Third Party Landlords
There are important issues to address when GP practices rent the surgery premises from third parties. Inevitably there will be a formal lease and GP’s will need to take legal advice and probably that from a surveyor before signing up. Here are just three of the
main issues to consider:-
1) Will the actual rent be fully reimbursed together with a contribution towards future dilapidation costs?
2) Can a GP retire and be freed from his or her liability towards the lease?
3) How do we account for dilapidation costs?
Whilst 1) and 2) above may be obvious, some detailed thought needs to be given to item 3). Most leases will contain a clause which states that the building must be left in the same condition as it was in when the lease commenced. It is therefore recommended that the practice set up a “sinking fund” whereby money is transferred into a separate bank deposit account each year to meet future dilapidation costs. A Surveyor should be consulted at the beginning and every three years thereafter to estimate the cost so that the practice can continually transfer the correct sum to the sinking fund. In this way, the cost will fall on the partners using the premises and not on future partners only. In other words, retirement should not provide a GP with an escape route to avoid dilapidation costs. However, from a taxation point of view, repair costs are only allowed when they are incurred and not when they are provided for in the sinking fund. Accordingly, an adjustment needs to be made to ensure that an outgoing partner receives notional tax relief on his or her share of the amounts transferred to the sinking fund, so that the benefit of tax relief is not wholly transferred to an incoming partner.