Welcome to ‘Did You Know?’, Hempsons’ publication designed to keep you informed about the latest legal developments, legislation, and noteworthy case law across our sectors.

In this edition, we shine a spotlight on the importance of partnership deeds for GPs. GP partnerships remain the most common structure for general practice and as we enter a period of NHS reform, it is essential that they are appropriately structured to prepare for these changes.

Our primary care team will explain why partnership deeds are designed to both govern the partnership and to protect the partners from the unintended consequences of relying on law written in the 1800s. They shall also consider the lifespan of the GP partnership, including how to add partners, what to do if a dispute arises, how to manage your premises, and what to consider when a partner retires.

We hope you find the articles in this edition both interesting and useful. If you need any legal assistance, have questions, or wish to discuss any of the issues covered, we would be delighted to hear from you.

It can come as a surprise for many to learn that the Partnership Act (“the Act”) which governs most general practice partnerships came into force in 1890. It is one of the oldest pieces of legislation which has a day to day impact on everyday life.

Part of its success is the relatively simple way in which it governs partnerships and provides partners with an easy method to vary the core terms through agreement. However, if they are not varied they do create a risk to modern practices.

Although there is no legal requirement to have a written partnership deed, operating without one means you are in a ‘partnership at will’. Your partnership will function under the default terms of the Act.

However, the Act doesn’t necessarily reflect how modern partnerships work, let alone cater to the complexities of contemporary general practice. It assumes every partner is equal: equal say, equal profits, equal responsibility when things go wrong. This is so even where partners may be working a different number of sessions, contribute varying levels of capital, and take on different responsibilities within the practice.

Under the Act, the following scenarios can happen:

• If a partner leaves, dies, or becomes bankrupt, the Act treats this as a dissolution of the partnership. This can threaten the continuity of patient care, NHS contracts, premises arrangements, and staff employment.
• Each partner shares equally in the profits and losses, regardless of how much they have contributed, which can lead to unfair outcomes.
• There is no clear process for resolving disputes or making decisions, which can lead to conflict and expensive legal disputes.
• There is no provision for leave, locum cover, or who will be responsible for such costs, which could lead to financial disputes and inconsistent patient care.
• It is impossible to expel a partner unless there is an express agreement allowing for expulsion. Being unable to expel a problematic partner can place strain on the partnership and impact patient care.
• If a new GP is admitted to the partnership they can insist upon the dissolution of the partnership resulting in an equal allocation of the assets of the partnership regardless of how long and what level of contribution they have made to it. This could include a share of premises owned by the partnership.

What are the benefits of having a partnership deed?

Section 24 of the Act confirms that the rules of the partnership are ‘subject to any agreement express of implied between the partners’. This is a wide scope of possible variation which could include agreement as evidenced by custom and practice. It is therefore preferrable to clearly document these agreements and the best approach to this would be by way of a partnership deed which is a tailored, legally-binding agreement between the partners.

More than a rule-book, it acts as a peace treaty and crystal ball all rolled into one, laying out the rules for the future. It represents the terms reached collaboratively between the partners which reduces the risk of disputes.

With a deed you can:

• define capital contributions – who is putting in what and when?
• decide how profits and losses are shared – are they weighted and, if so, how? For example, a deed can allocate profits according to sessions worked or responsibilities held.
• clarify roles, responsibilities and obligations of the partners – who is responsible for what areas of the practice?
• clarify decision making powers and processes – how are key decisions made (e.g. simple majority or unanimity) and by whom?
• plan for retirement and succession – what happens if someone retires or dies? How much notice should they give and does this then prevent others from giving notice to retire? What is the process required for admitting a new partner?
• provide for the removal of a partner – on what grounds can a problematic partner be expelled?
• include leave provisions (such as annual, parental, maternity/paternity, adoption, and sickness) – how will absences be covered and who bears the cost of locum cover for those absences?

From a compliance and governance perspective, the CQC increasingly expect GP practices to demonstrate robust management structures. A formal up-to-date partnership deed can help to show you are operating as a well governed organisation. It can also support smoother interactions with other entities such as banks, landlords, and HMRC.

