GP contractors are eligible for rental reimbursements. The type of reimbursement applicable depends on who owns the building. For instance:
- Where the GP owns the building, this is known as ‘notional rent’
- Where the GP are paying off a mortgage, this is known as ‘borrowing cost reimbursements’ (historically known as ‘cost rent’)
- Where there GP is tenants in a building owned by an NHS landlord or a private owner, they receive leasehold cost reimbursements
More information about the different schemes can be found below.
Please note that this guidance refers to the 2013 Premises Costs Directions for England. Whilst many aspects will also be reflected in the respective Directions for Scotland, Wales and Northern Ireland not all parts of this guidance will be relevant.
Notional Rent Reimbursements
Contractors who own their premises may be eligible for notional rent reimbursement.
The amount of notional rent to be paid to the contractor is based upon the current market rental (CMR) value for the property, as determined by a surveyor. The CMR is assessed based on notional lease terms (hence the term notional rent), which assume a 15-year term and tenant internal repairing obligations with the landlord responsible for external and structural repairs together with insurance.
Contractors who currently receive borrowing cost reimbursement can switch to notional rent payments. The AT must grant the application if the contractor chooses to switch from borrowing cost payments to notional rent, however, once the switch has been made, it is not possible to move back to borrowing costs.
The level of CMR, and the amount of notional rent paid, must be reviewed every three years. The review will be brought forward if there is a change to the purpose for which the premises are used or if there is further capital investment in the premises which will be reflected in the payments the contractor is receiving under its contract.
Leasehold Rent Reimbursements
Contractors who rent their premises are eligible to receive reimbursement for their rental costs. The level of leasehold rent that may be granted is determined by the current market rental (CMR) value of the premises, or the actual lease rent, whichever is lower.
The CMR value of the premises is as assessed by independent valuation conducted by the District Valuer, who must determine what might be reasonably expected to be paid by a tenant for the premises at the date of valuation.
The level of leasehold rent reimbursement paid to the contractor must be reviewed when the landlord undertakes a rent review provided for in the respective lease, unless the review does not result in any change to the level of rent being charged.
Under the 2013 Premises Cost Directions, when the CMR is to be reviewed, practices are required to provide the Area Team with a Rent Review Memorandum (RRM), a signed agreement between the tenant and the landlord stating any changes made to the level of rent being charged.
Borrowing Cost Reimbursements
GPs who own their premises and have incurred costs, such as a mortgage or loan, may be eligible to have their borrowing costs reimbursed by the Area Team. Borrowing cost reimbursements are sometimes referred to as ‘cost rent’, the name given to the scheme under the Red Book.
As the name suggests, this form or reimbursement, is designed to cover the costs of a loan taken out by the practice for the purchasing, building or significantly refurbishing its practice premises.
The conditions attached to Borrowing Costs Reimbursements are found in Part 5 of the Premises Cost Directions, and are specifically covered in sections 36 – 40, however, other references to Borrowing Costs Reimbursements can be found throughout the Directions.
It is the responsibility of the contractor to notify the Area Team of any changes to the terms and conditions of the loan, including length of term and attached rate of interest. This responsibility is specifically referenced in section 40 of the Premises Cost Directions:
Condition attached to payments in respect of borrowing costs based on a fixed interest rate loan 40. Where a contractor is to receive payments in respect of borrowing costs under this Part, and those borrowing costs arise as a result of a fixed interest rate loan, the Board must ensure that the making of the payment is subject to a condition to the effect that the contractor must advise the Board of any change of lender or any reduction in the level of interest charged to its loan.
Failure to notify the Area Team about changes to the terms and conditions of the loan may result in the Area Team clawing back any overpayments received by the practice.
Borrowing Cost Reimbursements should only be in place for a finite period of time; once the mortgage has been repaid, the practice is no longer eligible for Borrowing Cost Reimbursements and should notify the Area Team and switch to notional rent. When servicing their loan, practices are expected to pay down the capital and interest of the loan. Practices found to only be making payments on the interest of the loan may face NHS England sanctions.