Leasing Pitfalls of Medical/Dental Office Space
By: Stacie M. Dowling, Esq. | March 15, 2017
So you think there is nothing unique about a Medical/Dental lease, right? There should be no problem using the same lease that the Landlord used for the dry cleaner next door, right? Wrong, there are a surprising number of provisions in the Lease which must be implemented into the medical/dental lease to protect yourself as the Tenant.
In addition to the general business terms, the legal boilerplate language that makes your eyes glaze over can be particularly detrimental to a medical/dental practitioner. In addition, excluding staff salaries, the majority of practice overhead can be the cost of leasing office space. It is therefore very important that the practitioner get the most advantageous terms allowed by the Landlord. This is where a well versed medical/dental attorney and medical/dental broker is invaluable. Here are some problem areas and ways to resolve them:
1. Zoning. Local zoning ordinances and regulations are important considerations when choosing your office location. Zoning laws can impact crucial business decisions such as making improvements to your existing property or building out space, so it is important to understand the local laws and ensure the building is properly zoned for your intended use before you commit to anything. Brokers can assist you in determining proper zoning before signing the lease.
2. Price Per Square Foot / Triple Net Lease. It is important to know what is and is not included in your rental agreement when comparing and negotiating leases. In a "triple net" lease, the Tenant usually must pay their own premises maintenance costs including HVAC costs as well as their pro-rata share of the property taxes, common area maintenance (CAM), and property insurance. It is essential to get an HVAC inspection and approximation of these expenses prior to executing your lease; and if allowable, have your broker negotiate a limitation on the CAM expenses. It is also important to understand the costs of items that may be excluded from the rent such as utilities and janitorial services.
3. Term of Lease. Short-term leases are usually not feasible as medical/dental practices usually require extensive build-out costs and installation of expensive equipment, and if the build-out is financed by a lender then a long-term lease will be required as a condition of lending. A solo practitioner obtaining a long lease may want a cancellation clause in the event of death or disability.
4. Relocation Clauses. Many leases contain a relocation clause which allows the landlord to move the tenant within the complex. If possible this option should be removed from the lease. However, if that cannot be negotiated, then the lease should provide that if a relocation occurs, the landlord will pay for all expenses associated with such a move, the new space will be similar in size and quality to the existing space, and the landlord's right of relocation right should be limited to one time during the term.
5. Compliance with Laws. Most leases provide that the tenant will "comply with all laws" etc. This provision is one that should not be ignored. ADA compliance, local building code compliance, and environmental law compliance must be reviewed and where possible, the Tenant should be provided with warranties from the landlord that the premises currently comply with same.
6. Personal Guaranty. Since the down-turn of the real estate market in the last decade, there have been many changes to the leases that offer greater protections for landlords. As tenant defaults have escalated generally, landlords have begun requiring personal guarantees of commercial leases. It is important where possible to negotiate terms that limit the personal guaranty wither in monetary amount or duration.
7. HIPAA Compliance. Most leases will require the tenant to give the landlord access to your premises as needed to make repairs and show potential purchasers etc. Practitioners are required to keep confidential medical records either in paper or electronic files. Thus, you need the right to accompany any landlord representative while within your practice. If the lease ends and files and computers are abandoned, or for some other reason, such as eviction, are not properly removed and secured, there should be specific requirements for storage and eventual destruction of such records.
Having a specialty broker and attorney on your team can save you money in the long run. Their knowledge and expertise will provide you with a dedicated approach that will cover all areas.