Service Charges for NHS Properties: Whether service charges are payable by GPs to NHS landlords (Valley View v NHS Property Services Ltd – 2022)

Following a statutory transfer scheme which vested 3,700 Primary Care Trust properties, many occupied by GP practices, in NHS Property Services Ltd, were those GP practices liable for payment of service charges to NHS Property Services?

The background

Valley View v NHS Property Services Ltd [2022] concerned a series of five test cases to determine whether GP practices were liable for payment of service charges to their NHS landlord.

A statutory transfer in April 2013 vested thousands of Primary Care Trust properties in NHS Property Services. Many were occupied by GP practices, often partnerships, with lease arrangements often absent altogether, very basic or outdated. Service charges had been largely academic, with rents and service charges either reimbursed to, or not recovered by Primary Care Trusts from, GPs.

Following the statutory transfer, GPs were required to pay NHS Property Services’ landlords costs and received service charge demands, often in higher sums than previously. Annual Charging Policies issued by the NHSPS from 2015 stated that, even without a lease in place, GPs were liable to pay service charges.

GPs issued proceedings arguing against the Charging Policies, on grounds that the terms of their occupation was not altered and that they were not liable for payment of service charges. The NHSPS counterclaimed, seeking clarification as to its liability to provide services as well as the GPs’ liability to pay service charges.

The decision

The High Court considered each of the 5 test cases in turn:

1. In its judgment, and in respect of two of the test cases, the Court considered the effects of a tenancy at will, assessing whether the practices were tenants under a tenancy at will or under tenancies protected by security of tenure implied by their conduct.

In the first case, no formal tenancy had been agreed despite various negotiations with the PCT and NHSPS. The High Court found that the practice occupied under a tenancy at will; the parties shared an intention that the GP practice should take a sub-lease or assignment. In the second case, the GPs occupied under a contracted-out lease which expired in March 2019, since which time they held over whilst paying rent. No negotiations for a new lease took place. The judgment found that the GPs were tenants at will as the parties acknowledged that grant of a new lease was anticipated, subject to settlement of the service charge dispute.

2. In two cases, terms of tenancies were implied by the conduct of the parties. Services had been provided by the landlord, payment towards which had been made by the GP practices. These practices argued that their service charge contributions should be capped at a sum by reference to sums paid previously to their PCTs.

The court considered the landlords’ obligations in delivery of services and the charging obligations owed by the GPs, finding that NHSPS agreed to provide the same services to those practices as previously, but that NHSPS was entitled to cease delivery of those services where reasonable, for example where such service was no longer required or could no longer be provided. Here, the High Court agreed that the GPs were obliged to pay “the landlord’s reasonable costs of services reasonably provided”, but did not impose any service charge cap.

3. Management fees were also assessed. GPs contended that they were not liable for management fees incurred by NHSPS on the basis that management fees were not expressly recoverable under the written leases, and had not previously been charged by the PCTs in the implied tenancies so were not recoverable now.

The High Court found that recovery of management fees were recoverable where relevant lease provisions were wide enough to include such fees, which must be sufficiently close in relevance to the services provided to be recoverable. The service charge terms in the written leases were found to be sufficiently wide enough to encompass management fees, and such fees were recoverable. The implied tenancies were similarly found to be liable for management fees; tenancies were granted on terms that GPs were to pay landlord’s costs for services reasonably provided and management fees were recoverable.

Advice and action for landlords

This decision will be of great relevance to thousands of GP practices in England and Wales, concluding largely in favour of the NHS landlord and finding that GP practices were liable for reasonable service charges and management fees.

As a test case, this judgment assesses the application of the law in a limited number of cases. Whilst circumstances will likely differ from practice to practice, the decision is reassuring for the NHSPS and will give the organisation confidence that its charges and fees will be recoverable.