Service critical NHS property transfers

The Guidance issued by the Department of Health on 4 August 2011 states that aspirant Community Foundation Trusts, other National Health Service Trusts and Foundation Trusts (transferees) are to be given the opportunity to acquire the parts of the PCT estate deemed ‘service critical clinical infrastructure’. On 22 March this year, the Department of Health issued a draft Transfer Order (the Order) which is intended to effect these transfers.  This alert provides guidance in relation to this latest publication from the department .

Immediate actions for transferees

Although not statutorily required, there are a number of immediate actions transferees may wish to consider implementing to ensure they are not disadvantaged by the Order.

1. Ensure a full audit of all occupiers is carried out in respect of the sites to be transferred and make arrangements for these to be documented by way of a lease or licence (as appropriate). Although there has been a substantial drive to have all these occupancies documented under the TCS arrangements there are many areas where this work still needs to be carried out.
2. Carry out an audit of the title to each property to be transferred to understand the nature of the title and any encumbrances existing including overriding interests and title defects.
3. Obtain condition surveys to ensure that works are not required to bring the properties up to the standard required by the Act and to obtain a reference point to ensure that this obligation has been complied with – it is unclear what this standard will be other than in accordance with the Act.
4. Understand the nature and extent of the overage provisions to ensure that any future development plans for the properties are not frustrated by the potential enforcement of the overage provisions.

Transfer

The Order provides that these transfers will be made subject to “any existing rights in the land.”  Furthermore, the relevant NHS Trust (transferee) will be required to take all reasonable steps to ensure that any bodies providing services under the National Health Service Act 2006 (the Act) which “occupy, use or have any other interest in” the property after the date of the transfer may continue to do so to the same extent.

The Order also requires the transferee to transfer the property to the Secretary of State for Health (the Secretary of State) in certain circumstances (as set out below). To protect this interest, the transferee is required to apply to the Land Registry for a Restriction and Agreed Notice to be entered against the title of the property within 28 days of the transfer. If the transferee fails to apply for these entries to be made, the Secretary of State is permitted to do so.

Obligations during ownership

The transferee is required to keep the property in a state of repair and condition that is “consistent with the use of the land for the provision of services under the Act”.

Where the property is leasehold, the transferee is required to comply with the tenant covenants in the lease, to notify the Secretary of State if it receives notice of any breaches and to give the Secretary of State the option to remedy any such breaches at the cost of the transferee. In addition, the transferee of leasehold property must not:

1. enter into any renewal lease without the written consent of the Secretary of State which may require the transferee to give a deed of covenant to comply with the Order.
2. refuse to take a renewal lease nor exercise any break right in the lease without first offering to assign the lease to the Secretary of State or its nominee.

Transfer to the Secretary of State

The transferee (or liquidator) must transfer the property to the Secretary of State or its nominee for nil consideration in the following circumstances:

1. a liquidator is appointed in respect of the transferee.
2. the property (or any part of it) is no longer used to provide services under the Act.
3. the Secretary of State or other competent authority makes a final decision to dissolve the transferee.
4. the contracts of the transferee (NHS or otherwise) to provide services under the Act are terminated or expire without being renewed.
5. the transferee (or liquidator) wish to dispose of the transferee’s interest in the property (or any part of it).
6. there has been a breach of any of the provisions of the Order.

However, the requirement to transfer the property to the Secretary of State does not apply to the following dispositions:

1. a disposition to a statutory body or service supply company in connection with the supply of utilities.
2. a lease of no more than three years granted without any premium and excluded from security of tenure.
3. a disposition to a body providing services under the Act which occupies, uses or has any other interest in the property at the date of the transfer to the transferee.
4. a mortgage or charge of the property to which the Secretary of State has provided written consent.
5. a transfer of part of the property to which the Secretary of State has provided written consent.
6. any other disposition of the property to which the Secretary of State has provided written consent.

The transferee must notify the Secretary of State of any circumstances which give rise to the requirement to transfer the property as soon as reasonably practicable. The transfer must then take place as soon as reasonably practicable thereafter. For further details of the accounting treatment of such transfers reference should be made to the “Guidance on accounting for estate transfers” issued by the Department of Health in March this year.

Secretary of State’s rights of waiver or refusal

The Secretary of State may either refuse to accept the transfer or waive the requirement for the transferee to make the transfer.

The Secretary of State may waive the requirement in the following circumstances:

1. where part(s) of the property are not being used to provide services under the Act.
2. where there has been a breach of any of the provisions of the Order.
3. where a contract of the transferee (NHS or otherwise) to provide services under the Act is terminated or expires without being renewed but where the transferee still retains other such contract(s).

Overage

The Secretary of State may refuse to accept the transfer if it considers that the property should not be transferred to it. In this instance, the transferee (or liquidator) may dispose of the property in accordance with the Schedule of the Order, which contains overage provisions. The amount of overage payable is 50% of the amount by which the “Receipts” exceed the “Base Value”. The “Receipts” are the higher of the amount received for the property and its market value. The “Base Value” is the higher of the net book value of the property shown in the transferor’s accounts at the transfer date or the net book value of the property shown in the transferee’s accounts immediately prior to the revaluation prior to the first disposition. The Secretary of State can elect whether it requires these overage provisions to bind successors in title to the land for a further 15 year period.

The Transfer Order and Overage schedule are complex legal documents and you should seek legal advice to understand what this means for the receiving NHS body.