In the National Code of Practice for GP Premises the Scottish Government confirmed their commitment to seeing GPs cease to own their own surgery premises. In the meantime it has been recognised that the effects of premises issues need to be mitigated. The GP Premises Sustainability Loan Scheme is making available loans with the aim of reducing the risk to GPs that own their own surgery premises and supporting premise owning Practices as a whole.
Eligibility for the Sustainability Loan
The scheme will make available interest free secured sustainability loans of up to 20% of the existing use value of the premises to GP Practices where the premises that the Practice occupies is owned by the current partners or held in trust by at least one of the current partners for all of the Partners.
The sustainability loan shall also be available to GP Practices that are in negative equity with their existing lender. Sustainability loans in excess of 20% of the existing use value of the property may be made available in exceptional circumstances. However in order to qualify the GP Practice must be facing unique challenges.
Existing use value
The existing use value of GP owned premises has already been assessed by the District Valuer Services (DVS). The DVS’s valuation has been made based on information already held on GP owned premises. When assessing the value of the premises the DVS has assumed that the premises are restricted to use as GP surgeries and that the only potential purchaser of the premises would be a GP contractor. It will not be possible to challenge the values set by the DVS in order to increase the size of the sustainability loan that a Practice is eligible for.
Use of Sustainability Loans
To prevent GP Practices getting into or increasing their negative equity if a GP Practice falls into the following 3 categories all or part of the sustainability loan will be paid directly to the applicant’s existing lender:
Category 1- Where the outstanding balance of the Practice’s existing mortgage is in excess of the existing use value of the premises;
Category 2- Where the outstanding balance of the Practice’s existing mortgage is equal to the existing use value of the premises; and
Category 3- Where the outstanding balance of the Practice’s existing mortgage is equal to between 80% and 100% of the existing use value of the Practice Premises.
Where the Practice falls into Category 1 or Category 2 all of the sustainability loan shall be paid directly to the applicant’s existing lender.
Where the Practice falls into Category 3 the proportion of the sustainability loan which would be required to bring the balance due on the mortgage down to 80% of the existing use value of the premises would be paid directly to the Practice’s Lender. For example if a GP Practice’s existing mortgage is for 90% of the premise’s existing use value one half of the 20% loan shall be paid directly to the existing lender and the remaining half of the 20% loan can be paid to the Practice.
It is only where a Practice has a mortgage of 80% or less of the existing use value of the surgery premises that the whole sustainability loan will be paid directly to the GP Practice. GP Practices that fall into Categories 1 to 3 could face substantial repayment charges from their existing lender if they were to apply for a sustainability loan.
It is clear that the Scottish Government were concerned DVS valuations would be lower than practice borrowings as balance sheet values. However, experience to date suggests that DVS valuations are, in many cases, significantly greater than practice borrowings as balance sheet values. This may have unforeseen consequences for some practices. The sustainability loan is not designed to be the solution to all of the issues faced by GPs that own their own surgery premises. It is anticipated that the GPs will continue to use other resources such as commercial mortgages to aid them with the challenges that they face in relation to their property. The sustainability loan will be available until March 2023*, after which it is anticipated that there will be further funding for the GP Sustainability Loan Scheme, which would be welcome news for GP Practices who are not in a position to apply for the sustainability loan now.
Davidson Chalmers acts for more medical practices that any other law firm in Scotland and we have an unparalleled understanding of the challenges faced by GPs who own the Practice premises. If your practice is considering a sustainability loan we would be delighted to assist you in tackling any issues that may arise. Click here for a link to our briefing note on what is involved.
*Although note it is only guaranteed to be in place until the next Scottish Government elections in 2021.
The matter in this publication is based on our current understanding of the law. The information provides only an overview of the law in force at the date hereof and has been produced for general information purposes only. Professional advice should always be sought before taking any action in reliance of the information. Accordingly, Davidson Chalmers LLP does not take any responsibility for losses incurred by any person through acting or failing to act on the basis of anything contained in this publication.