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An overview of the legal framework for paying GP practices for premises costs

David Lock QC unpacks the changing model of delivering NHS primary services in the UK.

NHS GP practices in England have long been based on the traditional model where the doctors who delivered services to patients also owned the primary care business within which those services were provided. However, a combination of changes in government policies, changes in the wider society and the pandemic have meant that that model of delivering NHS primary care services is radically changing. These changes will have a substantial effect on the way that GP practices will operate their premises.

The statutory framework

NHS England has a statutory duty under section 83(1) National Health Service Act 2006 to “… to the extent that it considers necessary to meet all reasonable requirements, exercise its powers so as to secure the provision of primary medical services throughout England”.

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NHS England meets this statutory obligation by entering into contracting “arrangements” with individuals, partnerships or medical companies. The contracting arrangements can now take a variety of forms because the traditional model of individual autonomous GP practices is giving way to GP Federations and Primary Care Networks (“PCNs”) under which GP practices work together. The model of the stand-alone GP practice does not now reflect how services are delivered, but the legal framework is still largely based on that model. Accordingly, despite these collective arrangements, commissioning contracts and premises payments can still be governed by a contract with the individual practice.

Broadly, there are three types of contracts for GP practices in England: General Medical Services (“GMS”) Contracts, Personal Medical Services (“PMS”) Contracts and Alternative Personal Medical Services (“APMS”) contracts, which are a form of contract which tends to be used where an NHS body—such as an NHS Foundation Trust—takes over a GP practice and employs the GPs in the same way that hospital doctors are employees.

NHS Contracts

It can be important to identify whether or not a primary care commissioning contract takes effect as a non-legally binding contract, known as an “NHS contract”. This form of internal arrangement between two NHS bodies—akin to a service level agreement—was devised by the 1990 Act to prevent NHS bodies from suing each other in courts.  As the Court Appeal confirmed in Pitalia & Anor v The National Health Service Commissioning Board [2014] EWCA Civ 474 such an arrangement gives rise to no legal duties on either side.

Dispute resolution in relation to NHS contracts can only be carried out through the NHS Dispute Resolution Procedure which is operated on behalf the Secretary of State by the National Health Service Litigation Authority (“the NHSLA”) now known as NHS Resolution.

A contractor who is party to a legally binding contract is entitled to sue in the courts but has the option of resolving disputes using the NHS Dispute Resolution Procedure. However, if the contractor elects to use the NHS Dispute Resolution Procedure, the contractor is bound by the outcome of that process, subject to a challenge by way of judicial review.

Premises payments under GMS Contacts

Premises payments for GMS contracts are determined by Directions made by the Secretary of State.  Payments in respect of premises are governed by the National Health Service (G – Premises Costs) Directions 2013 (“the Directions”).[1]

The general scheme of the Directions is to ensure that GP practices are reimbursed for the cost of operating appropriate premises on a year-by-year basis.

Where a GP practice owns the property, the premises payments are determined on a notional “rent”, set at the “current market value” as determined in accordance with Parts 1 and 3 of Schedule 2 of the Directions. Those notional rent payments are subject to a 3-year review, but that can be brought forward if there is a change to the purposes for which the premises are used or there is further capital investment which has been agreed by NHS England. Schedule 2 provides that the current market rent must be fixed following recommendations made by the District Valuer, who is tasked with determining a rent which “might reasonably be expected to be paid by a tenant for the premises at the valuation date”.[2]

As an alternative to notional rent, GP practices can seek “borrowing costs”.  The underlying principle is that a GP practice should be entitled to borrow money to buy and improve premises to bring them up to NHS standards, and then be funded for the interest costs of the premises loan.  However, sums payable as borrowing costs are not necessarily the same as the costs payable under the loan for 2 reasons namely:

  1. Borrowing costs only applies to interest payments, not to repayment of capital; and
  2. The percentage payable is fixed by paragraph 38(a) of the Directions as opposed to being the sum paid under the loan agreement.

However, where the loan is renegotiated at a lower amount, the borrowing costs payments may be reduced under paragraph 39.

Where GP practices lease their premises, they will have to pay rent to a landlord.  In such a case, the premises costs payable is the lower of the current market rent fixed in accordance with Schedule 2 or the “actual lease rent the premises plus VAT”.

Premises payments under PMS contracts

The PMS Regulations contain detailed provisions relating to the terms of PMS contracts but make no provisions relating to the amounts that GP practices are to be paid for providing premises from which to deliver NHS primary care services. Accordingly, the amounts paid to a GP practice in respect of premises are a matter of the construction of the contract, not a matter of statutory arrangement.

Many PMS contracts incorporate premises payments in accordance with the Directions.  If the contract provides this, the premises payments are governed by the Directions in the same way as if the practice held a GMS contract.

Other PMS contracts are entirely silent about premises payment but it is possible to show an established practice of paying premises payments as if the Directions applied.  In such a case, it may be possible to establish an implied term (or a term by rectification) that premises payments are governed by the Directions.

Other contracts express a fixed sum for premises payments, which can then be renegotiated annually.

Where the PMS contract is unclear, working out what the contract provides in respect of premises payments can be far from straightforward.  This can be a legally complex area because of the intersection of private law contractual principles and public law statutory frameworks. In National Health Service Commissioning Board v Silovsky & Anor [2017] EWCA Civ 1389, the GP practice sought to rely on the strict terms of the contract and NHS England argued that the Directions should be incorporated by way of an implied term. The Court of Appeal sided with GP practice, enforcing the strict terms of the contract as agreed between the parties as if it were any other form of commercial contract.  The important message from that case is that premises payments for PMS contracts were held to be governed by the terms of the PMS contract, not by the sums that would have been payable if it was a GMS contract.

Premises payments under APMS contracts

Premises payments under APMS contracts follow the model of PMS contracts, so it all depends on what the wording of the contract provides.

For more details about funding issues around GP premises, please download the recent webinar given by Justin Bates and David Lock QC which can be accessed here.

David Lock QC is a specialist practitioner in this area. He has advised NHS bodies for 20 years, is one of the authors of NHS Law and Practice with Hannah Gibbs and is a visiting professor in practice at the London School of Economics.  He was counsel for the successful GP practice in National Health Service Commissioning Board v Silovsky & Anor [2017] EWCA Civ 1389.

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