If you own your surgery premises, notional rent is probably the single most important number in any funding conversation you will have. It is also the one most often misunderstood.
What it is
Notional rent is the reimbursement a GP practice receives for providing premises from which NHS services are delivered. Where a practice owns its building, it is paid as though it were renting it: the notional rent that the premises would command.
It is not profit and it is not a subsidy. It is a payment for providing the premises, and it exists because the alternative would be the health service owning and maintaining every surgery in the country.
Why lenders care so much about it
Here is the part that matters commercially. On an ordinary commercial mortgage, a lender assesses trading profit and asks whether the business can service the debt. On a GP surgery, notional rent frequently becomes the driving force behind the serviceability calculation instead.
The reason is straightforward. Notional rent is contract-backed and predictable. It does not swing with a bad year, a partner’s sabbatical or a change in the private income mix. From a lender’s point of view it behaves more like a lease covenant than trading income, and lease covenants support more borrowing than trading profit does.
This is why specialist healthcare desks will consider high loan-to-value lending on qualifying NHS-contracted surgeries, including up to 100% in some cases, where a general commercial lender looking at the same accounts would offer considerably less.
How it is assessed
Notional rent is based on a professional assessment of the current market rent for the premises, taking into account size, condition, location and the use to which the building is put. It is reviewed periodically rather than fixed permanently.
The practical points that matter to a practice:
- The assessment reflects the premises as they are, so improvements can affect it, and so can deterioration
- It is reviewed rather than static, so the figure in your funding proposal should be current
- A review can move it in either direction
- Where premises are shared or partly sub-let, the position is more complicated and needs setting out clearly
Other income from the building counts too
Lenders will also take account of other long-term rental income from the premises. A pharmacy, a dentist or a private clinic occupying part of a medical centre on a proper lease strengthens the case, provided the leases are properly documented and long enough to be relied on.
Practices sometimes have informal arrangements here that have worked fine for years. Formalising them before a funding application is usually worth doing, because a lender cannot lend against a handshake.
The mistake to avoid
The most common error in a GP premises funding proposal is leading with practice profit and mentioning notional rent as a supporting detail. It is the wrong way round.
A proposal built around the reimbursement position, the security of the contract and the documented leases on any sub-let space produces a materially different answer from the same practice’s accounts presented conventionally. Same practice, same building, different result.
Scotland is different
Under the 2018 Scottish GMS contract there is a 25-year transition away from GPs owning their premises. Sustainability loans of up to 20% of existing-use value have been available to owning practices, and they have no effect on notional rent or borrowing cost payments. There are no abatements as a result of taking one.
But the direction of travel means that for Scottish practices the notional rent conversation increasingly sits alongside a different question: whether to continue owning at all. See GP premises finance in Scotland.
What to do with this
If you are considering buying, refinancing or restructuring surgery premises, establish the current notional rent position before you approach anyone. It is the number the whole case is built on, and going into a conversation without it means the lender frames the discussion rather than you.
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.