Service charge disputes: what do GPs need to know?

Why are GP practices liable to pay service charges?

Where a GP practice occupies an NHSPS or CHP premises, NHSPS or CHP will provide services to the building and recover the costs via a service charge. The GP practice is responsible for paying the charges properly due.

A service charge is a mechanism which allows a landlord to recover the running costs of a building from the occupying tenant(s). Such charges can include repair and maintenance of common areas, cleaning, and security.

The service charges payable can be governed by a lease (or licence) in place or, where there is no written agreement in place, by the conduct of the parties. Uncertainty is more likely to arise where an arrangement is unwritten or where the original written agreement has on the face of it expired. An analysis may be required to understand the nature and terms of the practice's occupation in order to understand the service charge payable.

Integrated Care Boards (ICBs) will reimburse GP practices for certain eligible costs, known as Reimbursable Sums, such as rent, rates, and insurance (and in some cases, some management fees). In practice, the majority of service charge costs are Non-Reimbursable Sums and so the service charge is a cost to the practice.

As a general principle, service charges must be reasonable and properly incurred. Occupiers should only be paying for services they receive.

Service charge disputes and common issues

It is common for service charge disputes to arise between landlords and tenants, in particular for GP practices, where the charging mechanism might be unclear for a variety of reasons including where the arrangement is on a "tenant internal repairing" basis and where parties often misunderstand what can and cannot be recharged to occupiers.

Difficulties have arisen where a blanket policy across a building or even a number of properties is used to set and calculate service charges for practices, without taking into account the services actually being provided to a practice, with the service charge provisions in the lease or licence not being followed, or a fair apportionment between other tenants in the building not being applied.

There are often difficulties obtaining full evidence of sums claimed or clarity on what services were delivered to the GP practice. This issue was noted in the case of Valley View Health Centre v NHS Property Services Ltd [2022].

We are seeing disputes over significant service charges being claimed across a number of years, with a lack of supporting documentation being a key factor.

Service charge disputes can cause uncertainty, cash flow and accounting issues, and a breakdown in relations with landlords. Such disputes can require a considerable investment of time and energy to achieve an acceptable resolution. It is naturally important to try and resolve such disputes promptly and ideally to create certainty for charges going forward.

What should GP practices do?

Where a GP practice disputes service charges being claimed, it is advisable to:

• Understand the nature of the practice's occupation and what governs the service charge payable
• Request detailed information and documentation to evidence the charges
• Engage at an early stage to avoid the disputed sums increasing
• Put aside funds to pay outstanding service charges pending resolution
• Take legal advice at an early stage to understand the practice's position and ensure settlements are properly negotiated and documented
• Explore alternative dispute resolution such as mediation.

Given the blanket policies and difficulties evidencing the claimed sums, in our experience, GP practices are often able to agree a significant reduction in sums demanded. 

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If you would like more information or assistance with a service charge dispute, please contact Amari Rajendran in our Property Litigation team.