Healthcare Sale and Leaseback UK - Release Property Capital While Staying in Your Premises

A healthcare sale and leaseback allows a healthcare business to sell its freehold property to an investor and lease the premises back, enabling the business to continue operating from the same location.

The structure can apply to a range of healthcare properties, including medical centres, GP surgeries, dental practices, clinics, veterinary practices and care facilities. The basic principle is straightforward: the healthcare operator releases capital tied up in property while the investor acquires the building and receives rental income under a lease. UK healthcare property investors actively use sale and leaseback structures across parts of the healthcare sector.

For healthcare business owners, the arrangement can provide access to capital without requiring the practice or service to relocate. However, selling the freehold also means taking on a long-term rental obligation, so the commercial terms need careful consideration.

What Is a Healthcare Sale and Leaseback?

A healthcare sale and leaseback involves four basic stages:

1. The healthcare operator owns the property.

2. The property is sold to an investor.

3. The operator receives the agreed sale proceeds.

4. The operator leases the property back and continues running the healthcare business from the premises.

The purchaser becomes the landlord, while the healthcare business becomes the tenant.

GOV.UK describes sale and leaseback as a transaction where an organisation sells its freehold property and simultaneously enters into an agreement to lease the property back, allowing it to continue operating from the premises while receiving an initial capital injection.

This makes the arrangement different from an ordinary property sale because the seller does not vacate the building after completion.

Why Would a Healthcare Business Use Sale and Leaseback?

Healthcare businesses can have significant amounts of capital tied up in their premises.

A GP practice, dental practice, private clinic or care operator may own a valuable building but need additional capital for business development.

A sale and leaseback can potentially release that property equity for purposes such as:

• Expanding the business

• Acquiring another healthcare practice

• Refurbishing existing premises

• Purchasing equipment

• Funding business investment

• Repaying existing borrowing

• Supporting partner retirement

• Creating liquidity for future opportunities

HMRC notes that, commercially, sale and leaseback transactions can be used to obtain funds for general business purposes or refinance existing borrowing.

The appropriate use of the proceeds depends on the individual business and should be assessed with suitable financial and tax advice.

Which Healthcare Properties Can Be Used?

Healthcare sale and leaseback transactions can apply to different types of operating properties.

Potential examples include:

• GP surgeries

• Dental practices

• Medical centres

• Private clinics

• Specialist healthcare facilities

• Veterinary practices

• Care homes

• Nursing homes

• Other healthcare-related premises

The investor's requirements will vary according to the property type, location, condition, tenant covenant and proposed lease.

A purpose-built medical centre with an established operator, for example, may be assessed differently from a converted residential property being used as a small clinic.

How Does a Healthcare Sale and Leaseback Work?

1. Assess the property

The first step is establishing the property's value, condition, tenure and suitability for a sale and leaseback.

The owner should also consider the existing planning position, title, leases, mortgages and any restrictions affecting the property.

2. Assess the healthcare business

Investors are interested in the property, but the strength of the tenant can also be important.

The buyer will want to understand the operator's financial position, trading history and ability to meet the proposed rent.

3. Agree the sale price and rent

The property sale price and lease terms are negotiated together.

The proposed rent needs to be commercially sustainable for the healthcare operator while providing an acceptable investment return for the purchaser.

GOV.UK's valuation guidance notes that sale and leaseback rents can sometimes reflect the financial structure of the transaction rather than simply open-market rental evidence, which is why careful valuation is important.

4. Negotiate the lease

The parties agree the lease term, rent reviews, repairs, insurance, permitted use, alterations and other obligations.

5. Complete the transaction

The investor acquires the property and the healthcare operator becomes the tenant under the agreed lease.

The business can then continue operating from the same premises.

Long-Term Healthcare Leaseback Arrangements

Healthcare sale and leaseback transactions often involve long leases because the operator needs security of occupation while the investor wants predictable rental income.

The exact term varies depending on the property and transaction.

For example, recent healthcare property investment businesses have marketed sale and leaseback arrangements involving healthcare operators remaining in their existing premises under long-term leases.

A recent Scottish care home transaction involved 35-year leases with inflation-linked rent reviews, demonstrating how long-term occupational agreements can be structured in the care sector. This is an example of a specific transaction, rather than a standard term for every healthcare sale and leaseback.

What Should the Lease Include?

The lease is one of the most important parts of the transaction.

It should clearly establish:

Lease term

The parties need to agree how long the healthcare operator can remain in occupation.

