Pitfalls To Avoid When Leasing Medical Space

medical space
Leasing medical space is different from traditional office space

Medical space requirements after the Health Care Reform Act became law changed. Many medical practitioners joined forces to give them the ability to continue to offer the services that they wanted to provide their patients.

The shift in practice types also had a profound effect upon the type of medical space that doctors required and the specific terms and conditions of the lease associated with the practice. In the past a single practitioner would acquire an office space and could potentially begin and complete their practice at the same location. Today the key word is flexibility.

While many medical practices want the security of a long-term lease so they can establish their practice and location. Many also have been severely effected by recent political events and they also need the ability to make adjustments to their practice if political winds change direction again.

If a medical practice is considering relocation, expansion or the establishment of a new location there are several important issues that should be considered. One of the most important factors is a qualified tenant representative that understands the important requirements a medical practice should consider before signing a lease.

I have thought of a few of these important issues and there are many more that time will allow me to elaborate upon. I think these are a few strong issues that should be enough to give you valuable information.

 Issues To Consider Before Moving Into A New Medical Space:

  • Equipment – In a medical practice the use of specialized equipment such as CT Scanners or X-RAY equipment poses health risks to the occupants of the space and the neighbors. Proper precautions must be considered prior to the leasing of the premises. Additionally the lease should clearly state which party is responsible for the construction and installation of the equipment as well as compliance with all city, county codes.
  • After Hours Use – Because medical business can be a 24 our event it is important to carefully review the lease and understand the building’s hours of operation. Some multi tenanted buildings may
  • Americans with Disabilities Act – The ADA was signed into law by President George H Bush. It requires that a facility be accessible by the disabled. This is extremely important for medical facilities. The visitors to a medical space should be able to access the property on both the exterior and interior of the facility. All areas must comply with the ADA regulations. The lease should detail which party is responsible for ADA compliance.
  • Utilities – Medical equipment can be classified by a landlord as high usage and may result in the space being sub metered in a multi use office building. The cost of the sub-meter is usually the expense of the tenant and it can result in a $2,000 – $5,000 charge. Additionally the medical office manager needs to determine that there is enough electrical power in the panel for the intended equipment. Otherwise this could be an additional expense.
  • Death and Disability Clauses – Because most medical practices are dependent upon the ability of key physicians to have the ability to provide services to their patients. It is important to take into account that even physicians are mortals and sometimes unexpected tragedies occur. Therefor these unforeseen circumstances should be addressed in the lease with language that allows the lease to terminate if an untimely event occurs.
  • Americans with Disabilities Act – The ADA was signed into law by President George H Bush. It requires that a facility be accessible by the disabled. This is extremely important for medical facilities. The visitors to a medical space should be able to access the property on both the exterior and interior of the facility. All areas must comply with the ADA regulations. The lease should detail which party is responsible for ADA compliance.
  • Landlord Inspection and Privacy – Medical space usually contains sensitive and private patient files. There is also HIPPA security rule that must be followed. Allowing individuals into your office that have access to patients files can place you in violation of HIPPA.
  • Anti-Kick Back Issues –  Section 1128B(b), of the Social Security Act (42 U.S.C. § 1320a-7b(b)) or the “Anti-Kickback Law” was originally created to prevent financial incentives from influencing where a beneficiary of a federal health care program receives medical treatment. A medical practitioner that has interest in real estate must be careful that the referral of a patient to a physician in an owned asset don’t cross the fine line and trigger the Anti-Kickback Law.
  • Tenant Improvement Allowance – The cost to finish out a medical space can be from $40 – $70 depending upon the decor and the infrastructure requirements for the practice. It is best to negotiate as much of this expense to be paid for by the landlord. Depending upon the financials of the tenant and the lease term this amount could be paid entirely by the landlord.
  • Death and Disability Clauses – Because most medical practices are dependent upon the ability of key physicians to have the ability to provide services to their patients. It is important to take into account that even physicians are mortals and sometimes unexpected tragedies occur. Therefor these unforeseen circumstances should be addressed in the lease with language that allows the lease to terminate if an untimely event occurs.
  • Exclusivity Clause – If possible it is a best practice to have en exclusivity clause in the lease stating that you would be the only physician in the landlord’s property that has the right to practice your specific type of medicine. For example if you are a dentist negotiate to be the only dentist in the building to have dental medical space.Tenant Improvements – The cost to finish out a medical space can be from $40 – $70 depending upon the decor and the infrastructure requirements for the practice. It is best to negotiate as much of this expense to be paid for by the landlord. Depending upon the financials of the tenant and the lease term this amount could be paid entirely by the landlord.
  • Relocation Clause – The preferential lease would have this clause eliminated however it is not always possible. If the cause is included an attempt should be made to make the landlord’s ability to relocate the premise as difficult as possible.
  • Lease Length – The typical medical space lease term is for seven to ten years. Because this is a relatively long-term lease please read the statement above about death and Disability clauses. You may also want to have an option to early terminate the lease.

There are many additional items to consider but for now I think these are a good start. If you have more ideas please feel free to comment. If you need to discuss them with a professional tenant representative please contact us and we will be happy to help.

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