Before You Sign That Healthcare Office Lease
October, 23, 2020
The decision to buy or lease space can be one of the toughest decisions for doctors hoping to open their own practice. Unless a doctor personally owns a property, they will have to sign a lease to be able to work in their desired office location. Don’t be fooled by simply believing the landlord when he says the lease is “standard” or “boilerplate” or “not open for discussion.”
In order to turn things to your advantage, find a good lease negotiator or a tenant representative with experience in working with doctors and local ties. However, be careful because tenant representative fees are typically covered by the landlord upon signing the lease. If you are skeptical, take extra care to find a recommended and trusted representative in order to not second-guess their motive. A lawyer will probably not be familiar with the information required to work out a good deal for doctors.
If a significant build-out is being considered, contact a commercial contractor who can help determine if space can be used as a private healthcare office without any obstacles, such as structural or plumbing issues.
Lastly, once the business terms are finalized, a lawyer with appropriate leasing and private healthcare industry experience will prove to be indispensable.
Before signing the lease, the landlord and the doctor will devise a nonbinding term sheet or a proposal letter to ensure they are on the same page. While this sheet is nonbinding, a landlord will usually not agree to subsequent concessions not present in the letter.
Usually, the doctor will not be able to work out a new lease and will have to assume an existing lease, but if he intends to stay in the place longer than the seller, he may be able to work out favorable terms.
Be aware of these factors:• A tenant will pay for taxes, insurance, and maintenance fees. Sometimes the landlord may agree to pay a base fee for taxes and the tenant will pay for any amount above the base. If the office is a condo, the tenant will also have to pay for the pro-rata share of common area maintenance (CAM) fees.
• A 3 or 4 percent increase of rent per year is normal, but be sure to ask for more info.
• Lenders will require the lease to have a minimum duration. A 5 to a 10-year term with a few options to renew should be good enough.
• The landlord must give the tenant a period to compensate for the missed rent along with a written report before terminating the lease.
• At times, landlords are willing to grant their tenants the option to purchase the real estate or a right of first refusal.
• Landlords may agree to an assignment clause that permits the future buyer to become an assignee without the landlord standing in the way. They must agree in advance to release the assigning tenant upon the completion of a sale. Ensure that there will be no excessive payment except reasonable legal fees.
• The landlord may agree to not rent a space in the vicinity to a competing private practice.
• If space needs to be a build-out, the landlord may agree to grant an allowance for renewal and construction expenses, or to a temporary rent abatement.
• Request to see if the landlord allows subletting of the space, for example, to a specialist.
• If the premises are part of a condominium, ensure that a private healthcare office is permitted use of the premises.
• If the office is in a larger building, will the doctor be able to open the office after hours for emergencies or during the weekends? Will heating and ventilation and other options be working during these off times?
• Who will pay for the air conditioning (HVAC) if it needs to be repaired or replaced? Usually, the tenant will be responsible for maintenance costs while the landlord will take care of replacement costs.
• There may be a clause in the contract that permits the landlord to force the doctor to relocate to a new location within the complex. These clauses should be eliminated or softened in a manner to protect a doctor’s goodwill.
• Landlords may require a personal guarantee from the doctor, such as a spousal guarantee. At times the landlord may agree to terminate these guarantees as long as the tenant makes all rental payments.
• Think about requesting an automatic lease termination upon the death or disability of the owner.
Negotiating a lease may be an intimidating task but with the right awareness, may be managed in a way to help rather than limit doctors. Contact us if you have any questions regarding the leasing, designing, and building of your dream private healthcare office.
Apex Design Build has an established reputation as a top-quality healthcare facility design build firm. The Apex Continuum combines focused healthcare expertise with a comprehensive, one-stop solution for design, architecture, and construction to ultimately provide a best in class experience for every client we partner with. To discover how Apex can take your vision of the perfect healthcare facility and bring it to life, contact our integrated construction team today.