What’s the difference between Notional Rent and Cost Rent and how are they set?

Notional Rent and Cost Rent are both forms of reimbursement under the Doctors Rent and Rates Scheme. The Doctors Rent and Rates Scheme is a framework for establishing the funding and reimbursement to GPs for the provision of premises and services on behalf of the local PCT.

Whilst existing premises are due reimbursement by way of Cost Rent, this form of reimbursement is no longer available to new premises. Cost Rent is effectively linked to the cost of funds in the construction of a new surgery building and as such it is personally linked to the partners who are responsible for the loans. Should the structure of the finance change, it is incumbent on the practice to notify the PCT of this so that the Cost Rent can be adjusted accordingly.

Notional Rent is a more market based approach to reimbursement. A rate per metre squared is set for the premises in comparison with other similar properties in the area. This is then applied to the total floor area of the premises which results in the reimbursement level for that property.  Notional Rent is reviewed once every three years when the District Valuer is asked to inspect the premises by the PCT.  The District Valuer will measure the premises (if not already measured on previous inspections) and then decide on a valuation having regard to other properties. They then issue their valuation to the practice and if, at this point, it is felt that the valuation is too low, the practice may appoint a surveyor to act on its behalf to negotiate with the District Valuer to achieve the correct level of reimbursement for the premises.

This negotiation could take place on both the rate per metre squared set by the District Valuer as well as the floor area measured. The valuation will also include a rate per car parking space which can also be negotiated.

On new build surgeries, the Notional Rent needs to be set prior to the construction of the premises in order to ensure that funding is available. In these situations, the District Valuer will review a full set of plans to calculate the floor areas and will also review the specification of the fit out. He/she will then decide upon the valuation in much the same way as for existing premises. However, bearing in mind the importance of achieving the right level of income, it is a good idea to instruct a surveyor to work alongside the District Valuer and to negotiate on the practice’s behalf.

About Tom

Tom advises a range of clients on a day-to-day basis both in the commercial and healthcare property sectors. He specialises in rent reviews, dispute resolution and surgery valuations, with a particular specialism in pharmacy rental values. He's currently advising Local Medical Committees on how NHS changes will affect practices occupying NHS owned premises. When he's not at work, he's kept very busy by his three small boys!

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