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How to Prepare for a HealthcareTenant Lease Negotiation

Step 1:Begin Preparing For Negotiations in Advance

How to Prepare for a Healthcare Tenant LeaseNegotiation

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Whether you’re dealing with a new lease or renewal, you need to leave yourself time to prepare for any negotiation. Start the process 24 months before your lease’s expiry date. Often, option-to-renew deadlines occur six months or more prior to expiry and you will need to be prepared well in advance.

Step 2:Identify the Risks in Your Current Lease

Identifying the risks of your current lease entails thoroughly reviewing your lease well in advance of the expiry and formulating a list of those terms and conditions that are unreasonable and require amendment.

Most leases are worded in favor of the landlord. A common example of unfair language might be termination provisions on behalf of the landlord. Such provisions are often hidden within 60 pages of “legalese”, and grant the landlord the right to terminate the lease before the agreed upon expiry for various reasons. For example, a landlord may have a Demolition Clause, which could give them the right to terminate the lease if he or she wishes to remodel the building. The landlord may not actually begin renovations; however, he may still terminate your lease.

Another example of a landlord unfairly terminating your lease could occur when you wish to sell or assign your practice. If your Assignment Provision is not worded correctly, the landlord may terminate the lease once you communicate your intention to hand over your space. Landlords put these clauses into leases to afford them the flexibility of signing a new tenant for more rent during the existing tenant’s term. Some other provisions that may prove a risk include:

Tenant ConstructHave you signed the lease in your personal name, thereby giving the landlord the unfettered right to pursue your personal assets in the event of a default?

Relocation ClauseCan your landlord force you to relocate your practice at your expense?

Cure PeriodsDo you have the right to remedy any defaults that may occur?

Option to RenewIs your option to renew unduly tied to your performance under thelease?

Step 3:Determine Short and Long Term Goals

Determine your goals and understand how they relate to your tenancy. For example, a 45-year old dentist expects that he/she will be practicing for 15-20 more years. Therefore it may be beneficial to negotiate a 20 year lease cycle comprised of a combination of terms and options to extend. This gives you peace of mind knowing that you have a fair lease document that clearly states rents, rental increases and provisions taking you well into the future. If you choose to relocate your practice you have the option not to renew once the then current term expires.

By contrast, a 60-year old physician who will not be assigning his/her practice and will retire shortly, should set up a much shorter combination best suited to addressing retirement needs. By dealing with the terms in the document properly now, it will not be necessary to bother with them again. If the 60- year-old physician plans to transfer or sell a practice, a carefully crafted lease agreement that balances the needs of the retiring physician with the incoming tenant needs to be constructed. The outgoing tenant will want minimal strings attached or risk after departure. The incoming tenant will want longevity on the lease for security. These requirements must be balanced to benefit both parties.

Step 4:Commence Discussions with Your Landlord

Negotiating is not an exact science. There is no sure and fast way to come to a deal to which both parties will agree. However, by knowing which risks require amending first according to your goals, and by starting well in advance, you will be two steps closer toward leveling the playing field. Your landlord now holds less leverage over you than if you did not take the time to review the document and decide what terms you need and were forced to make decisions at the last minute.

Besides staffing, the highest expense in a healthcare professional's practice is usually the costs associated with their tenant lease. Property owners and managers strive to increase their property’s value by increasing rent over time and enforcing lease agreements at the tenant’s expense. Failing to obtain a fair lease agreement with your landlord could result in an unexpected eviction or other costly events, yet many physicians and dentists are unaware of the risks in their lease agreement until it is too late. The following steps will help you prepare for your next lease negotiation or renewal.

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