NHS Circular: PCA(M)(2003)17 abcdefghijklm

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1 abcdefghijklm = eé~äíü=aéé~êíãéåí= = mêáã~êó=`~êé=aáîáëáçå= Directorate of Service Policy and Planning St Andrew's House Regent Road EDINBURGH EH1 3DG Dear Colleague STATEMENT OF FEES AND ALLOWANCES: NEW FLEXIBILITIES TO THE RENT AND RATES SCHEME, THE IMPROVEMENT GRANT SCHEME, GRANTS TO MEET MORTGAGE DEFICITS AND THE CONSEQUENT AMENDMENTS Summary This Circular advises NHS Boards of amendments to paragraphs 51 & 56 (Rent and Rates Scheme) and the introduction of the new paragraph 54 (Grants to meet Mortgage Deficit and /or Redemption Costs) of the Statement of Fees and Allowances for General Medical Practitioners (SFA) as agreed with the profession as part of the introduction of the new GMS Contract. Details of Amendments 18 September 2003 Addresses For action Chief Executives, NHS Boards Chief Executives, Primary Care NHS Trusts Enquiries to: Phil Alcock St Andrew s House EDINBURGH EH1 3DG Tel: Fax: phil.alcock@scotland.gsi.gov.uk This Circular gives notice of amendments to the SFA. These amendments are: New subparagraph 51.13h -Guaranteed Minimum Sale Price for Redundant Premises Owned by a Practitioner New subparagraph 51.13i -Equipment Lease Costs for New Leasehold Premises Amendment to Paragraph Revised Arrangements for the Payment of Notional Rent Amendment to Paragraph Eligibility Criteria to Receive a Cost Rent Amendment to Paragraph Changes to Cost Rent Arrangements - New Schedule 4 to Paragraph 51 - Abated Current Market Rent

2 New subparagraph Reconversion of Former Residential Property Amendment to Paragraph Guarantee of Continued Use After Improvement Amendment to Paragraph 56 Schedule 2 - Cost Limits of Scheme New SFA Paragragraph 54 - Grants to Meet Mortgage Deficit and/or Redemption Costs Annex A is a background note describing the new flexibilities. Annex B provides details of each of the changes to the SFA. Next Steps Advice concerning funding arrangements for GP premises onwards and the remaining flexibility (Direct reimbursement of service charges) will follow shortly. Action A determination is hereby given for the purposes of regulation 35(1) of the National Health Services (General Medical Services) (Scotland) Regulations 1995 as amended that the SFA shall be amended in the terms set out in the appendices with effect from 1 April NHS Boards and Primary Care NHS Trusts are advised to bring these amendments to the notice of practices in their area and to the Area Medical Committee for the attention of the secretary of the GP Sub-Committee and to LHCC's in their area. Yours sincerely DR HAMISH WILSON Head of Primary Care Division

3 Annex A Background Notes to Additional Premises Flexibilities Reconversion of Former Residential Premises Owned by a Practitioner Where a practitioner owns and practices from former residential premises which are not suitable for the delivery of services and cannot be made so, HBs/PCTs may consider awarding a grant towards the costs of re-converting the premises to their former use. The grant will be towards the costs of internal adaptation and decoration and the District Valuer ( DV) will advise on the reasonableness both of the proposed specifications for the re-conversion and the costs for the work. Practitioners will need to agree to move to premises suitable for the delivery of modern primary care. The level of any grant will be at HB/PCT discretion. The HB/PCT will be also be free to attach any conditions to the grant that it considers appropriate in the light of any advice it may seek from other local agencies such as the local authority. Guaranteed Minimum Sale Price for Redundant Owner-Occupied Premises Sometimes a lack of surety on the sale price of redundant practice premises may prove a hindrance to a practioner moving to more suitable premises. In such cases HBs/PCTs may consider offering a grant to secure a guaranteed minimum sale price (GMSP) for the property to expedite a move to suitable alternative premises which will result in an improvement in the range and quality of services to be provided to patients. The DV will value the premises at open market value to provide the GMSP. The premises should then be placed on the open market with active marketing to achieve the maximum price on a date to coincide with the practitioner's move to new premises. If the proposed sale price for the premises is less than the agreed GMSP and the DV agrees that an offer for the property is adequate and realistic, the PCT may award a grant to the practitioner equal to the difference between the actual sale price and the GMSP. Reimbursement of Equipment Leasing Costs in New Leasehold Premises Practitioners new to general practice or moving from substandard premises to new leasehold premises my incur considerable relocation and start-up costs for medical equipment, furniture and furnishings, which might prove a disincentive to such a move. HBs/PCTs may consider either reimbursing the cost of leasing such equipment, furniture and furnishings from the landlord or by way of an upfront grant if that is considered to be a better value for money option. The new premises must be suitable for modern general practice. Assistance and advice on lease agreements should be sought from the DV. Transfer of Cost Rent Arrangements

