1. Background

NHS England standing financial instructions (SFIs) allow for capital grants to be made using specific powers under the NHS Act 2006 for Investment into GP Premises in accordance with any relevant legislation.

This grant policy sets out the framework and guidance for application when making any said capital grant noting the requisite legislative powers and conditions that are required to be applied.

Applies to all primary care premises capital grants regardless of the source of capital.

2. Scope

NHS England holds the function of capital expenditure regarding primary care as set out in the Delegation Agreement with Systems and can make grants to primary care developments using the following powers:

• NHS (general medical services [GMS] – premises costs) directions 2024
• Section 2 NHS Act 2006
• Section 223 NHS Act 2006

3. Premises improvement grant

Powers – NHS (GMS – premises costs) directions 2024

When a contractor identifies the need for improvements such as alterations or an extension to existing premises, this will be governed by the NHS (GMS – premises costs) directions 2013 (PCDs). The PCDs set out the terms and conditions of an improvement grant.

An integrated care board (ICB) can make non-recurrent grants for premises improvements in line with the requirements set out in the PCDs; specifically part 2, directions 7-13.

3.1 Part 2 – Premises development and improvements

This section should be read in conjunction with the NHS (GMS – Premises Costs) Directions 2024

3.1.1 Direction 7 – Premises development proposals

7(1) Where a contractor has a proposal for any of the following:

1. the building of new premises to be used for providing primary medical services
2. the purchase of land or premises or both to be used for providing primary medical services
3. the development of premises which are used or are to be used for providing primary medical services (or for significant changes to existing development proposals)
4. the sale and lease back of premises used for providing primary medical services
5. the increase of the existing floor area of premises used for providing primary medical services which would lead to an increase of a payment made to the contractor under these directions, or
6. premises improvements, which are to be the subject of a premises improvement grant application, and it puts that proposal to the board as part of an application for financial assistance in respect of the proposal

NHS England must consider that application.

NHS England may only consider an application where the contractor has provided, in accordance with Standard Operating Procedures, a Project Initiation Document (PID)

Where NHS England agrees to fund a proposal;

(a) it may provide funding in the form of a capital grant or reimbursement of recurring premises costs.

(b) where funding is provided in the form of a capital grant, NHS England may require the contractor to enter into a grant agreement which includes all conditions attached to the grant.

7(2) Subject to direction 32 (4) the board must not agree to fund any proposal under paragraph (1) where:

1. a contract has been entered into, or
2. work has been commenced, and that contract or work has not been subject to prior agreement with the board

3.1.2 Direction 8 – Projects that may be funded with premises improvement grants

The types of premises improvement projects that may be the subject of a premise improvement grant include:

• improvements to practice premises in the form of building an extension to the premises (including the acquisition of land necessary for the extension, bringing into use rooms not previously used to support delivery of primary medical services or the enlargement of existing rooms
• improving physical access to and within practice premises
• refurbishment of a building not previously used for the provision of primary care but may be used as a practice premises on a temporary basis.
• improvements which are necessary to meet infection control or decontamination requirements at practice premises, including the installation of specialist floor covering in areas used for the treatment of patients

3.1.3 Direction 9 – Projects that must not be funded with premises improvement grants

The following must not be funded with a premise improvement grant:

• any cost elements in respect of which a tax allowance is being claimed
• the cost of acquiring land, existing buildings or constructing new buildings (other than for the purpose of the improvements referred to in Direction 8 or the purpose of fit out)
• the repair or maintenance of premises, or the purchase, repair or maintenance of furniture, furnishings, floor covering (with the exception of the specialist floor covering) and equipment
• restoration work in respect of structural damage or deterioration
• any work in connection with the domestic quarters or the residential accommodation of practitioners, caretakers or practice staff, whether or not it is a direct consequence of work on surgery accommodation
• any extension not attached to the main building by at least a covered passageway
• improvements designed solely to reduce the environmental impact of premises, such as the installation of solar energy systems, air conditioning, or replacement windows, doors or facades
• any work made necessary because of fair wear and tear
• any costs associated with compliance with minimum standards

