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Partnership Agreements

This bulletin highlights:

  • the importance of GPs in partnership entering into a written partnership agreement prepared with the benefit of appropriately qualified legal and accountancy advice
  • the relationship between PMS Contracts & partnership agreements
  • GP Partners responsibilities as employers The information included in this bulletin is designed to be helpful but it is important to remind you that YORLMC or BMA guidance is not intended as a substitute for independent expert professional advice. GPs considering any change in their circumstances are strongly advised to seek such advice before entering into any commitment.

1) Partnership agreements

A properly constructed partnership agreement will reduce both financial and non-financial risk and provide a detailed framework on which the ongoing management and administration of the partnership can be based. 

One of the most common and potentially disastrous pitfalls for any partnership is not to have a valid and up‐to‐date partnership agreement. The consequences of getting this wrong are akin to having no house and contents insurance ‐ nobody worries until it all goes wrong, but when it does go wrong the consequences can be catastrophic

The risk of dissolution

Dissolution happens if there is no partnership agreement preventing this and (amongst other things):

  • Any partner dies
  • Any partner serves notice of dissolution on the others (and there is no minimum period of notice).

Not all partnership agreements are worded to avoid dissolution in these circumstances. Dissolution means:

  • The partnership’s bank account will be frozen
  • The practice contract with NHS England will end

Unless the partners agree, dissolution also means:

  • The employees may have redundancy claims against the partners
  • Any notional/cost rent receivable will end and the freehold value of the property will drop
  • All the partners need to find a new position

Having a properly worded partnership agreement to avoiding dissolution is, therefore, really important. It will also avoid a disaffected partner using the threat of dissolution to negotiate terms.

Partners joining the practice

When a partner joins a partnership, the existing agreement is no longer valid (even between the continuing partners).

Any sensible GP who is offered partnership will wish to see the partnership agreement. The existing partners should be ready with a draft which is up to date and reflects the current factual, contractual and regulatory framework relating to the practice.  They should have ironed out any issues as between themselves long before they offer the draft agreement to the prospective partner.

If a new agreement cannot be agreed before the accession of the new partner, the existing partners and the new partner should sign a deed of accession and adherence – saying that the old agreement continues to apply as if the new partner was named as a partner – but then there will have to be additional clauses about liabilities before admission, and capital and profit shares.

If there’s a period of mutual assessment –avoid the temptation to leave the formal paperwork until after that has been completed, as this leaves uncertainty. Even if the new partner is paid as an employee in this period, he may be held out as a partner creating uncertainty as to his true position.

Partners leaving the practice

If there is no partnership agreement, no partner can retire without the agreement of all the other partners – they have to dissolve the partnership.

A well drafted partnership agreement avoids the risk that any individual partner can dissolve the partnership. It will include a mechanism for the partnership to continue as between the other partners after a retirement, expulsion, death or compulsory retirement.  

It is also worth noting that  

  • GP partners contribute both the employee (8.5%) and employer (14%) component to their pension. This could rise.
  • The 14% is part of global sum.
  • If you leave the scheme the partnership/GP keeps the 22.5%
  • Your partnership agreement should stipulate what happens to these monies if you leave the scheme 

YORLMC would like to thank Nottinghamshire LMC Limited and Jim Carter, Director, Nelsons Solicitors which has offices throughout the East Midlands in Nottingham, Leicester & Derby 

2) PMS Contracts & partnership agreements

Please be aware that:

  • PMS contracts by their nature are locally negotiated and therefore there is no national PMS contract.
  • The PMS Regulations include at Schedule 5 Part 8 para 100 (Termination by Notice) that either the Contractor or relevant body may terminate the agreement by serving notice in writing on the other party. For the purpose of clarity, Regulation 2 provides a definition of"Contractor": ‘a person or persons who is a party or are parties to the agreement - this therefore means the partners acting together, or individually’.
  • NHS England can terminate a contract unilaterally and without cause.
  • A PMS contract is between NHS England and the individual signatories to the agreement. If there is a change in the partnership, for example a partner wishes to leave or retire, this is a material change to the contract between the practice and NHS England. Under these circumstances and provided all remaining parties to the contract agree (i.e. the remaining partner(s) and NHS England, a variation to the contract can be made.
  • Should a partner decide to leave the partnership, NHS England may agree a contract variation allowing the contract to continue operating. If the practice wishes to take on a new partner, temporary arrangements (i.e. the hire of a locum GP) can be made by the practice whilst identifying a new partner. However, if NHS England is concerned that services to the local patient population will be put at risk if one partner should leave a practice partnership, they may decide not to agree to a contract variation and end all individual contracts with all partners in the partnership. If this should occur, NHS England is obliged by EU Law to put the contract out to tender. NHS England may make temporary arrangements during the tendering process and it also has the discretion as to which sort of contract it seeks, e.g. PMS, GMS or APMS.
  • In the event NHS England has discretion with regard to the continuation of any GP contract, issues such as partnership disputes will undoubtedly influence NHS England’s decision whether to agree a variation notice.

The BMA has issued a guidance document entitled “Contractual issues for GPs- implications of retirement on practices, practice mergers and advertising and tendering vacancies” which includes a paragraph on the implications of retirement on partnerships and is available as a pdf at http://bma.org.uk/practical-support-at-work/contracts/independent-contractors

In addition to the above there are many other issues which should be properly addressed in a well drafted partnership agreement. Sources of advice are available here

June 2014

The voice for NHS GPs and Practice Teams across North Yorkshire, the City of York, Bradford, Airedale, Wharfedale & Craven districts.