About Cost Rents

Cost rents were introduced through the Statement of fees and allowances and more particularly the rent and rate scheme and were geared to providing new surgery accommodation either through refurbishment, extension or new build.

The scheme is no longer available however, a number of practices still benefit from reimbursement on a cost rent basis. The principle for the introduction of the cost rent scheme was to enable the funding of surgery premises in areas where reimbursement through notional rent would have been unviable.

The scheme relates to the actual costs involved as opposed to the potential rental levels. This assured the financial viability for the schemes involved.

The cost rent scheme is divided between fixed and variable cost rent schemes with the fixed cost rent being by far the more common. The reference to fixed and variable reflects the interest rates on which costs rents are agreed with many fixed cost rents being based on very high rates reflecting the economic circumstances at the time of the developments. The variable cost rents move in accordance with the movements in interest rates. In view of the fact that interest rates have generally now fallen it has been questionable as to whether practices should remain on a variable cost rent basis and more often than not practices have reverted to receiving rent reimbursement under the notional rental basis. Consequently most cost rent schemes currently in existence are fixed rate. Frequently when a cost rent funded surgery was set up and a fixed rate cost rent was received the practice frequently took out a fixed rate mortgage so that no matter what happened to interest rates the cost rent would pay the mortgage giving the practice some long term security.

However, with the changes in interest rates practices may have been or may be tempted to seek to remortgage at a more reasonable interest rate. However, regard must be had to the fact that under the National Health Service (General Medical Services – premises costs) (England) directions 2004 a practice receiving payments in respect of borrowing costs as a result of a fixed interest loan must advise the Primary Care Trust of any change of lender or any reduction in the level of interest charged on its loan.

Cost rent payments are a contractual arrangement with the Practice and are not tied to the premises.