by several bodies on all sides of primary care.

It is clear that the template designed to encourage practices to enter into informative discussions is a positive message that real estate issues are receiving attention. However, it would be short sighted to believe that the lease will work with no amendments in all cases.

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