Financial Considerations of Merging - Premises Issues
27.03.2018 , BY Kate Perry
27.03.2018 , BY Kate Perry
As we discussed in our last issue, we are seeing more and more practices starting to consider merging with one or more other local practices. Last time, we looked at financial issues but, this time, we are going to look at premises issues.
The first decision to make is whether to combine all the practices onto one site or whether each practice will continue to practice from their current sites.
Combining the practices onto one site is going to be the most financially efficient solution, as this will allow for significant economies of scale, particularly with regard to staff. However, unless you are looking to all move into completely new premises, this is unlikely to be practical as space will normally be an issue and no one site is likely to be large enough to accommodate all practices.
Unless you all move into a new health centre, we most often find that each practice site will remain open, at least for the foreseeable future. Sometimes this will also be because the sites are at too great a distance from each other for patients to travel.
Keeping all sites open can be beneficial to some patients who may find that another site is actually closer or more convenient to them than their previous surgery.
If all sites are to be kept, then the next decision is whether to buy into each other’s property and/or sign each other’s lease. To keep everything equitable, this is often the best solution.
Leased premises can have different provisions, however, the majority are full repairing and insuring leases. The significance of such a lease is that the lessees are responsible for maintaining the building inside and out. Therefore, any new partners signing up to the lease will need to consider the state of the property. It is likely that they will want it to be put back to the state it was when the lease was first signed, i.e. they will not want to find that they become responsible for dilapidations which relate to a time prior to the merger. In this case, work may need to be carried out to get the building up to standard and the current lessees and possibly partners who may leave before the merger occurs will need to be responsible for this.
The rent and term of the lease will also need to be considered if the lease is due to be renewed.
There are several different issues which need to be considered when looking at buying into each other’s properties and these are as follows:
N.B. Do note that any changes to a mortgage, particularly in a PMS practice, can have an impact on the rent reimbursement which may have been set to match the high interest payments at the time when the original mortgage was taken out.
The bank will almost certainly require a profit projection of the merged partnership before they consider offering a mortgage, so consideration as to how this will be done needs to be made.