A Closer Look into Medical Office Space Leasing

medical office space nuancesThere’s not much movement as far as medical office space leasing is concerned. That’s because compared to ordinary office space users, medical office space tenants and physicians with private practices don’t relocate to new sites quite often. But with the need to be at more accessible locations to grow their clientele while retaining current patients, there is a growing demand to relocate to areas outside hospital campuses.

Proof to this direction is the growth of smaller medical office projects being developed in metropolitan and residential areas. Even healthcare providers are now found in commercial retail centers. Complexes designed to address medical users are likely to have the provisions needed for regular operations.

But while the process involved in medical office leasing is similar to that of leasing office space for general use, there exists some differences specific to medical space users. There are nuances that must be checked closely before closing a leasing contract.

Hiring a broker with experience in medical office space leasing is one of the first moves to take if you’re in the market. In fact, getting the services of an office space broker is a wise decision, but one with experience in leasing medical office space who may know of available properties that you have yet to explore. In addition, experienced brokers have a better understanding of how to approach the terms and conditions of a lease contract particularly in relation to your requirements as a healthcare provider.

Some of the items that should be considered are the following:

  1. Usage requirements: With the toxic materials used and biomedical waste produced by medical lessees along with the equipment used such as X-ray machines and CT scans that may generate harmful radiation, special facilities must be accounted for in the lease documentation.
  2.  After Office Hours Access and Utilities: It is not unusual for medical tenants to entertain patients even after normal office hours. Some will even have 24-hours operation, such as an urgent care clinic. This should be factored in along with the use of utilities. Paying close attention on this area can save unnecessary expenses.
  3. Americans with Disabilities Act (ADA) Compliance: Patients are likely to require special access such as ramps, et al. when compared to the general public. Properties leased by healthcare providers are likely to be scrutinized on ADA compliance. With this in mind, medical lessees should make sure that the ADA clause is included in the lease contract.
  4. Lessor Inspection and Privacy: Landlords, in general, have the right to re-enter the leased commercial space to conduct inspections if the tenant is in compliance with the lease, allow entry for repair and maintenance or even to show the space to future tenants. Medical users, however, need to ensure that the landlord has limited access to certain areas such as examining rooms during certain hours of the day. Lessors should also have no access to the records of patients.
  5. Anti-Kickback Concerns: Appropriate documentation and compliance must be dealt with if medical tenants will be leasing a property owned by a hospital or physician. If such a landlord-tenant relationship exists, it must be addressed as safe harbors under the federal Anti-Kickback Statute.
  6. Provision for Exclusivity: This provision is a lease agreement wherein the lessor promises that no space within the property or development will be leased to another entity or business in direct competition with the lessee. It’s wise to get exclusivity for your specialty or service if you’re renting a medical office building.
  7. Death and Disability Terms: The lease terms should provide the ability to cancel the lease, usually with penalty, should the physician is unable to continue practice due to death or disability. Solo practitioners will find this beneficial. Although the lessee’s insurance should be able to provide this, and landlords are likely to point this out, such terms can be arranged successfully into the contract.
  8. Tenant Improvements: The expenses in improvements to leased space for medical office usually exceed that of a general office tenant. Aside from the normal office build-out, extensive work on plumbing, equipment installation as well as equipping the space to address compliance issues pile up to $50 to $100 per square foot. In addition, certain lease and contractual issues such as lease terms, contractors, relocation, restoration, etc. should be factored in.
  9. Lease Term: Typical office lease contracts are 3-5 years, however medical office leases are usually 7-10 years. One reason for this is that medical office finish outs are more expensive thus needing more term to receive a larger tenant improvement allowance. Another reason is that after establishing a clientele the last thing medical office users want to do is have to reestablish a clientele if existing ones do not want to drive farther.
  10. Architects and Contractors: Most landlords prefer that you use their own list of approved contractors & architects, however it’s important that you use the ones with experience in medical office space construction and design.
  11. Relocation clause in lease contract: Most office leases have relocation clauses that allow landlords to relocate you to another space within the building in the event a larger tenant wants to expand or move in or for other reasons.  Because of the expense and specialization of medical office space build-outs tenants should resist this.
  12. Leins: Most physicians lease medical equipment purchases so make sure you make the landlords lien rights subordinate to your lenders for equipment purchases.

Real estate is a substantial financial commitment for medical office space tenants. Taking advantage of the knowledge and experience of a tenant advisor along with a careful planning will not only ensure that you’re able to find the right location but also work on a well-structured lease agreement that meets your specific requirements.

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