NHSPS Lease Regularisation Programme - Nearly 10 Years On, Where Are We Now?

The Lead-Up to the 2013 Transfer

In 2013, around 3,600 government-owned GP surgeries (Practices) premises were transferred from Primary Care Trusts (PCTs) to NHS Property Services Limited (NHSPS) by statutory transfer (Transfer). A large number of the Practices occupied only part of a building and were in occupation without any documentation such as a lease or licence.

Prior to the Transfer, the Practices paid a 'health centre charge', which was a blanket contribution towards all costs associated with their occupation of part of the buildings. This was often not worked out on real costs and any overrun in costs for the buildings was 'topped up' by the PCTs.

Many Practices sought to agree new leases with the PCTs before the Transfer to ensure that the basis on which the Practices were in occupation (and which NHSPS would inherit) was clearly agreed and documented. However, in December 2012, the PCTs were prevented from entering into any new leases without NHSPS' approval and negotiations ceased.

2013 Transfer and Annual Charging Statements

Three years after the Transfer, NHSPS implemented a ‘consolidated charging policy’, and issued Annual Charging Statements (ACS) to Practices covering rent, maintenance and service charges.

Despite a large proportion of the buildings being older stock requiring investment, the ACS were assessed on a fully repairing and insuring basis and significantly increased charges to Practices. In some cases we understand costs increased by 200%. The ACS changes were unilaterally imposed without the agreement of the Practices and without reference to the Practices’ previous occupational arrangements. No supporting data or invoices were provided to justify the charges as NHSPS did not have the Building/Estate specific data available.

The charges in the ACS also often did not appear to provide value for money, with national contracts such as for cleaning often coming in at a higher cost than the Practices could source for themselves.

Practices refused (and often couldn’t afford) to pay the additional costs. Some Practices continued to pay what they always paid as a 'protest payment' but kept sufficient funds on a separate account to settle the increased charges in dispute should they eventually prove to be properly due.

Rents were also increased, however, these are reimbursed by NHSE and so did not have such an impact on the Practices (though it is worth remembering that the Practices are primarily responsible for payment of the rent if NHS England's funding is withdrawn for any reason, eg the Practice loses their NHS Contract).

NHS England subsequently agreed to reimburse Practices the ACS management charges however, the debates around the remaining increased costs under the ACS have been a primary reason for terms of new leases not being agreed with the Practices and many remain in occupation without any documentation, causing uncertainty for Practices and in some cases recruitment issues.

A National Issue

The NHSPS' ACS was a national issue. Five Practices (Valley View Health Care Centre, Coleford Family Doctors, Bushbury Health Centre, St Andrews Medical Centre, St Keverne Health Centre) supported by the British Medical Association, applied to the court to challenge the basis upon which NHSPS is seeking to recover service charges and facilities management costs.

The decision was much anticipated and many lease negotiations stalled pending the outcome of the case.

The First Test Case - Did the ACS Unilaterally Vary the Practices' Tenancies?

The first test case was Valley View Health Centre (a firm) & Ors v NHS Property Services Ltd [2020] EWHC 3395 (Ch).

In June 2020 NHSPS had conceded that its charging policy was not unilaterally incorporated into the Practices' tenancies and so the ACS did not provide a legal basis for recovering payment of the service charges. Based on NHSPS's admission, the five practices initially made applications for legal declarations that NHSPS’s charging policies (from 2016/17 and 2017/18) did not automatically vary the Practices’ legal terms of occupation, and were therefore unlawful. This application was dismissed and the court refused to make those declarations.

NHSPS counterclaimed against the five Practices for the service charge fees it claimed were owed.

It was therefore for NHSPS to persuade the Court that the practices were liable on some other legal basis (notably, under the terms of their existing tenancies) to pay the service charge. This general principle was a key issue determined by the Court in a subsequent trial, discussed below.

The Second Test Case - Practices to Pay a 'Reasonable Service Charge' But How is That Assessed?

The second test case was, Valley View v NHS Property Services Ltd [2022] EWHC 1393. Edwin Johnson J delivered his judgement on 8 June 2022. On the issues of the service charge liability and NHSPS' obligation to deliver certain services, the court decided that the ACS was of no assistance in determining the service charge position. What is relevant is the specific terms of each Practice's tenancy and an extensive analysis and investigation of the circumstances and legal position specific to each Practice is required.

The court in each instance decided that the five Practices were liable to pay a reasonable service charge, to the extent determined on the terms of each tenancy. Arguments raised by two Practices that service charge costs were part of an all-inclusive rent that had already been paid, were rejected on the facts.

A further trial is due to review issues including the recoverability of service charges and any defences that may be available to some Practices for some heads of service charge. This trial will likely review in finer detail the circumstances of each Practice's service charge liability, including, the services actually provided, whether they were provided to a reasonable standard, whether NHSPS in fact incurred the cost claimed and whether the charges were reasonable.

The court also decided, on the particular facts, that the five Practices were tenants (either as periodic tenants or as tenants at will). The tenants at will did not benefit from the protections offered by the Landlord and Tenant Act 1954.

The court refused to make a declaration to the effect that NHSPS’ charging policies (from 2016/17 and 2017/18) did not automatically vary the Practices’ legal terms of occupation despite confirming it had the standing to do so.

The Judge remarked that this declaration would not be relevant or useful to other GPs, who were not parties to the proceedings, because their liability for service charges and the proposed increases would turn on the facts of their own case and there was a risk of other GPs mistakenly considering that the declarations, if made, may apply to them.

The Judge generally found for NHSPS in these five test cases, but it remains very important for each case to be considered on its own merits, and there appears to be room for a deal to be negotiated for the Practices.

A further trial to consider what services and charges may be recoverable, may generally assist other Practices to query the value of service charges and assess which heads of service charge may be vulnerable to challenge. However, as each matter will turn on its own particular circumstances, we would encourage an early evaluation of each Practice's occupational terms and what service charge terms may be expressly or impliedly incorporated. It is clear that a blanket approach to raising service charges (and to rejecting them) is unlikely to be appropriate.

What Are the Next Steps?

We recommend that both the Practices and NHSPS proactively work together to reach an agreement on the fair terms of occupancy going forward specific to each Practice. Those terms should be documented, to remove any further uncertainties around liabilities and costs exposure and any settlement of historic liabilities properly documented.

How Can VWV Support Your Practice?

VWV, working with healthcare surveyor Richard Taylor of Osmond Tricks, have been engaged by group of Practices in occupation of NHSPS premises without documentation since 2012 in negotiations with NHSPS. We understand the issues and are familiar with the documents NHSPS use.

We are happy to have a free initial call with you to understand your situation and advise you on how best to move forward with your discussions with NHSPS and how we can help.

If you would like an initial call please contact Rebecca Beardsley, Senior Associate in our Healthcare Team, on rbeardsley@vwv.co.uk Alternatively, you can complete the form below.