What happens to GP freehold premises when a partner leaves?

Whether a GP partner is retiring or moving to another practice, it's important that the ownership of the practice premises is considered. In this second instalment of our two-part blog series on GP premises, we focus on the key considerations for managing freehold premises when a GP partner exits the partnership. You can read our earlier blog on leasehold practice premises here.

There are several key variables to navigate and important questions to ask, each of which can shape the outcome and ensure you and the remaining partners are not left ‘on the hook’.

Obligation or option

Will the continuing partners be obliged to acquire the outgoing partner’s share in the premises or will they have an option to do so? Namely, will the continuing partners have a choice to buy the outgoing partner’s share or not?

Cross option

If the purchase of an outgoing partner’s share is to be an option, will the option be, what is called, a cross option? Such that will the continuing partners have the option to require the outgoing partner to sell their share in the premises, but on the reverse will the outgoing partner have an option to force the continuing partners to buy their share.

Option period

If it's to be an option, what's the period during which the option must be exercised? Will that be weeks, months or even years and what, if any, are the tax and legal implications associated with such a period? If the option isn’t exercised, what happens then? In those circumstances, the outgoing partner usually retains their share (albeit, in circumstances where the premises is owned as a partnership asset, this is likely to lead to a transfer of that share out of the partnership). Consideration is is also needed as to the ongoing rights and obligations of the continuing partners in occupying the premises (which could facilitate the need for a lease) and the ongoing arrangements as to how the property will be handled as between partner and non-partner property owners (which could facilitate the need for a property deed or agreement). 

Valuation

If the outgoing partner’s share in the premises is to be acquired, what's the basis for valuing the property to determine the value of the outgoing partner’s share? Ideally you will want to create certainty on this point to avoid unexpected fluctuations in the valuation.  

Repayment period

If the property share is acquired, over what period will the monies owing to them be repaid? If that period is elongated, will interest be paid?

Borrowing

How will any purchase impact on any personal or partnership borrowing? If the outgoing partner is responsible for a proportion of any subsisting borrowing, will this be paid off by the outgoing partner or assumed by the continuing partners?

Claw backs

If there's a genuine prospect of the premises being sold for redevelopment in the foreseeable future, will there be claw back arrangements in place to enable the outgoing partner to benefit from any uplift in value that is realised after they have left?  

What’s right for you and your partners may differ from others. The above points and questions are designed to help you think through the key variables and ensure your approach is properly agreed and documented, whether in your partnership agreement or a deed covering the retirement of a property-owning partner.

Over time, we've seen a shift towards giving remaining partners more flexibility, particularly around the repayment terms for sums owed to an outgoing property-owning partner.

Additional points to consider

• Update the freehold title: Ensure any changes in freehold ownership are reflected on the title as soon as they occur. Delays could cause significant complications, especially if individuals involved are no longer available to assist.
• Review implications under the new Premises Cost Directions: For example, if the last property-owning partner leaves, a reassessment of the rent may be required to determine the current market rental value for reimbursement purposes.
• Consider the impact of any grants secured on the premises: Consider whether these grants will affect the valuation. Will their impact be deducted? This is an important point to clarify early on.

If you need support handling the complexities of freehold practice premises on retirement, we can guide you through the process and create certainty on the issue for all parties. Please contact Rob Day.