Is now the time to obtain or update your partnership deed?

As GP practices continually face workforce pressures, contractual obligations, and regulatory demands, relying on the Act is a risk that no partnership should take. A well-drafted deed costs time and money, but it should be considered as insurance against a potential future legal battle that will cost significantly more. It’s a small investment in legal clarity that can save a great deal of time, expense, and conflict later down the line, as well as being a vital safeguard for your patients and business.

If you do not have a partnership deed now is the time to rectify this and even if you have one, it is essential that it is kept under regular review and updated.

GP Partnerships need to be able to bring in new partners to ensure the continuity of the practice. However, upon any new partner joining it effectively resets the relationship between the partners. The partnership deed is not automatically extended to the new partner and may no longer be legally binding on the partners.

What is the worst case scenario if this happens?

The partnership will revert to being a partnership at will. This could allow the new partner to require the dissolution of the partnership. They will then be entitled to an equal share of any capital and ownership of assets, potentially including the premises owned by the partnership.

This is an extreme scenario, but it highlights the importance of ensuring new partners are added in the correct manner.

How to add a new partner to a partnership:

To add a new partner to a partnership, the default position under the Partnership Act 1890 is that all the existing partners must agree to the admission.

Primarily, a partnership agreement dictates how a new partner can be admitted. If a partnership agreement specifies a process, for example a majority vote, approval by a specific partner, or unanimous consent, this process will govern how a new partner is added to the partnership.

Admission of a new partner should be documented either by entering into a partnership agreement, or by a deed of adherence.

A deed of adherence is a legal document that binds a new partner to the terms of an existing partnership agreement. It ensures that the new partner agrees to the same rights, obligations, and responsibilities as the existing partners, maintaining consistency and enforceability of the agreement.

Key considerations when considering a new partner:

Before a new partner is added to a partnership it is important to consider the following factors, which are not exclusive:

• If the new partner aligns with the partnership’s long term strategic goals and culture
• The rights and responsibilities of the new partner and how these fit with those of the existing partners
• Any variation in the terms of their engagement within the partnership should be clearly stated in the deed of adherence or the updated partnership agreement
• How the addition of a new partner affects the roles, responsibilities and decision-making power of the current partners
• If the new partner is to serve a probationary or mutual assessment period to allow both the existing partners and new partners to evaluate the partnership before entering a long term commitment
• How much capital the new partner will contribute to the partnership and whether the capital contribution is sufficient to meet the current and future needs of the partnership
• Whether the new partner be required to buy into the premises
• How to implement a fair and transparent system for distributing the profits of the partnership and allocating the losses among all the partners including the new partner
• If any other documents will need amending as a result of adding the new partner such as leases

How to amend a partnership agreement

Amending a partnership agreement requires careful consideration to ensure all the partners are aligned and that any change reflects the partnership’s current needs.

Partnership agreements often include provisions detailing how amendments can be made. Typically, changes require the unanimous consent of all the partners.

Some agreements do allow for majority of the partners to approve changes, but often this will depend on the type and seriousness of the change. Any approval process set out in the partnership agreement should be followed to ensure validity.

Any amendment to the partnership agreement should be made in writing, signed by all the consenting partners. This clear documentation ensures there are no misunderstandings and helps to avoid legal disputes.

The natural course of time will see partners leaving their practices. This is referred to as ‘retirement’ in partnership law, regardless of whether the individual is actually planning to retire or is being forced out.

In most cases this will cause few problems as the retiring partner will be leaving on good terms and may be referred to as a ‘good leaver’. On other occasions they may be leaving on bad terms and potentially may not be leaving voluntarily, this can be referred to as ‘bad leavers’.

When considering the exit of an existing partner within your partnership the first step is to review the partnership deed (if any), which will usually contain provisions relating to:

• good leavers (i.e. a partner retiring by giving the required notice); and
• bad leavers (i.e. a partner being asked to leave the practice via expulsion or compulsory retirement provisions).

