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What does recent legal ruling mean for practices in NHSPS buildings?

GP practices in premises owned by NHS Property Services (NHSPS) could be forced to pay service charges worth around £200m in total after a legal ruling. GP Business explains the case.

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(Photo: Mike Kemp/Getty Images)

What is the recent court ruling?

In what has been billed as a test case for around 1,250 practices across England that operate from premises owned by NHSPS, five GP practices have been supported by the BMA in legal action to push back against service charge claims worth up to six-figure sums per practice.

A 170-page High Court ruling handed down on 8 June by Mr Justice Edwin Johnson found in favour of NHSPS in all five cases - effectively determining that it was able to claim service charges.

A second trial expected in 12 to 18 months will consider the extent to which charges claimed by the organisation - with service charge debts estimated by NHSPS to total £175m in October 2021 and rising by £20m to £30m per year - are reasonable.

Why has this case happened?

NHSPS was set up when primary care trusts were abolished in 2013. It is owned by the government but it is a private company that was set up to take over the ownership and administration of NHS estates that were previously owned by PCTs. This included a number of GP practices.

As part of the move, NHSPS was asked to move the management of properties to a more commercial footing and make sure it was able to fully cover its costs. The court case acknowledged that previously PCTs had in some cases been prepared to accept shortfalls in service charges and had funded this. However the basis for this was never written down and many practices were operating out of buildings now owned by NHSPS without a formal lease in place.

When NHSPS started asking for service charges some of the charges extended to six-figure sums. Practices have argued that they would be unable to pay these amounts and the charges effectively threaten the financial viability of their business. The dispute has been going on for a number of years and this court ruling is the result of the first part of a the legal challenge.

What does the result mean for practices in NHSPS buildings?

The BMA said the case was 'not over' - and emphasised that despite the legal challenge being billed as a test case, practices' service charge obligations 'can only be determined on a case-by-case basis'. The association said it would set out its next steps 'in due course'.

However, Bethan Dodd, a healthcare property partner at law firm Lester Aldridge, told GPonline: 'NHSPS estimates the total outstanding liabilities at more than £175m. That figure will be reviewed in the next stage of the trial - but whatever that figure is, even if it is halved, it is a huge amount of money that GPs are going to have to find.

'They can't put up their prices, and they can't easily move. They can't go and find cheaper premises elsewhere because they are linked to their patients and their location - so you're between a rock and a hard place.'

Ms Dodd said she was aware of practices that had already handed their contracts back over concerns about service charges - and warned that this judgment could be a 'tipping point' for others that may have been holding out and waiting for the outcome of the legal challenge, particularly in the current context of intense pressures on general practice.

In a postscript to the judgment, Mr Justice Johnson made clear that although he hoped the five practices' case could help NHSPS and other practices resolve 'disputes over services charges without the need for expensive litigation', he would be 'wary of classifying these five actions as test cases' - and said it was 'not sensible' for practices simply to refuse to pay.

He wrote: 'The resolution of a service charge dispute in any particular case essentially depends upon the evidence and arguments in that case. This is one of the principal reasons why...I do not think that it is sensible for any GP practice to adopt what I would describe as a policy of non-engagement; by which I mean refusing to pay service charges pending explanation of the position by [NHSPS]. As I have said, it seems to me that a more constructive approach would be for GP practices to take their own advice on the position, and to put their particular case to [NHSPS] on what is and is not recoverable by way of service charges.'

What has the BMA said?

BMA GP committee policy lead for premises Dr Gaurav Gupta said: 'After the BMA raising concerns with NHSPS for more than five years over the significant increases of service charges and then a protracted legal process, it has taken this complex judgment of more than 170 pages and almost 100,000 words to give some clarity to these practices about what services they are and are not obliged to pay for.

'The recent judgment confirms that in none of the five practices’ cases was NHSPS’ charging policy incorporated into the terms of their tenancy. GP practices’ service charge obligations can only be determined on a case-by-case basis. Indeed, the judgment suggests that practices facing demands for fees that they do not understand take a constructive approach, and seek their own advice to investigate what is and is not recoverable by way of service charges.

'During these proceedings we have seen NHSPS’ claims for outstanding service charges revised vastly, in one case being reduced by as much as 34% (more than £178,000), underlining the opacity of NHSPS’ methods for calculating charges. Most significantly, had the BMA not supported the GP practices in this case to defend NHSPS’ claims for charges they could have overpaid hundreds of thousands of pounds to NHSPS which NHSPS was unable to substantiate when required to do so.

'The case is not over, with the next stage to determine how much these practices may owe, if indeed they received the services to the required standard or even at all, and we will be discussing our next steps in due course.'

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