Coronavirus - Do You Have a GP Partner Who Has Delayed Their Retirement?
In the past couple of weeks, we have seen many GPs who were close to retirement decide to put off their retirement date to help with the current coronavirus (COVID-19) crisis. This gives rise to a few considerations which ought to be discussed and agreed.
Shares
Often there is a sense that a partner who delays their retirement should not be materially disadvantaged. But how does this play out if they own a share of the building? Some may feel that property values are likely to fall, in which case the retiring partner may well be financially disadvantaged by continuing to own a share of the surgery. We cannot of course give valuation advice, and anyone with concerns in this area should speak to an expert valuer. Our understanding, though, is that most GP surgery premises values did not fall significantly in the 2008 recession (despite other commercial property values falling) because surgery premises still attracted notional rent. The situation in 2020 is of course different to 2008, but the point remains that the existence of notional rent has, in the past, led to fluctuations in the value of surgery premises being less than for premises in other sectors.
On the other hand, some may take the view that the exceptional government spending may lead to inflation, which will soon force asset prices up. So the issue needs to be discussed and a commercial view taken.
Risk and Reward
Either way, it's important that risk and reward go together. If the retiring partner does not want to take risk in the building now, then it can usually be arranged that he will be paid out on the basis of the price at the date he was supposed to retire, and the valuation will be done as at that date (even if he doesn't actually sell, and isn't actually paid out until later). However it is important to make sure this is documented properly because if someone wishes to lock in today's valuation, but values later go up, it could give rise to a difficult conversation about whether he should share in the reward!
Other Considerations
There are some other considerations too. Does the retiring partner have a set retirement date? In most cases, the answer will be no, because they are being flexible and will help as long as necessary. But if that is the case, then you ought to agree and write down the following:
- How much notice do they have to give to eventually stop? A week? A month?
- Can anyone else give notice to retire in the meantime, or does this delay retirement for others too?
- In two-partner practices, what if the worst happens and the other partner dies, leaving the one who was going to retire as last man standing? If your partnership deed contains an "automatic accruer" mechanism then watch out, because full responsibility for running the practice (and the costs of winding it up, if applicable) would remain with the partner who was due to retire.
How Can We Help You?
We would be happy to help you document what is agreed - this can usually be done quickly and easily, especially if you already have an existing partnership deed in place, which can be varied.