What is Sale and Leaseback and Who Should Consider it?

For a wide variety of reasons, thousands of GP partnersthroughout the United Kingdom are actively considering the long-term future of their property ownership. Some are thinking about retirement, some are looking for ways to increase profitability and others are simply interested in releasing what could be a substantial amount of equity currently tied-up in their partnership assets. Suffice to say, the call for professional GP surgery valuations across the country has never been higher.

Of all the options available to GP owners, the sale and leaseback arrangement appears to be the one that’s gathering the most momentum. In the simplest of terms, a sale and leaseback agreement refers to a process whereby the GP property owner sells their premises outright to a developer or investor, who then agrees to lease the property back to the GP at an agreed rent for an agreed period of time.

Given that such agreements usually relate to a term of 15 to 20 years, they can make enormously appealing prospects for those considering their future retirement. In addition, selling the property and then leasing it back can release an enormous chunk of equity, which can then be used by the selling owner for any purpose whatsoever.

When Are Sale and Leaseback Agreements Considered?

While the sale and leaseback agreement certainly isn’t for everyone, it can nonetheless represent a fantastic option for thousands of GP surgery owners.  The primary attractions of such an arrangement include:

  • It allows current GP owners to unlock the capital tied up in their property assets. There may be a small fortune sitting there on the premises, which can be unlocked while still allowing the business to continue operating.
  • The commitment to pay the lease rent is reimbursed to the GP practice by NHS England.
  • It can overcome some of the difficulties in attracting new GP partners into the partnership. These difficulties have arisen partly as a result of the scale of investment now required to purchase a share in partnership property assets, and partly due to a fairly widespread reluctance to enter into the long-term commitment of becoming a GP partner.
  • General dissatisfaction with being the outright owner of the property and the desire to make life a little easier by leasing from a new owner.
  • Advance retirement planning where a GP owner knows when they wish to retire.

This is far from an exhaustive list but goes some way to illustrate the extent to which GPs up and down the country are actively considering sale and leaseback deals on their properties.

In terms of the outright advantages of choosing such a strategy, exactly what can the GP property owner expect to get out of the deal?

  1. While the change in ownership might be quite radical if properly arranged it should not in any way affect the way the surgery is run or operates. As such, it can continue to operate as normal and patients will not be affected at all.
  2. Finding GP partners to buy into practice can be extremely difficult – leased properties on the other hand can make this a more appealing prospect. Finding partners should become much easier as a result of these changes.
  3. Property ownership comes with a vast array of risks and responsibilities, which must be balanced with practicing as a GP and running a business. By leasing the property, it is no longer the GP’s responsibility, but rather that of the new owner.
  4. When the equity locked up in the property is released, it can be used for a variety of business expansion purposes – including opening new branches. The release of capital can also be used to fund a more enjoyable lifestyle for the property owner.
  5. With the rent paid by the partners being considered an operating expense, there can be significant tax benefits associated with this arrangement.
  6. Through good advice when negotiating new lease terms, the responsibility for the maintenance and repair of the building structure can be transferred to the landlord.
  7. Retirement becomes a great deal easier to plan as leaving work can be timed to coincide with the end of the lease.
  8. Sale and leaseback transactions are generally taxed less excessively than standard property sales.
    Should a partner leave the practice while in a leaseback agreement, they will not face negative equity?

It’s therefore an option that’s genuinely worth considering for a wide variety of reasons. It may not be suitable for all, but it’s absolutely worth seeking independent, professional advice to explore the options available

Leave a Comment

Your email address will not be published. Required fields are marked *