Lawyers Edwina Farrell and Matthew Lake look at what action can be taken when facing huge service charges practices believe are unjust
Service charge costs have been a significant issue for many GP practices since 2013, when NHS Property Services (NHSPS) was created, with many claiming charges are being unfairly or unjustly levied.
It was anticipated a recent case against the NHSPS lodged in 2020 by five GP practices, with backing from the BMA, would give practices grounds to challenge their service charges. However, in June 2022 the case found in favour of the NHSPS, based on the individual cases of the five practices. Many practices had been withholding payment of sums that they were being pursued for by NHSPS pending the outcomes of this case, in the hope that the decision would go in favour of the GP practices. So, what can these practices do now?
In this piece we look at how practices might seek to challenge fees they consider to be unfair, and what to do if your practice is among those withholding fees.
Why have service fees become such an issue?
There are approximately 1,250 GP practices operating from premises owned in England. In October 2021, service charge debts projected by NHSPS totalled £175m, and are projected to rise as much as £30m per year. Historically, these properties were owned by Primary Care Trusts (PCTs), which funded elements of the practices’ property costs, namely rent, in their role as the service commissioner. However, as the PCTs owned these properties, this led to an informal system, where many practices did not necessarily see the reimbursement (because the PCTs both paid and received the rent), and didn’t have a written tenancy agreement. As a result, practices either weren’t charged, or were only charged partially in respect of some service charge costs that are not reimbursed.
After the property owning element of the commissioner was transferred to NHSPS, many practices found themselves pursued for significant sums of money by way of backdated service charges, with some seeing their annual charges increase by as much as 400%.
In some cases, GP practices say they are being charged for services they do not and have never received, on the basis that NHSPS is applying a uniform policy that does not take account of the specific facts of a particular case. NHSPS says its charging policy is lawful and enforceable against all of those practices. The BMA, on behalf of its members, says it is not.
What legal options do practices have?
Historical arrangements may dictate what a practice can demand at law, and the extent of the property for which they are responsible. The onus is also on the landlord to demonstrate they have the right to charge the sums they are requesting.
For those practices that have never paid any rent or service charge, it may prove difficult to argue any real or substantial rights to remain in a property. It is possible that their occupation is based on a bare permission or license, in which case their right to remain is minimal. Practices need to check their records carefully to establish whether rent payments were made on their behalf under the PCT, NHS England or latterly Clinical Commissioning Group (CCG) accounting processes.
However, statute may offer protection in some cases. Most practices should be able to prove previous rental payments and exclusive possession of the space from which they operate. Those that can, may be able to demonstrate the existence of an implied tenancy through historical agreements, putting them in a stronger position to seek to resist many of the fresh proposals from NHSPS. They may apply to Court to have lease terms decided, which would put the burden of justifying new terms on NHSPS. This can prove difficult, and the Court will need compelling reasons in support, if they are to be persuaded to add new terms to a lease.
However, such a route can be costly for everyone, and in the most recent case judgement, the court expressed a desire that other practices seek to resolve disputes over service charges without the need for expensive litigation. It is likely, and prudent, that the parties try to resolve any dispute before it reaches the courtroom.
Can practices be reimbursed for increased charges?
Despite plans to update the 2013 Premises Directions, they remain in place. These entitle any contractor who is a tenant to the reimbursement of NHS approved rent.
By contrast, service charges are seldom reimbursable or capped, and come straight out of the practices’ pockets and profits. That is why the substantial increases have caused such alarm at a national level. However, practices should check the sums requested in detail, as in many cases charges include services which are not provided.
Can NHS England force practices to sign a formal lease?
Ultimately the freehold (or superior leasehold) interest of the premises is the property of NHS Property Services and there are instances where the organisation would, at law, be entitled to take possession of those premises. However, such a course of action would not be without significant damage to the ability of a commissioner to ensure general practice was able to operate and deliver quality primary care services. It also makes no financial sense for it to risk leaving its buildings to stand unoccupied.
A softer approach might be to offer occupiers more incentives and deals, based entirely on historical occupation, and negotiate future service charge costs that reflect the importance of GPs’ public service and their pivotal role within the NHS.
What should a practice do if they have previously been withholding payment?
Following the judgement, many practices now face increased uncertainty and the risk that, if left unchallenged, at best they will have considerable debts to pay off in a short period of time and, at worst, they may have to close their practices.
A second trial is to be listed within the next 12 months or so at which the court shall consider the extent to which charges claimed by NHSPS are reasonable.
It’s important that those potentially affected remember that the outcome of these cases does not automatically mean that they are bound to pay all charges being pursued by NHSPS. Whether or not NHSPS’ charges are recoverable in principle (which is a question of law in every individual case) those charges must be reasonable and they must have been properly incurred in order to be recoverable. Each case should be analysed individually.
It is now essential that any practice potentially affected seeks independent legal advice as soon as possible in order that they may better understand their position.
Edwina Farrell, Partner, and Matthew Lake, Principle Associate, are both at law firm Weightmans