Property diversification for healthcare providers: utilising empty space
At a time of increasing demand on their services, the NHS and healthcare providers are facing unprecedented funding challenges, and it is now even more pressing to ensure resources are managed carefully and fully utilised. A significant and overlooked resource is the property out of which the provider operates.
It is not uncommon for even the smallest operator to share building space with others or to have vacant or surplus property. Providers can utilise any empty space by letting it or sharing it with another. In some circumstances, it will be appropriate to dispose of property. Equally empty space can be utilised to enhance healthcare provision, perhaps by developing new facilities.
Vacant space scheme
The NHS Property Services (“NHSPS”) recently launched a vacant space scheme. The scheme allows commissioners to pass the liability for vacant space back to NHSPS. The service will then use their expertise to re-use the space via re-letting, disposal or development. This may be an option for some providers who have property in which NHSPS has a legal interest. The scheme is subject to various eligibility criteria. For example, the property must be self-contained and deemed marketable and lettable and cannot be subject to an onerous lease or PFI.
The importance of documenting arrangements
If the NHSPS scheme does not apply and empty space is to be utilised by a third party, the correct documentation needs to be in place before they take occupation. If a third party is already in occupation without such documentation, it is essential to regularise the position as soon as possible.
The document should set out each party’s obligations with regard to matters such as the permitted use, repairs, decoration and insurance. This will gives providers control and prevents disputes arising in the future. In the absence of correct documentation, it may unintentionally grant the third party statutory rights which make removal of the occupier extremely difficult and costly.
A well drafted document will prevent the landlord being exposed to undue risk and will help ensure a clean income stream.
Before utilising any space, it is also important to ensure that any necessary third party consents are obtained. This may include those from a mortgagee or from a landlord if the premises are being occupied pursuant to a lease. It is common for a landlord and mortgagees to prohibit sub-letting or sharing the property without their permission. If a provider proceeds without such consents it could be in breach of its lease or mortgage which could lead to enforcement action being taken.
It is estimated that the cost of maintaining vacant space in the NHSPS estate is in excess of £10m a year. This is despite the NHSPS estate accounting for less than 15% of the entire NHS estate. There is clearly a great deal of potential for cost saving and utilising unused space which may prove a useful way of achieving additional income for healthcare operators. We recommend that all healthcare providers consider undertaking a strategic review of their estate by their in house team or a surveyor. Any proposals arising from such a review should be discussed with a solicitor to advise on the viability of the proposals and the steps required to bring it to fruition.