4 Where a mortgage deficit exists on otherwise suitable practice premises under a cost rent it may deter an incoming practitioner from buying a share of the premises from the outgoing practitioner since, under current rules, the incoming practitioner should only be eligible for a notional rent. This often results in duplicate premises being provided and this may not best serve the needs of patients. The SFA has therefore been amended to allow transfer of cost rents from the outgoing to the incoming practitioner to better support the mortgage repayments on the property. Notification of Change to Cost Rent Borrowing Arrangements. Practitioners in receipt of a fixed rate cost rent reimbursement may find they can renegotiate lower borrowing costs. Under a new amendment to the SFA practitioners will need to notify the NHS Board / Primary Care Trust of any such change. The cost rent reimbursement will then be recalculated to reflect the appropriate prescribed percentage prevailing on the date of the change. Also practitioners who repay their loan in full will have their cost rent reimbursement recalculated on a variable prescribed percentage basis from that date. Notional Rent Payments Until now notional rent payments on premises improvements could only be made to practitioners already in receipt of notional rent payments. Practitioners on actual rent reimbursement for leasehold premises and those remaining in receipt of cost rent payments (unless they decided to switch completely to notional rent) could not also have a rental income stream to cover the extra capital investment they made to their premises. The SFA has been amended to: a) Permit payment of a notional rent in addition to the cost rent on the increase in current market rent (CMR) resulting from the improvement to the premises b) Permit payment on the increase in CMR resulting from an improvement made by practitioners in leasehold premises where the improvement is not included in the rental arrangements c) Abate notional rent payments on that part of any improvement funded from NHS capital in accordance with a new SFA paragraph 51 Schedule 3. Essentially this will mean a payment of only 10% of the increased CMR on that proportion of the improvement so funded. These abated notional rents will remain payable for 10 years maximum when the full notional rent for the premises will become payable. The DV will need to be involved in advising on the notional rent payable and any abatement which should be made. Grant to Meet Mortgage Deficit and/or Redemption Costs It may happen that the open market value of premises is insufficient to clear the outstanding mortgage on the property. This may sometimes be further exacerbated by a mortgage redemption charge being made at the point of sale or remortgage of the premises. Where, to improve service delivery, it is necessary to move to new premises or to modernise existing premises such charges could prove a disincentive to the practitioners concerned. Where this is the case the NHS Board / Primary Care Trust may make a grant to meet such charges. Other flexibilities already in force in Scotland There are 3 flexibilities foreseen as part of new UK arrangements where equivalent arrangements are already in force in Scotland. No further action is therefore intended at this time. These are;

5 -Uplift to Market Rents in Deprived Areas The Scottish enhanced cost rent scheme for leasehold premises already allows enhanced reimbursement to be made in deprived areas, or in other areas such as rural ones where the property market is otherwise not supportive of such developments. -Allowing PCOs to take an option on land. HBs/PCTs in Scotland already have appropriate powers. -Legal and other Professional Fees for new Purpose Built Premises The Scottish SFA already permits reimbursement of the cost of legal and client's agent fees in appropriate circumstances.

6 Annex B SFA Amendments to Support Premises Flexibility Schemes Grants to Meet Mortgage Deficit and/or Redemption Costs General 53.1 Situations can arise whereby the market value of practitioner owner occupied premises is not sufficient to clear the outstanding mortgage on the property. Where, in the interests of service delivery there is a need to move to new premises or modernise existing properties, the size of the deficit may deter practitioners from doing so. The problem can be further exacerbated when a mortgage redemption fee might be charged at the point of sale or re-mortgage. This scheme provides for practitioners to apply to the NHS Board / Primary Care Trust to receive a grant towards such costs. Eligibility 53.2 In order to receive a grant, a practitioner will agree to relocate to modern leasehold premises approved by the NHS Board / Primary Care Trust in accordance with the local estates strategy. Applications for assistance should be made in writing and the practitioner should provide all reasonable information required by the NHS Board / Primary Care Trust to make a determination. In determining applications, the advice of the District Valuer should be obtained on the following: i. that negotiations with the lender have limited the extent of any redemption charges; ii. iii. iv. deduction of any proportion of the deficit that has arisen through for example, payment holidays or reduced loan repayments not reflected in the cost rent reimbursement; deduction of the surrender value of any endowment policy cover linked to the mortgage on the premises; that options for change of use for the property have been considered and where appropriate, outline planning permission sought or obtained; v. the process to identify a suitable third party developer and site for the new leasehold premises; vi. vii. timing to maximise the opportunity for a sale to coincide with completion and occupation of the new leasehold premises; that the premises are adequately advertised and that the best price has been obtained Details should also be supplied by the applying practitioner as to the amount of the outstanding mortgage used to build and improve the property, both at the time of the application and at the point of sale. Any grant awarded will exclude any borrowings or redemption charges not connected with

