The Difference Between an Office & Healthcare Lease
Commercial Lease Negotiations Tips For Medical Office Spaces
The overall leasing process for medical facilities is similar to other commercial leases, however, the specific clauses that need to be addressed and negotiated within the lease agreements are highly specialized and specific to the healthcare industry. A few examples of healthcare-specific lease terms that may be neglected in a typical office lease are the following:
Exclusivity
Specialized practices will look to have the right to restrict similar uses for future tenants i.e., primary care, ophthalmologists, orthopedics, etc.
Prohibited Uses
Many healthcare practices will look to restrict other uses allowed within the building i.e., smoke shops, sex shops, tattoo parlors, bars, or liquor stores
Lease Assignability
A primary goal of many private practices is to sell their practice as part of an exit strategy; the ability to transfer the lease is a critical component
Death and Disability
If the primary doctor were to pass away or become disabled, this clause releases the tenant from their liability, protecting the spouse/family
Expensive Tenant Improvements
Heavy buildout with walls or floors that may need to be reinforced for equipment weight or protections from X-rays, MRI machines, and CT Scanners along with specific HVAC and ventilation requirements for exam rooms - a larger tenant improvement package should be negotiated
Security and Landlord Access
HIPAA regulations will require that access must be limited in areas where individual medical records or other personal health information are stored
Utility Usage
A healthcare practice will utilize more water, electricity, and HVAC - a landlord needs to verify they have sufficient utility capacity and how the additional costs will be handled
Hours of Operations
Freestanding emergency rooms and urgent care centers may operate 24 hours a day
Pandemic and Force Majeure
Two major issues we are seeing today include construction timelines being disrupted, jeopardizing meeting the commencement date of the lease, and the handling of rental payments during government-forced closures
ADA Accessible
ADA compliance will be required; a non-institutional or non-traditional landlord may not be familiar with the building requirements required
Surrender of Premises
Knowing the extent of the tenant improvements required for healthcare tenants, landlord and tenant should have agreement on the ownership rights of the improvements and the removal obligations and limitations upon lease termination
Hazardous Materials and Medical Waste
Medical tenants are required to comply with all Occupational Safety and Health Administration (OSHA) regulations regarding handling and disposing of medical waste
Time Shares
Many physician practices have underutilized time and space that can be offered to other physicians on a per-day/time-slot basis - Stark Law must be followed, the space agreements must be at fair market values
Many of these clauses are fully negotiable, however, if you’re not working with a healthcare real estate specialist, they may go unchecked. The difference between a properly or poorly negotiated lease can save or cost a healthcare practice hundreds of thousands of dollars. Executing a lease agreement can be one of the most significant business decisions you can make. It is critical to surround yourself with healthcare real estate experts. When choosing your team, ensure you are filling each role (real estate agent, architect, contractor, attorney) with experienced healthcare-focused professionals. At Rokos, we are here to assist you with that process, as a tenant-focused firm with the flexibility to offer local and national companies the best pricing, leverage the latest technology, and work with the sharpest talent available.
Is your healthcare company looking to reevaluate its real estate needs? Contact a Rokos broker today! We are committed to finding the best results for your business.
Rokos Advisors is an award-winning Minneapolis – St. Paul-based commercial real estate/tenant representation firm specializing in helping businesses find the perfect office or industrial space for their company.
*Article authored by Rokos Senior Associate, Jake Sampson