NHS property services set up to fail
5 Nov 2019 12:58 PM
- NHS Property Services lacks the powers of a commercial landlord and inherited a range of long-standing issue
- unacceptable that 70% of its tenants (NHS organisations and some GPs) do not have rental agreements
- disputes over the accuracy of its bills has led to debt almost tripling to £576m and a further £100m written off
- urgent action needed to overhaul this broken system
- Read the full report: NHS Property Services
NHS Property Services Limited has made progress in tackling some of the issues that it inherited when it was set up. However, it has struggled to get its tenants to sign rental agreements for the properties they occupy, and it is unacceptable that 70% of its tenants still do not have rental agreements in place. Without these agreements, it is very difficult to run an effective property management company and provide value for the NHS and taxpayers from the £3.8 billion estate that it was set up to manage. The lack of rental agreements has led to many bills being disputed, outstanding debt has almost tripled, to £576 million in March 2019, and £110 million of debt has been written off in the last five years.
The Department of Health & Social Care (the Department), NHS England and NHS Improvement and NHS Property Services have had six years to get a grip of this problem and have failed miserably. While we recognise that the situation is complex, and the provision of health services provided by tenants must continue uninterrupted by rental disputes, the whole system needs to work together far more effectively to find a solution which incentivises tenants to sign rental agreements and pay their bills promptly. We are concerned that the Department has yet to set out a course of action to address this problem, but instead is relying on others to find solutions without a clear timetable for achievement.
“NHS Property Services was gifted valuable local assets when the NHS was reorganised.
"It can neither make its own decisions about the future of these public assets but not does it always engage well with local stakeholders.
"It lacks the powers to run its £3.8 billion portfolio of properties, effectively. It is unacceptable that the majority its tenants, including health centres and GP surgeries, have not signed rental agreements.
“In turn, the lack of rental agreements has led to disputes by NHS organisations and GPs over the accuracy of their bills. This has resulted in nearly £700 million either still unpaid or written off.
“Pursuing and resolving these disputes is a waste of NHS resources which would be much better focused on delivering better patient services.
"The Department must take urgent action to fix this system which does not serve the taxpayer or local health bodies well."
Conclusions and recommendations
NHS Property Services was set-up to fail: it was created with a muddled objective – it does not have the same powers as a commercial landlord but is expected to run parts of the estate for the Department of Health and Social Care and it inherited a range of long-standing issues. The Department did not set up NHS Property Services with the powers that a commercial landlord can use to enforce occupancy contracts and charges, because of the need to maintain the clinical services that its tenants provide. For example, it does not have access to conventional remedies such as legal action, penalty charges, cessation of services or eviction for NHS bodies. NHS Property Services also inherited a range of issues in 2013 including: limited data on properties and tenants; two-thirds of its tenants had no leases in place; tenants were not always fully charged for rent and services; and there were 2,400 different facilities management arrangements. The Department recognises that what was handed over to NHS Property Services was poorly defined and often not documented. The Department is currently undertaking a review of NHS Property Services which is due to report by the end of this year.
Recommendation: The Department should ensure that its current review addresses the recommendations set out below and should report back to the Committee on progress by July 2020.
The lack of rental agreements in place undermines NHS Property Services’ ability to manage its estate effectively and drive maximum value either in income or in public benefit. In April 2019, six years after NHS Property Services began operating, only 30% of its tenants had rental agreements in place. It has no effective way of getting tenants to sign formal rental agreements and is retrospectively trying to agree leases with occupiers already in situ. It has sought to get more agreements in place by simplifying them and by issuing 3,500 non-binding summaries of the main features of the lease arrangements, but this has not worked. Rental agreements need to be based on a common understanding between the tenants and landlord about what is being rented and how much it costs. The data that NHS Property Services holds on its properties and tenants has improved but is liable to degradation if tenants do not inform it of changes to the space they use. NHS Property Services recognises that it needs to continue to improve the accuracy of its data, but without effective powers of enforcement, it needs national bodies to do more to ensure that tenants engage, agree the supporting data and sign rental agreements. NHS Property Services is working with the national bodies - the Department and NHS England and NHS Improvement - to agree a joint plan to get rental agreements in place for all its tenants but could not provide us with a clear timetable for this.
