Southern Cross insists lease issues can be fixed

But Jamie Buchan said longer-term goals for the company – the UK’s biggest home operator - would include increasing the amount of NHS work its 750 homes took on and evening out fees discrepancies between local authority areas.

Earlier this month, Mr Buchan issued a statement declaring that he believed the rent levels that are an integral part of its current home-leasing model were “unsustainable”, prompting fears for future of its 31,000 residents and 45,000 staff.

He also wrote to council directors of adult social services asking for continued support in placing residents at the company’s homes.

Mr Buchan confirmed to LGC that the company had been in talks with local government, central government, and the Care Quality Commission about its future.

He said that while many issues the company faced were sector-wide, re-negotiating built-in rent increases that underpin Southern Cross’ business model would be crucial.

“It’s in landlords’ interests to have a strong operator that can attract new investment,” he said. “What is clear in this particular situation is that Southern Cross needs new investment.”

Mr Buchan’s letter indicated that he hoped to renegotiate the lease agreements by July.

“It’s early to say what landlords will say, but there is a recognition that things have moved on quite a long way in the last five-to-seven years since the agreements were made.”

Those agreements lock the company into annual rent rises “in excess of 2.5 per cent” over the course of up to 30 years.

Mr Buchan added that in the longer term he hoped trends that saw local authorities increasingly reluctant to place people in residential care could be counterbalanced by a rise in placements from the health service.

He said there were “tens of thousands of people” who died in hospital when the palliative care could have been more cost-effectively delivered in a care home.

“That care does not need to be provided directly by the NHS,” he said. “There are people with high-dependency needs who find themselves in hospital who should be able to be referred directly to care by GPs.

“I think that as the local authority share goes down the NHS share goes up.”

Mr Buchan added that in the longer term the entire care-home sector needed to deal with discrepancies in the fees paid by local authorities.

“In homes our costs have gone up circa RPI and we’ve had agreements to increase fees by 4 per cent from some local authorities and calls to reduce them by 12-15 per cent from others,” he said.

“There is no rhyme or reason.”