Medical Office Leasing Agreements
Are you about to sign a medical office space lease? Whether you’re moving your medical office to improve location or upgrade facilities, or if you are just starting your practice, there are several critical factors to consider before signing that leasing agreement.
Factors for Consideration
Make sure the lease contains a renewal clause, which will prevent eviction at the end of your lease in the event the leasing company wants to raise the rent.
Don’t Forget to Negotiate for Free Rent
Ask for a few months’ free rent up from. If you don’t ask, you could be leaving a lot of money on the table, and you won’t be asking for anything out of the ordinary.
Tenant Improvements (aka TIs)
While you’re asking for free rent, make sure to ask for money that will go toward tenant improvements. Your medical practice is like a fingerprint; there’s none other like it. Because you’ll need to customize the space, remember to negotiate for this money up front.
Rights to Increase Rent
Be cognizant of any rights written into the leasing agreement allowing for a rate increase. While it might not be possible to avoid rate increases because of current market conditions, make sure you understand how the leasing company calculates these increases. Not doing so could mean rate increases aren’t properly calculated in your expense budget.
Make sure there are no restrictions in the leasing agreement that will inhibit your ability to run your practice efficiently. Make sure the leasing agreement spells out hours of operation, when air conditioning and heating remain on, and when security personnel are on duty. If the lease is in a medical office building owned by a health care provider (i.e. hospital or medical group) there may be restrictions on offering services that are competitive with that provider. These may be lab, imaging, therapy services etc. Many landlords will make an exception to these restrictions when the competitive services are for your patients.
Costs Covered by Leasing Company
Make sure the leasing agreement spells out what the landlord is responsible for fixing, and how long it will take them to remedy any situations that might arise. If possible, language should be included that makes a failure to make repairs within a reasonable time a material default that entitles the tenant to terminate the lease.
Operating Expenses and Additional Fees
Look carefully in the leasing agreement for any additional fees, such as those for maintenance and repairs in common areas. These additional fees could even include pay increases for employees or contractors responsible for maintenance and repairs.
It might be hard to imagine why you’d need to break your lease before it’s up, but having a provision which allows you to do so under certain circumstances including conditions that make the premises unusable could protect your practice against future, unforeseen expenses.
If you’re going to move into office space that’s not a medical facility or one that specifically caters to medical practices, you might want to include terminology that prevents competitors from moving into the building.
Triple Net Provision
A triple net provision requires the lessee to pay property taxes, common area maintenance and property insurance. If the lease agreement contains a triple net provision, get an estimate of these costs upfront, and, if possible, negotiate a cap on these triple net costs.
Just remember as a current tenant you have most of the control, especially if you’ve retained legal counsel experienced with medical office leasing agreements. It costs the leasing office more to bring in a new tenant, especially if the exiting tenant is a medical practice and modifications have been made to the office space. The leasing company will have to spend money to get the office space back in a condition that will be conducive for all types of businesses. They won’t want to incur these expenses—it’s not good business.
Before you sign a lease for your medical office space, it’s best to have the agreement reviewed by an experienced health law attorney such as Larry “Max” Maxwell who has experience with leasing agreements for medical practices. Contact our office for help with medical office leasing agreements, or any other type of contract.