The Department of Health issuedguidance(published on 4 August2011)on the ownership of the PCT estate, largely to address the consequences of the TCS transfers but not specifically limited to that. The purpose of thisarticle is to bring to your attention some important operational issues that you should be considering as part of implementing that guidance.
The Department of Health issued guidance (published on 4 August 2011) on the ownership of the PCT estate, largely to address the consequences of the TCS transfers but not specifically limited to that. The purpose of this article is to bring to your attention some important operational issues that you should be considering as part of implementing that guidance.
If you have not read the guidance then it can be accessed here.
The overall intent of the guidance is to ring fence, within the NHS, certain PCT property assets by giving FTs, NHS Trusts and aspirant CFTs (so not social enterprises) the opportunity to acquire community properties that have a high enough clinical content – what the guidance calls “service critical infrastructure” – but only where you occupy 50% or more of the premises and there is no right to cherry pick some of the estate that falls into this definition. You either take it all or none. The acquisition is at book value and we assume (but this ought to be confirmed) that Public Dividend Capital will be made available to match that price. How the remainder of the estate will be handled will be subject to future guidance.
Whilst the opportunity to acquire may have some immediate attractions we have some concerns that we think you should consider very carefully.
The first is the fact that the Secretary of State for Health (SOSH) retains a right to re-acquire any properties that transfer where:
We assume that such a right to re-acquire will be at book value.
Perhaps even more importantly you will have no right to sell the
property unless you first offer it back to SOSH (presumably
at book value). If SOSH does not wish to re-acquire you will be
free to sell but on the basis that you account to SOSH for 50% of
the GROSS gain in value. So, if you invest in enhancing the value
of the property (refurbishment, subletting or obtaining a planning
that improves the value) there will be no right to set off the cost
of such improvement against the overage payable to SOSH. In some
circumstances that could leave you with a net loss on sale. SOSH
will not share in any losses.
The alternative - to keep a leasehold interest - may be more attractive where you are able (as is generally the case on TCS transfers) to leave the responsibility for backlog maintenance with the PCT (as Landlord). Acquiring the freehold will not allow you to pass these liabilities back to the PCT (the guidance specifically requires liabilities to be transferred to the transferee). Whilst acquiring the freehold will put you in greater control that liability can be significant and will need to be considered very carefully.
We think that overall this puts you in a position closer to a custodian than an owner, but a custodian who sees only 50% of any enhancement (and who will have to pay the full cost of securing that enhancement), takes on the full liability for maintenance and future repair and the full risk of any fall in property values.
A further and perhaps even more fundamental question is whether this is a transfer of an asset or a liability. I say this because the acquisition is at book value but the right to re-acquire is only in favour of SOSH (or a body nominated by him); so there is no right to force the SOSH to re-acquire even if you are not awarded any renewal of the TCS contract. You could be left in a position where: the TCS services are competitively tendered in a few years time; your bid is more expensive due to these liabilities; as a result you are not successful; and the new provider sees little merit in delivering services from the transferred properties. SOSH is unlikely to exercise the right to re-acquire and you are left to sell the properties in the open market in circumstances where if the open market value is less than book value the loss will be yours alone. For this reason you should undertake a valuation survey to assess whether (in whole and in part) the estate that you are proposing to take over has an open market value equal to or greater than its book value – if not you may just be taking on a liability. You should of course also undertake a condition survey to assess the level of contingent liability for backlog maintenance. The timetable is very tight to allow for such surveys to be undertaken. Retaining a leasehold may be a more attractive option.
Other issues that you should bear in mind include
If you would like to talk through how this guidance may apply in your circumstances, we would be happy to discuss this. Please feel free to get in touch.