3.1.4 Direction 10 – Initial consideration of premises development or improvement proposals

Prior to determining whether a contractor’s proposal for an improvement grant should be considered, the commissioner must:

• consult with the local medical committee about the proposal
• be satisfied that the proposal:
  • is required to support, and will support the delivery of services that the contractor has agreed to provide under its GMS contract, and
  • will provide a safe and secure environment for the delivery of those services
• be satisfied, in conjunction with the district valuer, that the proposal represents value for money

If the premises are held on lease or licence, the commissioner must:

• have assurance that the contractor has security of tenure, and for premises held on a lease that the remaining lease term is at least as long as the period of guaranteed NHS use (see direction 10), and
• have assurance that a contractor intends to occupy the premises for at least as long as the period of guaranteed NHS use and will enjoy protection under Part 2 of the Landlord and Tenant Act 1954 for that period
• satisfy itself that (regarding any relevant standards issued by the secretary of state and, where a contractor proposes to depart from those standards):
  • the departure is reasonable in the circumstances, and
  • the premises will nevertheless meet the minimum standards as set out in schedule 1 of the PCDs

3.1.5 Direction 11 – Documentation required in respect if premises developments or improvements

• the contractor provides necessary supporting documentation such as architect plans, architect’s specification of works, quantity surveyor costings, room data sheets and/or similar documents for the development or improvement
• the contractor (or the appointed adviser appointed by the contractor):
  • must carry out an open tender process for a building contractor to undertake the work, normally resulting in at least three written quotes; and
  • must agree with NHS England (or the ICB, where appropriate) which of those written quotes represents best value for money
• the contractor identifies, obtains, and supplies all statutory consents including but not limited to; planning, building regulations, and CDM consents noting that any omissions are the sole responsibility of the contractor.
• if the development or improvement is to premises that are held on a lease, the contractor must provide a copy of the landlord’s written consent for the work to be undertaken (where required by the lease).
• contractors ensure legally that any improvement works carried out and funded with NHS capital in leasehold premises are as listed as ‘tenant’s improvements’ under a licence for alterations and excluded at any future rent review by the landlord.

3.1.6 Direction 12 – Priority funding projects and conditionals attached to payments

• the commissioner must agree a project plan with the contractor
• the project plan can only be agreed if the following conditions are met:
  • it includes an improvement grant payment schedule to be included in any payment schedule in the contractor’s GMS contract
  • it includes a condition that payments are dependent on the contractor not significantly departing from the finalised project specifications, without consent
  • it includes a condition that the contractor guarantees a defined period for providing NHS services – dependent of cost of improvement
  • it includes a condition that a proportion of the grant will be repaid where the guaranteed period is not completed; the repayment process is defined in section 13 of the PCDs

3.2 Improvement grant documentation

All due diligence for a premise improvement grant is to be completed by the GP contractor prior to any approvals being given. The following is required:

• project initiation document (PID) or business case (as required), signed by practice partnership, including:
  • ensuring that all premises data is up to date on the primary care data gathering (PCDG) SHAPE Atlas
  • using evidence from the PCDG, the primary care network toolkit and the prioritisation matrix for clarity of decision making for estates investment
  • ensuring alignment with the primary care network estates needs assessment
  • ensuring alignment with the integrated care system strategy
• evidence of full planning permission obtained (if required); if application is awaiting approval, the scheme cannot be signed off until approved
• architect drawings (by qualified individual) showing existing and proposed layout with room sizes
• project timeline showing expected completion date and spend analysis
• ‘before’ photos
• landlord approval (evidence) – if required (lease must be in place in line with premise directions with appropriate security of tenure)
• project total with breakdown of figures including:
  • build cost, including VAT
  • management fees (evidence required)
  • building regulations/planning/architect (evidence required)
• programme with timescales
• evidence of tender process showing a minimum of 3 bids, including specification of works to evidence that all quotes are to the same specifications and must include all elements of the build
• interim district valuer assessment of the increased rent
• VAT registration (if applicable)

3.3 Improvement grant approval documentation

There is a need to secure capital investments more appropriately and restrictions on title and legal charges will be required.

