Sale and leaseback - key considerations09/09/16
The number of sale and leaseback transactions involving primary care premises has increased over recent years and is currently at an exponential rate of growth.
The reasons are multi-fold including:
- an increased appetite amongst private investors who see this as an attractive sector
- retired or retiring GP owners wishing to find avenues to release capital
- pressures on finding recruits to general practice and an increased reluctance in new GPs to contribute capital to practice premises or take on mortgage liabilities
- an option for funding premises improvement and handing over maintenance obligations and costs.
There are key areas to consider when looking at whether this is a viable option in practice. The following are just a few:
- Is there a market for the purchase of your asset?
- What do you need to do practically to the fabric of your premises before marketing?
- Is your property title in order, and are you up to date with all compliance requirements?
- What valuation advice do you need for the sale value and the ongoing rent?
- How are your premises costs currently reimbursed by NHSE? How will these change under a sale and leaseback, and what are the risks and cost implications of the change?
- How is the property currently owned? Can co-owners agree on a sale and the value for the sale?
- Can any owning partners not wishing to sell be required to do so by his/her co-owners?
- Does the title ownership need to be tidied up to reflect prior changes in the partnership before a sale takes place? What are the barriers to this?
- Is the property subject to a mortgage? Are there any penalties for an early release, and is there sufficient equity to pay?
- How are all the partners held liable for the lease in a large partnership?
- Do you have a robust partnership agreement setting out how the equity share in the practice are to be divided on a sale and how disputes are resolved?
- How do you go about obtaining NHSE consent to the sale and leaseback, and what lease terms tend to be acceptable to NHSE?
- What is the starting point for lease terms for most institutional investors? Is there a standard form acceptable to most investors?
- How can we be pro-active in managing the barriers?
- What are the options for terms for the ongoing lease relating to repair, service charge, insurance and changes in partnership?
- How should rent review be dealt with in the lease to tie in with NHSE reimbursement, and what are the limits and market norms?
- What are the tax implications and how can these be mitigated?
- Can SDLT relief be obtained on the rent under the lease where there is leaseback of part of the premises sold, or where the selling partners are not the same as the ongoing tenant partners?
- What happens if there are other occupiers in the building e.g. pharmacy or service providers?
A potential minefield but, if the journey is steered with expert advice, a successful outcome can be achieved that can make a huge difference to your practice and its assets.
A comment from GP Surveyors
GP practitioners are becoming increasingly aware of the value of their premises. The general practice workforce has changed dramatically over the past 30 years or so, and the sale and leaseback model is offering an option for many practices who are struggling with recruitment or retirement issues.
GP Surveyors have seen an increase in interest from specialist investors wishing to purchase GP premises as a long term investment and then renting the surgery back to the partners.
“GP surgeries are attractive to healthcare investors because of the security that the NHS rent reimbursement scheme provides. This helps to drive up sale prices and that’s great news for GPs.” Paul Conlan, Operations Director, GP Surveyors.
How Capsticks can help
It is essential to have specialist legal advice which is focused on the sector. Capsticks is advising a number of GP practices on sale and leaseback transactions and has a clear understanding of what is required at every stage, and how best to achieve this.