Three Mistakes Physicians and Landlords Make When Leasing Medical Office/Clinic Space

There is a trend in the medical industry to relocate offices closer to the patient base you serve. This practice makes it much more convenient for clients to access their physicians, but can become complicated due to the strict regulations facing the medical field. It is important for physicians and landlords to surround themselves with professionals experienced in medical leasing and regulations to avoid costly mistakes.

Failure to Analyze All Aspects of the Lease

  • Medical facilities provide a host of special leasing issues for landlords and tenants. Medical tenants use hazardous materials, generate biomedical waste, require tenant improvements, and demand secure facilities to maintain the confidentiality of patient records. It is crucial to determine the ownership of the leasehold improvements, as a physician may be faced with a large expense to remove the improvements, or purchase new installations at the end of the lease.
  • As a medical tenant, you need to ensure the terms of the lease enable you to operate your practice at full efficiency. The best way to achieve this is to structure the lease as a triple net, or double, net lease “NNN.” This allows you to control your utility and common area maintenance expenses as they are separate from the base rent payment. Relocating to a new building where you are the sole tenant, ensures that you are not paying more than your fair share of expenses. Single tenant net leases (STNL) have become popular amongst medical tenants who need excessive utilities, or are open after normal business hours.

Failing to Understand the Patient Demographics and Real Estate Trends

  • Physicians often fail to consider the location of the property’s effect on their business. Their expertise lies in their ability to treat health concerns, and they should consult industry professionals to ensure their new location fits the patient demographic and client base they are striving to serve. Site selection and visibility are important to ensure your practice remains financially healthy.
  • Real Estate professionals may have demographic and development information not available to physicians. For example, the development of a 2000 home senior living community may not be common knowledge outside of the real estate industry. If a geriatric healthcare provider fails to enlist a real estate professional, they may miss the opportunity to relocate their office to the area of new growth and capitalize on being an early entrant to the market.

Not Hiring an Experienced Medical Transaction Attorney to Analyze and Negotiate the Lease

  • Many “form” leases have percentage of sales clauses. This method of rent determination is not allowed with medical tenants, and the inclusion of this clause in a lease can result in enormous fines and penalties for both the tenant and landlord. Attorneys are experienced with the laws regulating health care real estate transactions, and will help both the landlord and tenant avoid costly mistakes down the road.
  • Good legal counsel may be able to protect medical tenants in other ways. The lease can be amended to require the landlord to competitively bid certain expenses such as security, maintenance and janitorial services, as well as to appeal tax assessments. These provisions can save the tenant vast amounts of money over the term of the lease.

The consultation of real estate professionals and attorneys is vital for both landlords and tenants to ensure they are protected as they pursue new ventures.