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Lease Strategies

Product Overview

This LARG contains the following items:

Doing Deals with Doctors and Dentists, Adding and Subtracting Doctors and Dentists, and the Lease Clause Critique: Excerpts from a Medical Center Lease.

Number of Single Spaced Pages: 12



Doing Deals With Doctors and Dentists


Doctors practicing many medical specialties (e.g., plastic surgery) can just as easily lease space in a traditional office building, as opposed to a medical complex. Often the rent is lower (either in rent per square foot or in free rent at the beginning of the term) for office space than it is for specialty medical space. In some cases, the marketing exposure of an office building location makes sense for the practice, since the people working in adjacent offices can form a "captive" market for the physician or health care provider.

If the practice is located in a traditional office building which was not originally designed for medical uses, both the landlord and the tenant must consider whether any special needs of the medical function will be a problem (e.g., adequate parking, barrier free access, restrooms equipped for use by those in wheel chairs, special plumbing or electrical requirements for the medical use, etc.).

High Per Square Foot Improvement Costs

If the landlord is installing and financing the tenant improvements for the space which will be recovered through the rental stream, it must be prepared for high tenant improvement costs that will be spread over a relatively small sized premises, in comparison to those for the garden variety office tenant. With dentists, the cost of equipping the premises for the use of dental gases (e.g., nitrous oxide) can add to the cost of tenant improvements.

Costly per square foot tenant improvements, of course, can have a substantial impact upon the business deal, particularly with regard to termination penalties, recovery of unamortized improvements, restoration obligations at the end of the term, and so forth.

Combining Biomedical and Toxic Wastes

Most landlords are concerned about the liability for hazardous wastes these days and most include language in the lease regulating such substances and allocating liabilities arising from their use and disposal. Landlords with medical tenants often expand the scope of clauses which pertain to hazardous materials to include the biomedical waste materials that must be disposed of by physicians.

For example, medical landlords generally add biomedical wastes (including sickroom wastes, surgical wastes, pathogenic wastes and hypodermic needles and wastes) to the list of substances regulated by more standardized toxic and hazardous waste clauses (see, for example, the hazardous waste clause below).

Medical Mix and the Use Clause

When a doctor leases space in a non-medical office building for a medical practice, the use clause found in the lease is rarely more restrictive than "...Tenant shall use the premises for the practice of medicine, and for no other use..." However, if the medical office is located in a "medical" facility (i.e., where all tenants are health care providers, or where the premises are located on a hospital campus), the landlord is likely to propose a more restrictive use clause for the tenant. Often, the medical facility landlord seeks to limit the permitted use to the particular specialty practiced by the tenant (e.g., cardiology).

Restrictive use clauses permit the landlord to fine tune the medical mix in the facility, and to ensure that enough general practice tenants are present to generate referrals for the other specialists in the complex. In addition, the landlord for the medical complex may seek other restrictions upon the doctor's practice (e.g., limitations upon the use of labs and radiology equipment outside the scope of the doctor's own practice) to protect the primary providers of those services in the complex.


End of Excerpt