7 the original purchase of land and building works and any subsequent improvements to the premises. For example, furnishings, fittings, equipment (including IT and telephone systems) etc To reduce bureaucracy and costs, practitioners should provide details and request in their written application that the payment be sent direct to the lender. Details of the payment should be sent to the practitioner to be entered into the practice accounts. Eligibility Criteria to Receive a Cost Rent Change to Enter: "d. Practice premises owned by a single or a two practitioner practice that are sold to any successor practitioner(s)." Changes to Cost Rent Arrangements SFA New Paragraph to be Entered After the Paragraph Entitled "Final Cost Rent" "Subsequent Changes to Final Cost Rent Payments c. where the practitioner is financing the scheme wholly or mainly from his or her own money, ie any loan is for the lesser part of the total cost, the prescribed percentage will be the variable rate; d. from [date of SFA change], where a practitioner changes lender and or re-negotiates lower loan costs, the cost rent reimbursement level shall be recalculated using the appropriate prescribed percentage in force at the time that the changed loan arrangements came into effect; e. from [date of SFA change], when a practitioner has repaid their loan, the cost rent reimbursement shall be recalculated using the variable prescribed percentage. Practitioners in receipt of fixed rate cost rent reimbursement should advise their NHS Board / Primary Care Trust of any change of lender or any reduction in the level of interest charged to their loan. This should be in response to an annual enquiry by NHS Boards / Primary Care Trusts to practitioners. NHS Boards / Primary Care Trusts should recover any overpayments made to practitioners after [date of SFA change]. "

8 Revised Arrangements for the Payment of Notional Rent SFA Change Notional rent may be paid also to practitioners in addition to cost rent when further capital investment still results in a current market rent on the whole premises which is lower than the cost rent in payment. Notional rent may also be paid in respect of tenant improvements carried out by practitioners on their leasehold premises to the extent the improvement is not reflected in the rent A The notional rent to be paid will equate to the enhancement to the current market rent arising from the improvement - see point 3. in Schedule 4 to this paragraph. Payments will continue until such time that the practitioner exercises the option to forgo cost rent and switch to notional rent for the whole of the premises B Full notional rent will be equivalent to the current market rent calculated by the District Valuer as defined in paragraph 51/Schedule 3, paragraphs 1 and 2.1. Where NHS capital has contributed to the cost of the work completed from [date of SFA change], the full notional rent will be abated proportionate to the total cost of the work carried out. On completion of the development, the abated notional rent payable should be calculated in accordance with paragraph 51/Schedule 4.The abated notional rent will be paid to practitioners party to the improvement for a period of 10 years after which full notional rent would become payable C Only in the event of a change in the purpose for which the premises are used or as a result of further changes to the premises will a subsequent assessment be made earlier than the normal review date (see paragraph 51.38).

9 New Schedule to SFA Paragraph 51 Paragraph 51 Schedule 4 ABATED CURRENT MARKET RENT 1. From [date of SFA change] abated notional rent will be paid in respect of improvements made to premises for which NHS funds contributed to the capital cost. The level of abatement will be proportionate to the level of NHS contribution and calculated as follows: - the current market rent for the premises prior to improvement is assessed by the District Valuer in accordance with Paragraph 51/Schedule 4 (P u ) - the CMR for the whole of the improved premises is assessed in accordance with Paragraph 51/Schedule 4 (P i ) - subtracting one from the other (P i - P u ) will produce the CMR value of the enhancement (I) - the capital provided by the practitioner as a proportion of the whole cost of the improvement expressed as a percentage (Α) - the factor (Α) is enhanced by adding 10% of (I) to cover normal landlord expenses which is then applied to I and the resultant is added to (P u ) 2. Expressed as a formula, post improvement notional rent would be calculated as follows: I (A+10)% + P u 3. Where the practitioner is in receipt of a cost rent the enhanced notional rent factor, I (A+10)% should be paid in addition to that cost rent payment. 4. An example of how the abated payment would be calculated is as follows: - On the basis of 50,000 Improvement Grant and 50,000 practitioner capital, the notional rent for the whole of the improved premises is: 110,000 (P i ) minus 100,000 (P u ) = 10,000 (I) x 60% (A plus 10%) = 6,000. New SFA Paragraph h. h. Guaranteed Minimum Sale Price for Redundant Premises Owned by a Practitioner The lack of certainty on the sale price of existing practice premises may be a financial disincentive to a practitioner considering a move to suitable and modern premises. This scheme provides for practitioners to apply to the HB/ PCT to receive a written guaranteed minimum sale price (GMSP) for the premises to be vacated.