Rent

The initial rent and payment arrangements should be clearly documented.

Rent reviews

The lease should state when rent can be reviewed and how any adjustment is calculated.

Repairs and maintenance

The landlord and tenant should understand who is responsible for structural repairs, internal maintenance and replacement works.

Insurance

The lease should establish responsibility for buildings insurance and any other relevant cover.

Permitted use

The permitted healthcare use should be clearly defined so that the tenant cannot unintentionally breach the lease by changing the nature of its operations.

Alterations

Healthcare premises may need refurbishment or adaptation as services develop. The lease should establish when landlord consent is required.

Assignment and subletting

The tenant should understand whether it can transfer the lease or allow another operator to occupy the property.

Break clauses

Where appropriate, break provisions can provide an agreed route for ending the lease before its full contractual term.

What Are the Benefits for Healthcare Operators?

Release capital tied up in property

The most obvious benefit is converting property value into capital while continuing to operate from the premises.

Remain in the same location

The business does not necessarily need to relocate after selling the property.

Invest in the business

The released capital can potentially be redirected towards expansion, equipment, refurbishment or acquisitions.

Reduce property ownership responsibilities

Depending on the lease structure, some responsibilities associated with ownership can move to the investor, although the tenant may still have substantial repairing and maintenance obligations.

Facilitate succession

A sale and leaseback can sometimes form part of a wider succession or partner retirement strategy. Recent healthcare property investors specifically market sale and leaseback as a potential way of helping healthcare business owners release equity or manage ownership transitions.

What Are the Risks?

Selling the freehold also involves important trade-offs.

The healthcare operator should consider:

• Losing ownership of the property

• Losing future capital appreciation

• Long-term rental commitments

• Rent review increases

• Repair obligations

• Restrictions on alterations

• Restrictions on assigning the lease

• Consequences of breaching the lease

• The affordability of rent if trading conditions change

The transaction should therefore not be assessed solely according to the amount of money released at completion.

A healthcare business needs to consider whether its future cash flow can comfortably support the proposed rent and other operating costs.

Healthcare Sale and Leaseback for Care Homes

Care homes are a significant part of the healthcare property market and can be structured separately from the operating business.

A care operator may own a care home freehold but want to release capital for expansion, retirement planning or further acquisitions.

Under a sale and leaseback, the investor acquires the care home property and the operator remains in occupation under a lease.

In a recent Scottish example, three operational care homes were acquired by an investor through a sale and leaseback, with the properties secured under 35-year leases.

For a care home transaction, regulatory considerations should also be reviewed alongside the property and lease arrangements.

Healthcare Sale and Leaseback vs Property Sale

A normal property sale generally means the owner sells the building and gives up occupation.

A healthcare sale and leaseback is different because the seller becomes the tenant after the transaction.

The leaseback therefore provides continuity of occupation but creates a new landlord-tenant relationship.

Is Sale and Leaseback Suitable for Every Healthcare Business?

No.

The structure needs to be considered against the individual property and business.

A healthcare business with strong trading performance, a suitable property and a sustainable rental position may be able to explore the structure with investors.

A business with weak cash flow or limited ability to support long-term rent may face greater difficulty.

The property's location, condition, value and investment characteristics will also affect investor interest.

Tax and Accounting Considerations

Sale and leaseback transactions can have tax and accounting implications.

HMRC guidance confirms that sale and leaseback arrangements can be subject to specific tax rules, including rules concerning commercial rent and deductions.

Accounting treatment can also depend on whether the transaction qualifies as a sale and the nature of the leaseback. HMRC's current guidance refers to IFRS 16 and the revised FRS 102 requirements when considering sale and leaseback accounting.

Healthcare operators should therefore obtain appropriate tax and accounting advice before completing a transaction.

How Fraser Bond Can Help

Fraser Bond can assist healthcare property owners and operators with specialist property requirements surrounding sale and leaseback transactions.

Depending on the project, support can include:

• Healthcare property assessment

• Investor sourcing

• Property marketing

• Sale and leaseback coordination

• Commercial lease negotiations

• Property valuation coordination

• Refurbishment and building works

• Property management

• Maintenance coordination

• Landlord and tenant support

For a healthcare operator considering a sale and leaseback, the process should begin with an assessment of the property's value, the strength of the operating business and the rental commitment that the business can realistically support.

A well-structured healthcare sale and leaseback can release capital while allowing the operator to remain in its existing premises. However, the loss of freehold ownership and the long-term obligations created by the lease should be considered carefully before proceeding.