In this bulletin, the Berry Smith Healthcare team discusses the importance of a GP Practice having in place a Partnership Agreement along with the issues faced by a Practice having an outdated or badly drafted agreement.
No Partnership Agreement
Some Practices do not have a Partnership Agreement in place. This lack of clarity and detail around the relationship between the partners can lead to disagreements and even put the practices NHS contract at risk.
In the absence of a formal Partnership Agreement, the partnership will be governed by the Partnership Act 1890 (the “Act”) which effectively states that, unless there is a contrary agreement between the partners, the business is split equally. This includes all profits, losses, liabilities and any partnership property.
There is no reference in the Act to sessions worked, holidays and sickness, or what items are partnership expenses or individual expenses. Although the Act covers most of the necessary ground in setting up a partnership, it does not cover all of it and some of its provisions are outdated. Therefore it is always advisable for all partners to enter into a formal Partnership Agreement.
No agreement also means the partnership status is that of a “partnership at will”, so where a partner retires or dies the partnership will automatically dissolve. This could have an adverse impact on the practices NHS contract.
Outdated Partnership Agreements
Some Practices have a Partnership Agreement but it is outdated and no longer caters for the business or how circumstances may have changed since it was first entered into.
The practice will constantly evolve and matters such as partners’ retiring, holiday entitlement and sickness policies will update over time. The property holding shares may also change so it is important to keep the Partnership Agreement up to date and reviewed when any major changes occur at the practice.
Whereas the retirement of a partner does not invalidate the Partnership Agreement, the addition of a new partner does. In these circumstances, the partnership is then existing as a partnership at will. Also, unless the new partner signs up to the Partnership Agreement then they will not be bound by its terms.
We often see agreements which include a mandatory retirement provision i.e. that partners must retire at 65. Under the Equality Act 2010 it became illegal to include a mandatory retirement clause in employment contracts as it was held to be discriminatory.
It is therefore important to have your Partnership Agreement reviewed to ensure it complies with current practice and standards.
Incomplete Partnership Agreements
We often see situations where a Partnership has an agreement in place, but the terms are badly drafted or do not contain the provisions one would expect to see.
For example, the Partnership Agreement may not cover the terms of property occupancy or how property related costs are to be shared. It is important to ensure that how the property is held is set out either in the agreement or a separate property holding document which dovetails with the Partnership Agreement.
We often see agreements not containing a mechanism to deal with expulsion of a problematic partner. Having the power to remove a disruptive partner will certainly ease disruption and may avoid a potential dispute in such circumstances.
Conclusion
Partnership Agreements are best viewed as an investment and we strongly advise that all partnerships have a current and effective agreement in place. Taking time to put in place a robust agreement should avoid any costly disputes between the partners, prevent risk to the practice and ensure clarity between the partners as to the commercial terms of the business.
For more information about GP Partnership Agreements, or any other similar topic, please contact Paul Evans on 029 2034 5511 or bu email – pevans@berrysmith.com