10 The new premises should, in the opinion of the HB/PCT, result in an improvement in the range and quality of services to be provided to patients. All owner-occupying practitioners who agree to move to modern alternative premises will be eligible for consideration of a payment under this scheme The HB/PCT should seek the advice of the District Valuer on a market value for the premises and this will provide the GMSP. Prior to the sale, options for change of use for the property should be taken into account and reflected in the market value assessment. The premises should be placed on the open market with active marketing to sell the property at the maximum price achievable on a date to coincide with the practitioner s move to new premises. If the proposed sale price for the premises is less than the agreed GMSP the HB/PCT should seek advice from the District Valuer on whether an increased offer might reasonably be achieved. If yes, then an increased offer should be sought from prospective purchaser(s). If no, the HB/PCT may award a grant to the practitioner equivalent to the difference between the actual sale price and the GMSP. A condition of the grant is that sale of the property will not be to a relative of the doctor, nor the employer of the doctor, nor the employer of a relative of the doctor. In this context, "relative" includes three categories of people: firstly, spouses; secondly, lineal ancestors, lineal descendants, brothers, sisters, aunts, uncles, nephews, nieces, and first cousins of the doctor or their spouse; and thirdly, spouses of any relative falling within the second category (ie spouses of lineal ancestors etc.). For these purposes, "spouse" includes not only husbands and wives, but also former spouses, unmarried partners and partners of the same sex. Where the future planning use of the property is unclear, the District Valuer should be asked to advise whether it would be appropriate to insert a clawback arrangement on the sale agreement. In turn, the practitioner should give a written undertaking to use any clawback monies to repay a proportionate part or all of the grant. New SFA paragraph i i.equipment Lease Costs for New Leasehold Premises Practitioners new to general practice or practitioners moving from substandard premises to new leasehold premises may incur substantial start-up costs for equipment, furniture and furnishings. Associated costs may be a financial disincentive to taking up occupancy of the new premises. Where costs to lease equipment, furniture and furnishings are included as part of an occupancy agreement for modern practice premises, the level of rent reimbursement may be increased as agreed with the HB/PCT. Arrangements for the reimbursement of IT costs are given in paragraph 58 of this Statement. The nature and level of the costs to be reimbursed should be agreed in advance with the HB/PCT as should the period of time for which the reimbursement is to be provided. However, this period should not exceed the term of the original lease for the equipment provided. HBs/PCTs should seek advice from the District Valuer on the nature of the proposed lease agreement with the landlord.

11 As an alternative to allowing an increase to the level of rent reimbursement, an initial grant may be made to practitioners in the circumstances outlined above, where in the opinion of the HB/PCT, this would provide better value for money.

12 Addition to SFA Paragraph 56.6 Reconversion of Former Residential Property Grants may also be awarded towards the cost of reconverting owner-occupied former residential property no longer suitable for the delivery of modern primary care services. Assistance towards these costs is only available to practitioners who agree to move to modern alternative premises and the level of any grant shall be at the discretion of the HB/PCT. HBs/PCTs may set such conditions on the award of such grants as they consider appropriate, and in the light of advice from the DV and the local authority. SFA Paragraph 56.7 to be replaced with. Projects of Work Ineligible for a Grant 56.7 The following expenses will not be accepted for grant purposes: a. The initial provision of premises, including the cost of acquiring land, existing buildings or new buildings. b. The initial provision or replacement of furniture (except where it is built-in), furnishings, floor covering or equipment. c. The repair or maintenance of premises, furniture, furnishings, floor covering and equipment. d. The restoration of structural damage or deterioration. e. Any work in connection with domestic quarters, whether or not it is a direct consequence of the work on the surgery accommodation. f. Any expenses on which a tax allowance is being claimed (see paragraph below). g. For parts of extensions that take the overall size of the premises beyond the relevant maxima set out in paragraph 51/Schedule 1.