Ask The Experts - Premises Value

Published:04/02/2011

Question

We are husband and wife GP partners and we are hoping to sell our branch surgery to another practice. The surgery has just been valued as medical premises at £201,000 (the open market value is £78,000). We get £16,000 a year in notional rent funding. In 2007, we put the building into our self-invested pension plan (SIPP) at £215,000, the amount it was valued at that year. The other practice is offering us more than £100,000 less than the latest valuation figure on the grounds that, in five years’ time or sooner, notional rent may not be available or the building may not be approved for it. If we accept this offer, we would lose a massive amount of our SIPP’s value. What is a fair argument to get a price fairly close to the surgery’s current value as a going concern? It is mortgage free and the next rent review is due in two or three months. Should we seek another buyer?

Answer

The Market Valuation of a surgery is dependent upon its current and potential use. Thus, whilst a surgery is deemed to be suitable for its purpose, and in the eyes of the GPs and PCT has a continued medical use for say 15 - 20 years, it will retain a value very much based on its value as a surgery. However, as continued use becomes less certain, either because small Practices are amalgamating or because of lack of compliance of the building, the surgery value can start to rapidly fall away and in its place one has started to look at alternate use value. I would guess that it is this that is causing the very large difference in the value of your property as a doctors’ surgery (£195,000) and the “bricks and mortar” or alternate use value at £75,000 (which of course may well also take account of conversion costs).

From your note, and subsequent advice, I understand that the existing premises had a fairly extensive refurbishment about 18 years ago and a further update about 2 yeas ago and that, in your view, does indeed have an ongoing use as a doctors’ surgery. Having regard to the various uncertainties within the NHS, the potential purchasers are taking a different view and questioning its future need. It is clearly this doubt as to the future use that is resulting in the problem. It’s impossible to actually determine 100% the future use of a surgery but my initial inclination would be that liaison is necessary with the PCT as they should have an Estates Plan. If that Estates Plan (or Strategic Services Delivery Plan) incorporates the ongoing of the subject surgery, then I see no reason why the value should relate to, or close to the alternate use value.

One alternate that you may wish to consider is remaining as landlords of the property and leasing the building to the purchasing doctors. Clearly in order to maintain your investment value, you should look to create a lease for as long a term as possible (15 years would be ideal).