Health and Social Care Act 2012
20 April 2012
It has taken almost a year, but the Health and Social Care Bill finally received Royal Assent on 27 March to become the Health and Social Care Act 2012 (Act). The Act provides for the abolition of all 10 strategic health authorities (SHAs) and circa 150 primary care trusts (PCTs) by April 2013. PCTs are due to be replaced with a combination of locally-led clinical commissioning groups (CCGs) and the NHS Commissioning Board (NCB).
One aspect of these reforms which remains to be finalised over the next 12 months relates to the SHAs' and PCTs' estates and estates related contracts.
What is the latest position?
On 25 January, the Secretary of State for Health's written ministerial statement confirmed his intention to transfer the PCTs' estates to the newly incorporated NHS property company, NHS Property Services Limited (PropCo).
- Estates linked to clinical services will transfer to the NHS service providers, but generally all remaining assets will move across to PropCo. This builds on the estates guidance issued in August last year.
- The objectives of PropCo include consolidating management to cut costs, developing cost-effective property solutions and disposing of surplus property. The statement also confirmed that contracts with existing service providers are to remain in place.
Subsequent guidance has been issued on the interim management of the circa 550 SHA and PCT administrative estates until PropCo assumes control of the portfolio and on the accounting and financial implications of (PCT) estate transfers. However, these do not advance our understanding of PropCo from the January position.
So where does this leave parties interested in the NHS estate?
a. Current leases/occupation arrangements will need to be transferred and, as such, public, private and third sector tenants may find their landlord has been replaced by PropCo. The recent guidance requires intra-NHS transfers in respect of clinical related estates to be achieved through statutory transfer orders, which normally by-pass the alienation provisions of any lease. However, the recent guidance and the draft transfer order do not reference transfers to PropCo. We assume there will need to be transfer orders of property to PropCo, but this is yet to be confirmed.
b. The widespread view is that PropCo will not be funded by Government; instead it will be expected to survive by maximising its property portfolio. The immediate concern for all tenants must be whether the change in landlord leads to significant hikes in rent payments to help PropCo build up some working capital.
a. If leases are transferred to PropCo by way of statutory transfer orders, then these normally negate the alienation provisions of the lease and the need for landlord's consent.
b. PropCo is currently a limited liability company, but what financial covenant will PropCo have as a landlord's new tenant?
a. There is still some uncertainty whether or not the PCT's role as tenant under Lease Plus Agreements (and ancillary documents) will be transferred to PropCo. After initial views that this was the most likely course of action, many think that the LIFT tenancies (the majority of which relate to GP premises) could instead transfer to the NCB. The rationale being that, as the NCB is to assume responsibility for commissioning GP services, it makes sense for the NCB to be responsible for the GP premises.
b. If the LIFT tenancies are transferred to PropCo, the issue of PropCo's covenant will be particularly important to LIFTCos/FundCos and funders under the various LIFT deals across the country. What assurances will be given on how the lease plus payments will be funded by PropCo? Will there be some form of payment guarantee (in place of an EFDA certificate from the Secretary of State)?
c. What will happen to a PCT's shares and sub-debt in the LIFTCos/FundCos? The Act does not expressly give the NCB the right to invest in these deals, so will they be transferred to PropCo or possibly Community Health Partnerships?
d. Presumably DoH, NCB and/or PropCo will want to review the extent to which the exclusivity provisions in the various Strategic Partnering Agreements bite on the NCB or PropCo (if at all).
Service providers to SHAs and PCTs
a. There is certainty in the short-term insofar as all existing office support and facilities management contracts are due to remain in place. However, it is likely that transfer orders will be used to move all non-property assets and liabilities (staff and contracts) across to PropCo, which may supersede any contractual provisions on assignment.
b. Any new contracts or extensions need notification to, and the approval of, the FM Category Board (FMCB) of the Government Procurement Unit (GPU).
c. Going forward, there may be opportunities from PropCo (subject to FMCB approval) allowing national or regional frameworks to drive greater value for money across this section of the NHS estate.
Developers / Property investors
a. There is clearly a need for estates rationalisation over the coming years. SHAs are currently encouraged to dispose of properties with the highest per metre square cost (subject to approvals) and identify surplus property / potential disposals to the GPU at the earliest possible date (including by way of updating the Register of Surplus Public Sector Assets).
b. It is unlikely that any firm decisions will be made on longer-term estates strategy until there is more certainty as to the portfolio inherited by PropCo. Therefore, the extent of the role of the private sector in supporting PropCo in this opportunity is less clear at this stage.
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