When leasing a real estate space for any business, the landlord and tenants must negotiate on several basic terms. These terms include rental amounts, lease duration, and respective obligations for repairs and maintenance. However, medical tenants have certain unique concerns beyond basic provisions applicable to the general tenants. A physician tenant should navigate regulatory and non-regulatory issues which are concerned with the medical practices in order to negotiate a lease successfully.
Here are some Dos and Don’ts of medical and healthcare facility leasing.
Do: Tenants should address regulatory issues.
If a medical tenant is renting a real estate in a facility owned by either a medical practice, hospital, ambulatory surgery center, or other entity with whom the tenant has a referral relationship then the parties must comply with the federal Stark’s and Anti-Kickback rules and regulations. To protect against violations, an appraisal of fair market value of the space or defensible justification for the rental amount must be obtained with help of proficient real estate valuation services.
Additionally, HIPAA rules must be considered in drafting the medical office lease. The physician tenant is required by HIPAA to ensure the confidentiality and safety of patient’s medical records. The lease should limit a landlord’s access to the premises where patients’ medical records are stored or kept.
Don’t: Tenants should not take it for granted that every general contractor will be efficient to manage a medical facility build-out.
If a physician tenant is responsible for the build-out of the medical space, then that tenant may hire a contractor who would agree to work at low cost. However, besides price, other factors too need to be considered. The contractor should be familiar with the specialized requirements of the operation of the systems and equipment in a medical office building. For instance, wheelchair access may be necessary and secure space may be needed for patient and medicine records. Not all contractors are efficient of providing the specialized services required for an appropriate medical office building. They need to be interviewed properly to ensure their qualifications and skills.
Do: Tenants must consider exclusivity clauses tailored to their medical practices.
It is beneficial for health-care tenants to negotiate an exclusivity clause with the landlord. The clause prohibits the landlord from renting out other area in a medical office building to a healthcare tenant with the same type of medical practice. This is concern for medical practices with more specialized areas of medicine. For instance, a pathological lab in a multi-tenant building will wish to prohibit the landlord from renting out area to another pathological lab in the same building.
Don’t: Tenants should make no delay in starting the lease process.
Ideally, healthcare tenants should commence the process of identifying and moving into a new facility at least a year in advance of the anticipated move-in date. Once the space is finalized, tenants need to work out a lot of things with help of an expert real estate appraiser. If the current configuration is not suitable for the tenant, professional architect should be hired to develop a floor plan. Permits must be obtained. The process for a healthcare facility often takes a long time span so the tenants should make no delay in starting the lease process.
Do: Health-care tenants should anticipate future medical business structures and transactions.
In today’s business environment, several practices are presented with opportunities that would modify their existing legal structure. So it is beneficial to sell a medical practice to a hospital making the physicians direct employees of the hospital. In accordance with this, an applicable space lease must be assigned to the concerned hospital. A properly drafted lease with help of a reputed business valuation service will permit the desired sublease without the consent of the landlord. However, if the landlord has ability to prohibit sublease, it could become difficult to deal with negotiations of sale of its practice.
These are some important dos and don’ts that should be followed when leasing medical and healthcare facility.