Considerations When Leasing Medical Office Space

Typically users of medical office space such as doctors, dentists, physicians, and other medical professionals don’t move around as much as traditional office space tenants.   Because medical office tenant improvements are expensive and the fact that moving could cause them to lose patients, medical users typically sign long term leases.  Some movement of medical offices, however, is necessary as medical professionals desire to compete for and be geographically closer to their patients.

It is becoming more common to see medical offices in nontraditional locations, such as in strip malls, neighborhood centers, and other retail type space in more suburban locations. There is also a trend towards offices with smaller footprints and in urgent care clinics. In many cases leasing medical office space is similar to leasing professional office space however there are a few considerations that should be made.

Most medical users only lease space once every 7-10 years.  Therefore it’s prudent to find a commercial real estate agent who has experience leasing space for medical offices. Brokers with experience in this will be more apt at finding the right space, negotiating the best terms and fitting the unique needs of clients in medical office space.

Key Issues to Consider When Leasing Medical Office Space

1) Special Uses – Make sure the property meets the requirements of the medical office needs.  Some medical offices typically use X-ray machines, etc. and generate hazardous waste, some of which may require special requirements or city compliance.

2) Utilities – Most healthcare facilities operate after normal business hours so make sure the building does not charge for after hours air conditioning or heating use.

3) ADA – The building must comply with the Americans with Disabilities Act (ADA). Medical offices are likely to have patients with special access needs.

4) Landlord Access – Most lease contracts have that the landlord can access the space at any time.  Medical offices need to prevent the landlord from entering during certain hours. Examination rooms and other private offices have particular doctor-patient confidentiality requirements. Make sure there is a clause about this in the lease agreement.

5) Anti Kick-back Laws – Be especially careful if there is a landlord-tenant relationship. For example, if the physician or hospital owns the property. The government puts in place anti kick-back laws to eliminate corruption, and the tenant will have to keep detailed documentation to adhere to these laws.

6) Exclusive Use – It may be good idea to push for an exclusitivity provision in the lease contract. This means that the landlord cannot lease medical office space to any other tenant in the building that offers the same specialty, products and services as you.

7) Death and Disability – If the medical office is overseen by one practitioner, a death and disability clause with the ability to cancel the lease should be explored.

8) Lease Terms are Longer – Medical Office Tenant Improvements are typically very expensive ($60 to $75 sf) because of all the plumbing and other special medical improvements needed.  Therefore in order to get the most tenant improvement allowance longer leases are typically needed.

9) Choose Your Own Architect & Contractor – Landlords will push you to use their preferred vendors however you need vendors that are experienced with executing medical office finish outs.  They are qualified in the medical office design and compliance with most laws.

10) Landlords Right to Relocate – Landlord’s typically try to retain the right to relocate you in the event a larger tenant needs to expand.  You need to push hard against this.  The cost of improvements are way to high for this to be reasonable.

11) Liens on Medical Equipment – All of the landlord’s lien rights should be subordinate to your medical office equipment leases and purchases.

Above are just a few considerations that Healthcare providers should make when leasing medical office space.  If you have any questions or for additional information feel free to contact us.

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