Releasing the capital tied up in your premises while continuing to practise from the same building.
How it works
You sell the surgery to an investor and take a lease back on it. The partnership receives the capital value; the investor receives a long lease with a strong covenant behind it; the practice carries on exactly as before from a tenant’s position rather than an owner’s.
The notional rent reimbursement that previously supported the practice as owner now supports the rent it pays as tenant.
Why practices are looking at it
- Partner retirement. Releasing the capital removes the problem of finding money to buy out a retiring partner’s premises share.
- Recruitment. A partnership with no premises capital requirement is a far easier proposition to recruit into.
- Risk. Ownership brings maintenance, dilapidation and value risk over a long horizon. A lease does not.
- Certainty. Crystallising the value now rather than at an unknown point in the future.
In Scotland it is more pointed still, because the 2018 contract commits to a transition away from GP premises ownership over 25 years. For many Scottish partnerships, sale and leaseback is one of the few routes to realise the value while they still hold it. See GP premises finance in Scotland.
What it is worth
Pricing depends on the covenant, the lease length, the rent and the building. In practice the price an investor will pay is often broadly comparable to existing-use value. For Scottish practices, that figure was made unusually visible by the valuations provided for sustainability loan purposes.
It is worth understanding that over a long enough period the aggregate notional rent a practice would have received as owner is likely to exceed the price paid on a sale and leaseback. That is not necessarily an argument against doing it, but it should be part of the decision rather than a surprise afterwards.
What to get right
- The lease terms. Length, review mechanism, break clauses and repairing obligations. You will live with these for decades.
- Alignment with reimbursement. The rent needs to sit in line with the notional rent position, so that reimbursement continues to cover it.
- Partnership agreement. How the proceeds are distributed between current and former partners needs settling before, not after.
- Tax. The treatment of the proceeds is a specialist question and needs accountancy input.
- The buyer. Healthcare property investors differ considerably in how they behave as landlords over a 20-year lease.
Is it the right answer?
Not always. A partnership with stable membership, no imminent retirements and no recruitment difficulty may be better off retaining ownership and the reimbursement that goes with it.
It comes into its own where the premises capital is actively causing a problem: a retirement that cannot be funded, a recruitment gap, or a transition that makes long-term ownership look less attractive than it did. We will tell you honestly which situation you are in.
Common questions
Do we have to move?
No. That is the point of the structure: you continue practising from the same building under a lease.
What happens at the end of the lease?
That depends on the lease terms, which is why getting them right at the outset matters more than the headline price.
Is this only relevant in Scotland?
No, though the Scottish contract position makes it more pressing there. Practices across the UK use sale and leaseback to solve partner retirement and recruitment problems.
Related: partnership buy-in and buy-out finance and GP surgery refinance.
All figures are indicative and subject to lender assessment, your circumstances, valuation and prevailing market conditions. Commercial mortgages and unregulated bridging loans are not regulated by the Financial Conduct Authority. Property offered as security may be at risk if you do not keep up repayments.