If there is no partnership deed or the partnership deed is no longer valid (for example by the admission of a new partner without express or implied adherence to the deed), section 25 of the Act makes clear that “no majority of the partners can expel any partner unless a power to do so has been conferred by express agreement”. The only option for the partners would be to dissolve the partnership.

This could have implications for the GMS contract held by the partnership and should be considered carefully. This is one of the most important reasons for ensuring that you have a partnership deed.

Good leavers

A partnership deed will usually include good leaver provisions that will allow a partner to retire from the partnership upon giving the required notice. Other potential clauses to consider include:

• the impact of the retirement on the partnership, for example, is a minimum timeframe required between other partners retiring to avoid destabilising the practice?
• a requirement for the retiring partner to indemnify the partnership for any liabilities on behalf of or relating to the retiring partner (this may include pension contributions, tax and national insurance)
• an obligation on the partnership to prepare accounts to ascertain the entitlement of the retiring partner, including the calculation of profits to be apportioned to the partner upon retirement
• any restrictions on the retiring partner about where they can work and whether they can approach employees of the practice with alternative job opportunities

Bad leavers

Bad leaver provisions usually include:

• a “with grounds” expulsion,  where the bad leaver has breached one or more of a list of grounds (for example, conviction of an offence resulting in a prison sentence) and/or
• a “without grounds” expulsion, often referred to as a  ‘green socks’ clause (where the partners can expel simply on the basis that they no longer wish to continue in partnership with the relevant partner)

In both cases, the grounds for expulsion need to be considered and the partners should think about worst case scenarios when reviewing their deed. The grounds need to be supported by evidence and a fair process applied prior to approving an expulsion.

What is a ‘green socks’ clause?

This clause gives the partners the right to expel another partner where they have no grounds.

When enforcing a ‘green socks’ clause a partnership should always consider the risk of the outgoing partner challenging the decision. The most frequent challenge is normally procedural and you should ensure the following points are addressed:

• does the process precisely comply with the partnership deed?
• have the partners acted in good faith throughout the process?
• consider the Equality Act 2010, to ensure a partner is not discriminated against when the clause is enforced
• have the principles of ‘natural justice’ been applied i.e. have they had a chance to present their case and to be fairly heard?

Key considerations post-retirement

It is important to speak with your accountants when a partner is looking to leave the partnership to ensure that all partners understand the financial implications of the exit, for example, how to value the outgoing partner’s share, how liabilities will be handled and also to consider any tax implications.

The partners should also consider how the surgery premises will be dealt with. If the property is freehold, a retiring partner may have a share in the premises capital that needs to be acquired from the retiring partner. The partners should consider the provisions within the partnership deed to understand how the share will be calculated, how the surgery premises should be valued, whether interest is payable on the share, and the timeframes would when this process should be carried out. There may be a legal charge over the premises which will involve liaising with the lending bank and restructuring the borrowing.

Retirement deeds are a great tool that can be used to document the agreed terms between the outgoing partner and the remaining partners. However, bespoke terms can also be agreed between the partners if they wish to vary from the express terms of the partnership deed, i.e. proposed notice period, restrictions on the outgoing partner, share in profit/loss. If there is any risk of a dispute, these documents allow the partners to address and resolve these without recourse to further action being taken.

The partners should also make practical considerations, such as handover of clinical responsibilities, in order to ensure a seamless retirement.

Partnership deeds are very versatile documents which provide the partners with a large scope of defining how they wish to work together. Despite this, it is very common for a basic partnership deed to be adopted by partners, which may provide simple dispute resolution procedures but fails to maximise the opportunity for the partners to pre-empt disputes.

There are many reasons for partners to fall out, but the common themes often relate to:

• perception of a partner not fully contributing to the partnership
• financial disagreements
• inability to make decisions
• personal conflicts
• cultural shifts

Many of these issues require good communication and personal relationship skills but the partnership deed can be an essential tool in preventing these issues arising in the first instance. This can be achieved by including the following terms within the partnership deed:

1. Clear obligations on the partners which could include work plans and details of specific obligations. This avoids confusion about what the role of each partner is, it can be tailored to the individual and provides a method to performance manage the partnership.
2. Detailed financial allocations including defined expenditure thresholds to ensure that major costs are subject to partnership approval. This can include methods for calculating entitlements and specific commitments or obligations upon the partners.
3. Decision-making procedures which confirm how many votes are needed to make specific types of decisions and what happens if a decision cannot be made.
4. Expectations of behaviour and standards agreed between the partners. This may include addressing any personal conflicts and ensuring they can still work within these standards.

