Younger GPs seem to be turning their backs on the proposed ‘sustainability’ financial model for GP premises. Neil Morrison, Head of Medical with Campbell Dallas, explores the issues, the pros and the cons.

Aside from pensions, the other hot financial topic across Scotland’s medical profession is the proposed “National Code of Practice for GP Premises”.

The code was first issued in Scotland in November 2017 and is part of the new GP contract introduced in April 2018.

The document outlines the Scottish Government’s strategy to create a sustainable environment and market for the ownership and use of GP premises. The ownership and transfer of ownership of medical ‘bricks and mortar’ has become an increasingly onerous issue. Traditionally, when they retired, GPs would sell their equity in a medical practice building to a younger partner.

Owning and managing premises is time-consuming, costly and bureaucratic. GPs want to focus on patient care rather than on thorny and draining issues such as valuations, dilapidations, surveys and roof repairs. The premises problem is proving an issue for younger GPs and disrupting the traditional transfer of premises ownership model. Essentially, too many younger GPs do not want to know.

The new premises strategy aims to mitigate the premises problem by gradually moving towards a model where GPs do not own (or lease) their premises.

The financial mechanism is the new ‘GP Sustainability Loans’. From 2018 to 2023 each property-owning practice will be eligible for an interest free loan of up to 20% of the value (assessed on an existing use basis). Further loans of up to 20% of the premises value will be available every 5 years thereafter.

As capital repayment is not required and the loans are interest free it seems an attractive proposition. Furthermore, the GP practice retains the full entitlement to notional rent, providing for very positive cash flow.

However, problems began to surface when property-owning practices started to receive initial valuation letters based on the Sustainability Loans. The valuations tended to be considerably higher than those provided by independent surveyors who were using the same ‘Existing basis’ methodologies. The long-term funding implications for the Scottish Government were shaping up to be unsustainable!

If it is too Good to Be True
The subsequent lack of detail and the commitments required from GP led to a growing concern, particularly amongst younger GPs. More and more were mulling over the viability of the new model. If it looks too good to be true, then it probably is!

Whilst virtually all property-owning practices registered an interest in the Sustainability Loan Finance, a large number have chosen not to progress an application.

The younger GPs are most concerned about the potential problems and issues. The feedback we are receiving from our wide medical client base indicates widespread anxiety about the risk, which is in turn acting as a blockage to the GP premises market. If younger GPs are unwilling to adopt the proposals, it will impact significantly on the sustainability of GP practices, GP recruitment and career progression, and in turn on medical care.

The Scottish Government clearly has a major problem on its hands.

In the meantime, the good news for younger GPs is that the traditional providers of finance for GP practices, namely banks, remain very keen to lend. The terms offered compare favourably with virtually every other business sector with finance available up to 100% of property values, a lower rate of interest and capital repayment profiles over many years.

As a result, more and more GP Practices, including many of our clients, are deciding to renew their loan facilities with their banks rather than entertain the Sustainability Loan finance product.

Arguably, more considered consultation could have helped prevented the ‘Sustainability Loan’ proposals from looking increasingly unsustainable.

The Medical Practice team at Campbell Dallas has extensive experience researching, negotiating and managing the finance and loan requirements of GP practices.

For further information, please contact Neil Morrison.

Neil Morrison
01738 441 888

The information in this blog should not be regarded as financial advice. This is based on our understanding in August 2019. Laws and tax rules may change in the future.