All schemes will be required to submit a fully completed and signed PID or approved business case along with:

• the relevant grant agreement, signed by all practice partners and the ICB
• a due diligence approval form (or similar) signed by the ICB and the regional lead for the programme, confirming the scheme has satisfactorily completed all the required due diligence, and accepting any additional revenue consequences arising from the scheme

The above will then be submitted to NHS England for final approval in line with the SFIs for capital expenditure.

Types of grant agreement:

• freehold project grant agreement (without an associated legal charge)
  • for use in respect of lower value grants for GP-owned premises, where NHS England is satisfied with the practice’s financial covenant strength
  • this form of grant still requires that a restriction is registered against the property’s land registry title
• freehold grant agreement (for use with a legal charge) and the associated legal charge
  • for use in respect of higher value grants for GP-owned premises
• leasehold grant agreement
  • for use where the premises are leased by the practice

For best practice:

• national support will be offered in novel or contentious cases if required
• ensure nationally agreed template documents are used. These can be requested at gppremisesfund@nhs.net
• draft agreements must be shared with contractors early in the process
• where necessary appoint legal advisors early in the process
• payments must not be made until all grant documentation is agreed and signed

4. Section 2 contract

Powers – Section 2 of the NHS Act 2006

Section 2 of the NHS Act (2006) allows NHS England to enter into contracts which are calculated to facilitate NHS England’s functions under Section 83 of the NHS Act 2002.

Section 2 is a general power and section 83(2) specifically confers such powers (as provided under section 2) to enter into contractual arrangements to secure the provision of primary medical services.

In perspective, section 2 should not be used for the purpose of circumventing limitations on other available powers that contain specific provisions related to the powers under section 2.

For example, where specific powers already exist under the premises costs directions and is explicit in its instruction, section 2 will not be used to bypass that specific power.

This has been previously defined in the use of section 96 of the NHS Act 2006 and direction 6 of the Premises Costs Directions 2013.

The specific conditions that must be in place to make use of section 2 are:

• the local authority must own the land on which it is to develop the facility – to avoid procurement challenges. In addition, the local authority must be developing the scheme
• the local authority must retain the land/asset over the life of the contract to provide the NHS with the relevant security over investment
• the space that is subject to the contract must be for the delivery of primary care services
• the contract is a contract for goods

Legal advice must be sought on the section 2 contract – using the standard template agreement documentation and the lease terms. This should be secured via the Primary Care Estate national team to ensure consistency of approach and central oversight of the transaction.

4.1 Section 2 approval documentation

Business cases should be submitted using the standard templates, supported by the section 2 legal documentation. Documentation should include the section 2 contract, lease documents, together with a legal report completed by the appointed solicitors.

These should then be submitted through the usual approval routes, concluding with sign-off from the National Chief Financial Officer (CFO).

Template section 2 contracts will be drafted to reflect specific terms of the scheme, including standard nominations terms and warranties.

Typically, the local authority will draft the lease documents, but NHS England has offered to draft these to link to the terms of the section 2 contract.

5. Section 223 – financial provision agreement

Powers – Section 223 of the NHS Act 2006

NHS England can provide capital and/or revenue funding under section 223 of the NHS Act 2006 to NHS Property Services Limited and Community Health Partnerships Limited for investment in primary care projects.

NHS Property Services Limited and Community Health Partnerships Limited are companies formed under section 223(1) of the NHS Act 2006.

Section 223(2) gives the Secretary of State for Health and Social Care and NHS England wide powers to make financial provision to or in respect of these companies.

This financial provision could take many forms and may be capital or revenue funding. For example, section 223(2) can be used to enter into a form of contractual arrangement for delivery of new schemes, akin to the section 2 local authority delivery route; albeit the VAT and accountancy implications would need to be carefully considered in line with the NHS SFIs.

NHS England will enter into a section 223 – financial provision agreement, which will require executing as a deed.

Section 223(2) does not give the express power to make a grant to the companies and this means that using the sub-section to provide grant funding carries greater risk.