Recommendation: Within two months the Department should set out a clear timetable for NHS Property Services to agree tenancy details with all tenants by July 2020. This will require:
- proper transparency between NHS Property Services and tenants on the basis for all proposed charges;
- national bodies to ensure that tenants fully engage with the process to agree tenancy arrangements;
- an agreement from national bodies of any funding arrangements required to meet agreed obligations;
- an agreed process for making changes to tenancy arrangements and billing.
Outstanding debt from tenants has almost tripled to £576 million. Between March 2014 and March 2019, outstanding debt from unpaid bills for rent, facilities management services and service charges increased from £210 million to £576 million. Only 55% of the debt is for bills issued in 2018-19, the rest of the debt relates to bills NHS Property Services issued in previous years. About half of the current debt is subject to review because it has been challenged by tenants for several reasons, including inaccurate information or inappropriate apportionment of costs. It has been suggested to the Committee that in some cases tenants carry the liability in their accounts while disputes are ongoing. The time wasted in issuing, challenging, pursuing and correcting contested invoices is not a good use of over-stretched NHS resources which should be focused on healthcare delivery. From 2015-16 to 2018-19, the average number of days that tenants took to pay their bills increased from 91 days to 214 days. Over the last five years NHS Property Services has written off £110 million of debt. NHS Property Services said that it plans to be more robust on recovering the debt and that the dispute resolution process, where tenants challenge bills, needs to work better than it does now in terms of speed and outcome.
Recommendation: The Department should set NHS Property Services clear debt recovery targets for current year debt and agree an approach for historic debt.
The Department should clarify whether tenants are being expected to carry liabilities in their accounts while disputes are ongoing.
NHS Property Services has not got the balance right between local initiatives and incentives and national control. NHS Property Services aims to dispose of properties that are under-used or no longer needed. By March 2019, it had disposed of 410 surplus properties with a capital receipts value of £347 million. The Department noted that NHS Property Services’ release of surplus land has delivered 1,921 housing unit equivalents, as part of the government’s scheme for releasing public land for housing. However, the decision on whether a property is surplus to requirements is made by the health commissioners and clinicians who use the property and not by NHS Property Services. Receipts from property sales are reinvested in the estate at a national level rather than going back to the local area in question. NHS Property Services acknowledges local occupiers or health systems are not sufficiently incentivised to release property because they may not benefit from a sale. We are also concerned that there is a lack of transparency in NHS Property Services’ property disposal decisions, for example, whether decisions are taken that are in the best interests of the local health system or to achieve the greatest financial benefit. NHS Property Services has reduced the number of separate facilities management arrangements across its portfolio from 2,400 to about 50. Some of these services are delivered by NHS Property Services themselves and some are outsourced. Rationalising the arrangements has had clear benefits, but it is not clear to us why NHS Property Services has a mix of in-house and outsourced facilities management services and why these decisions were made.
Recommendation: The Department and NHS Property Services should engage local areas as how best to maintain and improve their local estate. As part of this:
- the Department should consider the benefits of developing a shared incentive plan that guarantees local areas a percentage of the disposal value of any local property disposals by March 2020;
- NHS Property Services should engage more with local bodies in making decisions about their local estate; and
- NHS Property Services should review whether its mix of inhouse and outsourced facilities management contracts delivers value for money to both the taxpayer and local tenants.
There is not a level playing field for all NHS tenants in terms of the rent paid and compulsion to pay it. About 18% of GP surgeries in England are owned by NHS Property Services. The rest are either commercially owned or owner-occupied. We are concerned that one GP practice can pay a full rent on its commercial premises, while another GP practice down the road occupying broadly similar premises can get away with not paying its rent on time or at all. In addition, tenants were not always fully charged for rent and services before NHS Property Services took on ownership. Initially, the Department agreed that tenants would only be charged 60% of their total charges with the remaining 40% being charged to commissioners. These arrangements have largely been withdrawn over time, but current levels of subsidy are not known. Some tenants have cited affordability as an issue for their unwillingness to pay bills, and this is sometimes linked to the withdrawal of subsidies. The Department accepts that the current system can lead to unfairness and that it needs to work with commissioners on a case-by-case basis to ensure fairness.
Recommendation: The Department needs to move towards a more equitable model of charges, with transparency about any subsidies that are received, and ensure that tenants and commissioners are funded at an equitable level.