Commercial property advice - a STEP in the right direction

Good quality specialist healthcare has become an attractive commercial property option for investors with greater margins and longer term occupancy than many other business sectors, says commercial property director Lisa Davison. But the route around funding, refinancing and restructuring of portfolios and development financing can be complicated for property investors, GPs and other care providers in the primary, secondary and specialist healthcare industry - even for those with previous experience of commercial property. Firstly, healthcare services are generally exempt from VAT.  No VAT is charged but also no recovery of VAT is incurred and for this reason healthcare companies are not VAT registered. This is a hurdle for healthcare developers and investors who incur VAT expenses in purchasing and developing healthcare premises without the means of recovering that output tax, and therefore makes developments expensive. To combat this effect, developments and refurbishments of healthcare premises need to be structured in the most tax efficient manner from the very outset. Stamp Duty Land Tax (SDLT) is also payable on the VAT inclusive purchase price of land/property. Unfortunately this tax element is not recoverable, whether or not the purchasing entity is registered for VAT. As with all commercial property, the rate of SDLT will depend on the purchase price of the property, including the VAT element. My work over the last 10 years has kept me up to date with the practical and technical aspects of developing healthcare premises and my most recent involved working with three Sheffield-based healthcare entrepreneurs from STEPS Rehabilitation to make their idea a reality. STEPS was acquiring and developing a plot of land on a 3.4 acre derelict site. Its plans for the rehabilitation centre will form the first part of a specialist healthcare and retirement hub which is hoped to finally include a retirement village, doctors' surgery, pharmacy, an 80-bed nursing care home, dementia care facilities, 31 sheltered apartments for the over 65s and a special needs independent living unit. As first time developers, my job was to guide them through specific healthcare property tax issues and the formation of a development vehicle and structure to buy and develop the piece of land. New premises developments lead by healthcare practices, developers or those which are NHS funded are generally complex and high value transactions, which can prejudice the future financial integrity of the practice if not expertly handled. This is particularly true when the development is to be shared with other occupiers as with the STEPS project. Agreement of the transaction in this case was conditional on obtaining planning permission. It is an essential part of site assembly to ensure any agreement is conditional upon obtaining planning permission satisfactory to the buyer, and to ensure that significant expenditure is not incurred prior to any agreement becoming unconditional. To assist with the initial site assembly process and guarantee that essential services and access are available to the site, it may be advisable that completion funds are released in phased payments - once each phase of site assembly has been completed. An escrow account can assist with this. In terms of funding such project and ongoing management of healthcare facilities, the NHS budget is of course tightly controlled and the nature of this can create pressure at all levels. NHS property services continues to review its lease portfolio and structure - requesting shorter tenancy terms, limited rent reimbursement and increasing pressure for the integration of hospital and community services.  It is therefore important for legal advisers to understand the legislative and regulatory framework surrounding these matters at all levels. The use of regional and national funding can also be an important tool for developments within this sector. STEPS was successful in securing a substantial grant from the Regional Growth Fund, administered by Sheffield City Council, to help create the 60 new employment opportunities that the facility will bring. With development budgets ever tighter, surely advice on funding options should not be ignored. Whenever I take on a new job I am always interested in the specific sector the client operates in and this occasion was no different. My work with Ray Boulger, Jules Leahy and Toria Chan from STEPS means their dream of a state-of-the-art neurological and orthopaedic rehabilitation and recovery centre will become reality. Research has shown a strong need for dedicated rehabilitation services for working aged adults who have suffered neurological trauma. STEPS aim is to harness patients' individual drive and desire, add commitment and care, to achieve optimal results. I cannot help being enthused about this development and having been involved in the plans for the facility, which will offer 23 beds and feature a rehabilitation gym, hydrotherapy pool and cafe, I have already been on site to see the demolition guys hard at work - the build project is just 34 weeks. If you have a development plan across the primary, secondary and specialist healthcare market and want advice on the purchase, development and refinance of new and existing healthcare centres, residential care or nursing homes, please get in touch.