Our Healthcare consultant John Tyas explores the differences Between Notional Rent and Cost Rent in GP Practices.
In the UK, GP practices can receive rent reimbursements from the NHS, but the type of reimbursement depends on the ownership and financial arrangements of the premises. The two main types of rent reimbursements are Notional Rent and Cost Rent. Understanding the differences between these can help GP practices manage their finances more effectively.
Notional Rent
Notional Rent is applicable to GP practices that own their premises outright. This type of reimbursement is based on the Current Market Rent (CMR), which is the rental value of the property as determined by an independent surveyor. The CMR is assessed based on notional lease terms, typically assuming a 15-year lease with tenant internal repairing obligations and the landlord responsible for external and structural repairs and insurance1.
Key points about Notional Rent:
- Market-Linked: The reimbursement amount can fluctuate based on market conditions, meaning it can go up or down.
- Review Period: The CMR and the amount of Notional Rent paid are reviewed every three years or sooner if there are significant changes to the premises.
- Switching: Practices currently on Cost Rent can switch to Notional Rent, but once the switch is made, it cannot be reversed.
Cost Rent
Cost Rent is for GP practices that have taken out a mortgage or loan to purchase or repair their premises. This reimbursement covers the borrowing costs, including interest and capital repayments. However, Cost Rent is no longer available for new schemes but still applies to some existing practice premises.
Key points about Cost Rent:
- Fixed Reimbursement: The reimbursement amount is fixed and based on the specific borrowing costs of the practice.
- Finite Period: Cost Rent is only available for a finite period, typically until the mortgage is repaid.
- Notification Requirement: Practices must notify NHS England of any changes to the loan terms or if the mortgage is repaid. Failure to do so can result in having to repay funds.
Choosing Between Notional Rent and Cost Rent
When deciding whether to switch from Cost Rent to Notional Rent, practices should consider the following:
- Market Conditions: If the market rent is higher than the fixed Cost Rent, switching to Notional Rent could be beneficial.
- Professional Advice: It is advisable to seek professional advice to ensure the switch is financially advantageous and to navigate the appeal process if the initial Notional Rent assessment is lower than expected.
In summary, while Notional Rent offers a market-linked reimbursement that can adjust over time, Cost Rent provides a fixed reimbursement based on borrowing costs. Understanding these differences can help GP practices make informed decisions about their premises and financial planning.
