Review Your Medical Practice Lease: Prescription for Long-Term Prosperity

Based on our experiences working with thousands of physicians and dentists across North America on new lease and renewal negotiations, there are likely to be many other doctors with very busy practices who have not recently reviewed their own lease document. However they would benefit tremendously from taking the time to do so.

If you are a healthcare professional, it is essential to ensure that your lease has been purposefully constructed with your career and life goals in mind and at the same time incorporates other specific and calculated measures to foster the long term health and prosperity of your practice. Many landlords standard form leases are drafted with other types of uses in mind and require a great deal of review in order to be certain that they adequately serve a specialized business like a medical practice.

In addition to spelling out your financial responsibilities, your lease contains numerous business terms and provisions governing your obligations to your landlord and vice versa. All too frequently, we encounter leases in which physicians and dentists have focused on and only negotiated the financial aspects of the lease such as rent, improvement allowances and other inducements. It is unfortunate that many physicians sign leases without being advised that there are other rights, privileges, protections and practical business terms that are available to them. Few landlords volunteer these rights without being prompted, but many are open to accommodating or granting other rights that are tenant-friendly, if asked.

During the entire lease negotiations process, I was treated better than I expected. I truly believe they acted with my best interest. I have a very fair lease that I can live with for many years to come.
Dr. Lance Timmerman - Renton, WA

Regardless of the location or type of practice in question, one fact is abundantly clear - for a practice to be profitable and survive long-term, a steady flow of patients is mandatory. While this appears to be an obvious statement, our experience tells us that there are many factors that contribute to making sure that your waiting room is full. Choosing a good location with convenient access for patients and being a good healthcare practitioner may simply not be enough. You have to look just outside your office and consider your place of business as a major influence and acknowledge that there is more that can be done to ensure that your current patients become long-term patients.

For this, you also have to protect the niche your practice occupies and enforce those rights in your lease that stipulate the extent to which your landlord is obligated to repair, maintain and operate the facility that your office is a part of.

It would not be a stretch to assume that most people do not relish a visit to their doctor as much as going to their favorite store or restaurant. Your lease should allow you to establish and maintain a practice that makes a visit by one of your patients as stress free as possible. This will increase the probability that they don’t visit your colleague next door or down the street. In certain medical facilities, the existence of additional services is paramount to making a patient’s visit convenient. Locations in which diagnostic imaging facilities, labs, and pharmacies all co-exist, or have more affordable and abundant parking, may attract more patients than one that is short on these assets.

Below are seven basic business terms that tenants in many fields fail to adequately review. Consider the exercise to be a basic “Lease Physical”. If any of the following concepts pertain to your particular situation and you are not aware whether or not they have been addressed satisfactorily in your current lease (or one that you are considering executing), it might be prudent to give them more consideration.

Does the USE clause in your lease afford you the flexibility to broaden your services in the future by offering new treatments or procedures?

You may want to take on other health care practitioners to bolster the scope of services/treatments you offer your clients – be careful that your USE clause isn’t too specific.

Do you have an EXCLUSIVITY clause in your lease?

This is a means of protecting your practice in environments where it may be detrimental to your business to have competition.

Does your ASSIGNMENT/SUBLETTING provision allow you to transfer, sell your practice, or take on associates without prohibitive penalties?

It is beneficial to have the right to reasonably transfer your practice to someone of good financial standing without significant interference from your landlord; the necessity for a change in your career may arise.

Is there a CO-TENANCY clause in your lease?

If your practice would falter when the pharmacy, lab or another neighboring tenant were to leave, this is a protection that you should consider.

Are you familiar with DEATH & DISABILITY clauses?

For single practitioners, these clauses provide peace of mind to the tenant and its family in the form of a low cost insurance policy in the lease in the event of unforeseen circumstances – many landlords will consider inclusion in a lease.

Does your lease clearly address the landlord’s REPAIRS/MAINTENANCE obligations?

Medical office buildings are heavily trafficked, accelerated wear and tear on building systems and common areas is a consideration. Run down facilities are not attractive.

If you require additional space to expand your practice, do you have FIRST RIGHTS on adjacent space?

These types of rights are important to consider if there is a chance your practice may grow. With all the finances put into many practices, the flexibility to expand can save a great deal of time and money.

Physicians work in a highly specialized and demanding field. Medical practices are businesses that are driven by a unique set of factors and for one to be successful, it is important to be acutely aware of and capitalize on the options that may be available. A properly constructed lease that addresses your needs should benefit your patients as a by-product and have a significant positive impact on the long term health and prosperity of your practice.