Even if these factors are addressed in the partnership deed, disputes may still arise. The dispute resolution clauses should be used to manage those circumstances.

This may be a multi-stage procedure and there are different options which can be included within the partnership deed, such as:

1. Facilitated discussions

Having a third party facilitate will help to keep the focus and to control the emotional elements of the situation. The LMC may be able to assist with this process. Some have significant experience of disputes while remaining impartial.

Facilitation will also help the partners to avoid saying things they later regret or from taking actions which are not appropriate.

2. Mediation

A mediator is an experienced facilitator who will liaise between the partners and work on finding a common ground and resolution to the dispute.

Mediators cannot make binding determinations but can help the partners to find common ground. If agreement is reached, they will prepare agreements binding on the partners.

3. Arbitration or expert determination

If mediation does not result in an agreed solution, these two options are available to ensure determination of the dispute.

Arbitration is a formal process which can be expensive and time consuming but the outcome is a decision legally binding on the parties. This process is frequently the preferred alternative to court proceedings, as court proceedings are public, and is used in the most serious disputes.

Expert determination uses subject experts to help decide complicated matters. Disputes relating to accounts are frequently referred to accountants and property issues may be referred to surveyors.

If a partnership deed includes arbitration or expert determination it is likely that this will preclude the use of court proceedings as they do not have jurisdiction until this process is completed.

By addressing these points within the partnership deed it becomes a powerful and practical tool to help avoid and resolve disputes between the partners as efficiently and amicably as possible.

A robust partnership deed should include provisions dealing with any premises rented or owned by the partnership. Whenever the partnership acquires or disposes of premises, the deed should be updated to reflect current arrangements.

When preparing a new partnership deed, the partners will need to consider how they wish to own and operate from the premises, including:

1. Which partners will be the trustees?

HM Land Registry allows a maximum of four people to be registered as proprietors of freehold or leasehold titles. Where the number of partners exceeds four, the partners will need to decide who will be named on the lease document or transfer deed. The premises will be held on trust by the chosen trustees for the benefit of the partnership.

2. Setting up a sinking fund for repairs

Surgery premises are often one of the partnership’s most valuable assets, but repairs and maintenance can be costly. Where premises are owned by the partnership, the partners should consider how the costs of external/structural maintenance or major items of expenditure are to be dealt with. Where the premises are rented, it is advisable for the partners to build up a reserve fund to use against the tenant’s repairing, decorating and reinstatement obligations under the lease.

3. Premises expenses and income

The partners should agree upon and record how the routine running expenses of the premises are to be met. These items include rates, utilities, cleaning, internal maintenance and contents insurance. The deed should also deal with arrangements for any premises income, including NHS Funding (rent reimbursement or notional rent) or other income such as rents received by the partnership pursuant to any sub-leases or licences (e.g. pharmacy tenancies).

4. Incoming/outgoing partners

Where premises are rented by the partnership, the deed should include provisions for updating the lease and registered title to reflect new joiners or retirements. Where premises are owned by the partnership, the deed should clearly set out the buy-in and buy-out process. The partners will need to consider whether or not an outgoing partner will be entitled to keep their share of the premises or whether it should be bought by incoming or continuing partners. The partners should also agree and set out the valuation process in the deed to avoid disputes later down the line. Any mortgages on the owned premises will need to be given careful consideration.

As one of the largest national primary care legal teams, we have a dedicated group of 20 specialist solicitors providing comprehensive advice to GPs, partnerships, federations, provider organisations and primary care networks.

We support more than 800 GP practices and primary care organisations nationwide, helping them navigate the challenges of an evolving healthcare landscape, including greater integration across primary, secondary, social and mental health care.

If you would like to discuss any of these areas or explore how we can support you, please get in touch with our team.

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