GP surgery premises finance: buying and refinancing your surgery

In England, the rules for reimbursing GP premises costs are set out in the NHS (General Medical Services Premises Costs) Directions. In broad terms, a practice that leases its surgery can have its rent reimbursed, up to the current market rent assessed by the District Valuer, and a practice whose partners own the building receives notional rent, an amount assessed as the rent the building would command, reviewed periodically. The BMA's guidance on rent reimbursement for GP practices explains the detail, including how reviews and disputes work.

For a lender, this means the building produces an income stream paid by the NHS rather than by a tenant who might fail. That is why many lenders are willing to lend on surgeries over long terms, and why they start their assessment with the reimbursement figure rather than with the partners' drawings. The questions they then ask are specific:

• Does the notional or actual rent cover the mortgage repayments comfortably, or will the partners top it up from profits?
• When is the next rent review, and could the figure fall?
• Has the practice received an improvement grant that abates the notional rent for a period, or that must be repaid if the building stops being used as a surgery?
• Is the practice's contract secure enough that the reimbursement is likely to continue for the life of the loan?

Surgery premises finance is usually available to GP partners who hold a GMS, PMS or similar NHS contract and own, or are buying, the building the practice operates from, and to property companies or LLPs owned by current or former partners that let the surgery to the practice under a formal lease. The strongest cases have several partners spread across age groups, a notional or actual rent that covers the repayments, a stable or growing list and a partnership agreement that deals clearly with property on retirement. Single-handed practices, partnerships where one or two partners are close to retirement with no successor, and buildings with an abated rent after an improvement grant can still be funded, but usually at a lower loan to value or with more personal support.

A straightforward surgery refinance or retiring partner buyout typically takes two to three months from application to completion. The lender's valuer has to report on the building both let and with vacant possession, and solicitors need the title, the partnership agreement, any declaration of trust and the current reimbursement letter before the loan can be documented. A purchase from a landlord often takes longer, because the commissioner should be consulted and the notional rent may need to be assessed before the partners can be sure the numbers work. Extensions and new builds run to their own timetable of planning, commissioner approval and construction, with the long-term mortgage arranged at the end. Missing partnership paperwork is the most common delay.

A surgery mortgage is secured by a first legal charge over the building, and where partners own it jointly the charge is given by them as trustees for the partnership. Because the partners usually borrow in their own names, each is jointly and severally liable for the whole loan rather than just their share. Where a property company or LLP owns the surgery, the lender takes the legal charge from that entity, often with an assignment of the lease to the practice and personal guarantees from the owners. Development finance for an extension or new build is secured on the site and the works as they progress. If an improvement grant was received, the lender will want to understand the NHS's rights over the building before it lends.

General practice is largely VAT-exempt, so VAT charged on a building purchase, or on construction work, is usually a real cost that cannot be reclaimed. Stamp Duty Land Tax, valuation and legal fees add to the cash needed at completion. Owning the building gives the partners a long-term asset and control over the premises, but it ties personal wealth to one property and can make it harder for a partner to retire when they want to.

The main alternatives to buying or refinancing the surgery are to keep leasing it, to sell it to an investor and lease it back, or for a new building to be developed and owned by a third party that lets it to the practice. Continuing to lease, or selling to a specialist healthcare property investor and leasing back, are genuine alternatives worth modelling against a purchase. Each keeps partners' personal wealth out of the property and makes retirement simpler, at the cost of losing any capital growth and paying rent to someone else. Where the issue is a single retiring partner, a partner buy-in by an incoming GP can be an alternative to a full refinance.