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Landmark case rips up rent review rulebook

28 August 2009

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LLB solicitor
Professional Support Lawyer

Rosemary joined solicitors’ firm Howard Kennedy in June 2003 in the Property Department. Her job is to develop the department´s database of transactional documents and know-how, to provide updates on new law and training and to prepare marketing materials. She also contributes to legal journals. Rosemary held a similar role in a city firm before joining Howard Kennedy, and has considerable experience as a commercial property lawyer in private practice

Arrangements under which GPs are reimbursed by primary care trusts (PCTs) for rent payable on their surgeries do not often come before the courts.

The case of Primary Health Investment Properties Ltd v Secretary of State for Health, decided in March 2009, nevertheless involved a detailed scrutiny of this complex regime and challenged some accepted practices.

Primary Health Investment Properties (PHIP) let a surgery to some GPs who entered into an NHS contract with the local PCT, under which they were entitled to reimbursement by the PCT for the rent. The PCT agreed to pay whatever was the lower of the actual rent payable under their lease and the “current market rent”.

If a dispute arose, the district valuer advised the PCT, and if the figure determined by the district valuer was unacceptable to the GPs, the disputes procedure was invoked, which required reference to the Secretary of State who delegated this function to the National Health Service Litigation Authority (NHSLA).

The lease allowed PHIP to trigger a rent review to bring the rent to the “open market rent”. If the PCT did not agree to pay the whole of the reviewed rent then the GPs were obliged to instruct PHIP, acting as their agents, to negotiate with the PCT to obtain full reimbursement of the rent arrived at under the contractual rent review.

If, as a result of the disputes procedure, the rent recoverable from the PCT turned out to be less than the rent set under the rent review then the lesser sum became the rent payable under the lease. The risk of a shortfall between the reviewed rent under the lease and the sum recoverable from the PCT for the most part fell on PHIP (although any shortfall would affect the GPs to a lesser degree).

Reimbursement dispute
Following a rent review, a dispute arose as to the amount of the reimbursement. The PCT instructed the district valuer to determine the current market rent and he did so at a figure that was not accepted by the GPs. The disputes procedure was invoked and the NHSLA appointed the Chief Executive of the Valuation Office Agency (CEO VOA) to advise.

The GPs’ surveyor objected and suggested that the matter should be dealt with by arbitration under the Arbitration Act 1996, but this was rejected.

The GPs and their landlords brought an action for judicial review, claiming that:

  • The disputes procedure contravened Article 6 of the European Convention on Human Rights (right to a fair trial). Since the NHSLA was part of the NHS, it had a direct financial interest in the sums to be reimbursed by the PCT to the GPs and therefore was not a fair and independent tribunal.
  • The appointment of the CEO VOA to advise the NHSLA gave rise to apparent bias. Connections between the district valuer, who was acting for the PCT at all stages in the dispute, and the CEO VOA, who was advising the NHSLA, were too close for justice to be “seen to be done”.

Court ruling
The court decided that the discretion of the PCT under NHS regulations and directions to deny financial assistance to GPs prevented them from having civil rights independent of that discretion so as to bring Article 6 into play.

Even if it had applied, no breach of Article 6 had occurred because sufficient structural separations and budgetary independence of the NHSLA ensured its impartiality.

However, the court agreed with the GPs and PHIP on the subject of apparent bias. The involvement of the CEO VOA tainted the disputes procedure, as it was reviewing the work of the district valuer from the same agency that had represented the PCT throughout.

The objectionable internal relationship was compounded by the fact that the CEO VOA received the district valuer’s file on the case.

Some suggestions on the effect this case can be made:

  • Existing arrangements for dispute resolution can continue in the context of the PCT’s discretion to grant or refuse an application to reimburse GPs their rent. However, this case is a warning that such discretion can be judicially reviewed.
  • Disputes over figures provided by the district valuer under NHS contracts cannot be determined by reference to, or with the advice of, the CEO VOA. An independent expert or arbitrator must be appointed to advise the determining authority.
  • Determining authorities should not see the file of either party to the dispute.
  • Independent surveyors, acting for the PCT, will become more heavily involved in disputes relating to reimbursement of GPs’ rent.
  • Now that the workings of the NHS in this area have been successfully subjected to the scrutiny of the courts, further challenges to the system may follow.