Section 223(2) can be used to fund costs incurred by the companies, by way of subvention or subsidy payment, however, further consideration would need to be given to the implications of the new ‘subsidy control mechanism’ that has replaced EU state aid.

For all the various options, separate accountancy and tax advice will be required.

5.1 Section 223 approval documentation

A business case or PID (as appropriate) should be submitted using the standard template agreed with NHS Property Services, supported by the section 223 contract, together with a legal report completed by the appointed solicitors (if applicable).

These should then be submitted through the usual approval routes, concluding with national CFO sign-off of the section 2 agreement.

Template section 223 contracts will be drafted to reflect specific terms of the scheme.

6. Conflict of interest

For best practice, a governance process must be in place to manage any potential conflict of interest which could be deemed or assumed to affect decisions made in respect of improvement grants to GP contractors.

The commissioner must:

• ensure NHS England conflict of interest policy has been adhered to
• confirm that the project has been tendered in line with procurement rules
• ensure the tender return form is completed and signed by the lead partners for the project
• maintain a register of declarations

NHS England cannot recommend organisations.

Professional advice on the appointment of an architect/building surveyor may be obtained from the Royal Institute of British Architects (RIBA) or Royal Institute of Chartered Surveyors (RICS). All independent advisers must tender in accordance with the premises costs directions.

See appendix 1 for Tender return form template.

7. Roles and responsibilities

7.1 Role of GP contractor

• identify a senior responsible officer (SRO)/lead partner for the scheme, who will be responsible for ensuring all necessary due diligence and required documentation is completed
• complete PID/business case
• complete required due diligence and comply with the PCDs, all other relevant legislation and guidance
• formally declare in writing any conflicts of interest
• document any VAT that may be reclaimed

Once the contractor has received an offer, they will consider:

• the terms of the grant
• any abatements, conditions or exclusions included in the offer of the grant
• the recurring premises costs implications of any improvement

They will then decide to accept or decline the grant.

The contractor should notify in writing NHS England’s local team – or the ICB, where appropriate – of their acceptance (or otherwise) within 2 weeks of the offer being made.

In some circumstances, the contractor will require further information from NHS England or the ICB prior to final confirmation of acceptance. They should request this information from NHS England or the ICB as soon as possible after the offer has been received.

The contractor shall be responsible for entering into the works contract with the developer in a form approved by NHS England or the ICB where commissioning responsibility has been delegated.

The practice will be asked to self-declare compliance – see appendix 2.

7.2 Role of system

• appoint an SRO for the programme if required
• undertake a review of all submitted bids and prioritise accordingly, in line with local governance arrangements
• the ICB will formally advise all bidders of the outcome of the prioritisation process. Successful bidders will complete all required due diligence
• agree a project plan with the contractor
• the commissioner can grant up to 100% of the costs. A process should be developed to assess each proposal to identify the percentage grant
• complete the grant agreement including the following conditions:
  • payments are dependent on the contractor not departing significantly from the finalised project specifications without consent
  • the contractor guarantees a defined period for providing NHS services – dependent of cost of improvement
  • a proportion of the grant will be repaid where the guaranteed period is not completed

7.2.1 Grant approvals process

Prior to determining whether a contractor’s proposal for an improvement grant should be considered, the system must:

• consult with the local medical committee about the proposal
• be satisfied that the proposal:
  • is required to support and will support the delivery of services that the contractor has agreed to provide under its GMS contract
  • will provide a safe and secure environment for the delivery of those services
  • satisfy itself, in conjunction with the district valuer, that it represents value for money
• have the following assurances if the premises are held on lease or licence:
  • the contractor has security of tenure, and for premises held on a lease, the remaining lease term is at least as long as the period of guaranteed NHS use (see direction 10)
  • a contractor intends to occupy the premises for at least as long as the period of guaranteed NHS use and will enjoy protection under Part 2 of the Landlord and Tenant Act 1954 for that period
• (regarding any relevant standards issued by the secretary of state and, where a contractor proposes to depart from those standards) satisfy itself that:
  • the departure is reasonable in the circumstances
  • the premises will nevertheless meet the minimum standards as set out in schedule 1 of the PCDs
• ensure that the SHAPE Atlas is maintained and kept up to date to enable decisions to be made based on population need
  • Grant management
• maintain a scheme register of all schemes – including whether supported/declined
• track approvals and expenditure ensuring all claims for payment made by the practice are within the limits of the grant and evidence of invoices/spend/payment are provided
• ICB team will need to reassure itself that the project is completed as per the submitted drawings and specification
  • for larger schemes, formal practical completion certificates will be required and the instruction of the district valuer to undertake a practical completion inspection is preferred
• on completion of the scheme all outstanding payments will be made, and the scheme will be formally closed
  • where it has been agreed that there is to be a contract retention in respect of the works, NHS England and the ICB should agree to place that funding with the practice and follow up at the 12-month point to confirm that funding has been paid over, or to seek return of unspent funds
• where a recurring premises costs increase has been agreed this will be put in place on completion of the of the improvement proposal
  • abatements are to be applied in line with the PCDs
• post-project evaluation completed after 6-12 months of the scheme becoming operational
• develop a local primary care grants policy

7.3 Role of the region

7.3.1 Grant approvals process

• ensure due diligence is completed and schemes are compliant with relevant legislation and guidance, PCDs, HBN 11-01
• oversee the grant approval process
• ensure the approval documentation is completed correctly and approvals in place

7.3.2 Grant management

• ensure the systems maintain a full scheme register, including schemes supported/declined
• track approvals and expenditure
• ensure post-project evaluation completed after 6-12 months of the scheme becoming operational
• ensure the systems have a primary care grants policy

7.4 Role of the national team

• appoint SRO if a national programme
• provide oversight and advice to ensure a consistent approach
• all potential section 223 and section 2 contractual arrangement proposals should be flagged to the Primary Care Estates national team to benefit from best practice and general advice and central procurement of legal advice for consistency of approach
• in accordance with NHS England’s SFIs the following approval levels are required:

8. When should a legal charge be applied?

8.1 Improvement grants

If the GPs own the property, then as a condition of receiving the grant the GPs are required to enter into a grant agreement and legal charge with NHS England.

The purpose of the legal charge is to ensure that if the GPs later sells of the property, NHS England will secure repayment of the grant.

The GPs are obliged by the grant agreement to register the legal charge against the title of the property.

The registration of the charge against the title notifies anyone proposing to take an interest in the property (such as a prospective buyer) that NHS England also has an interest and needs to provide its consent to the registration of any further interests in the property.

The existence of the charge on the title also instructs the land registry not to register any dealings without NHS England’s consent. This means that the Land Registry will notify NHS England if it receives an application for registration without a consent.

If the grants are being made to GPs and their developer/property company is constructing a new GP surgery, the GPs are required by the grant agreement to enter into a lease with the developer and register to a restriction against the title of the property.

If a property being leased by GPs requires improvement, NHS England can make a grant to the GPs under section 96 of the Act; and under the terms of the grant agreement, the GPs are obliged to apply to the Land Registry to register a restriction against the title of the property. This will prevent the registration of any dealings with the property without NHS England’s consent.

These restrictions have the same effect as those registered against council owned properties.

Charges and restrictions registered against titles are only removed if:

1. The grant is repaid.
2. In the case of leaseholds, the rent abatement period ends.

However, NHS England may agree to the transfer of the property subject to the charge or restriction.

Where the grant is less than £144,000 a Restriction on Title will be required. For all schemes above this value a Legal Charge will be required.

8.3 Section 2

The local authority or statutory body must own the freehold of the property and intend to develop the premises for primary care.

As a condition of the grant, local authorities are required to enter into a grant agreement with NHS England.

The grant agreement obliges the local authority to register a restriction against its property title.

The restriction prevents the local authority from registering any dealings with the property (for example, transferring the freehold) without NHS England’s consent. NHS England can either consent to the transfer of the property or require repayment.

Publication reference: PRN01244_i