Avoiding Common Pitfalls In Leased Healthcare Spaces
The ambulatory care trend isn’t going anywhere. And as hospitals and health systems continue to spread their reach into communities through smaller clinics and medical office buildings, the more they’re considering leasing these spaces as opposed to buying.
From shopping centers to office buildings to mixed-use developments, possible locations for new healthcare offerings are endless. However, much of the success of these efforts can hinge on one thing: the lease itself.
On hand at the Healthcare Design Expo & Conference to explain common pitfalls in the leasing process in healthcare and how to avoid them were Alan Whitson, president of Corporate Realty, Design & Management Institute, Michael Meyer, a partner and managing partner at law firm DLA Piper, and Mark Johnson, managing principal of the healthcare practice group at realty firm Cushman & Wakefield in their session “Addressing Regulatory, Design, Construction, and Patient Safety Issues When Leasing Healthcare Facilities.”
The problem with leases in general is that they’re actually quite simple, legally speaking. “Everything you need to have in a legally binding lease can fit on the back of a business card,” Whitson said. But when it comes to the complexities of healthcare, that business card soon becomes a 100- to 250-page document.
To make sure the interests of the tenant are safe, Meyer suggests starting simple: “If you just read the lease, you’ll be ahead of the game.”
But then there are a whole slew of other best practices to keep in mind, especially to make sure a space is appropriate for healthcare applications, starting with not falling in love with a particular property, Meyer advised. For example, it’s best to find a few buildings that seem to fit the bill and then put out a request for proposals for landlords to respond to specific requests and requirements of the healthcare provider.
Things to cover include a non-disturbance agreement in the case that a landlord defaults on a loan and the lender attempts to evict the healthcare tenant, dictating hours of operation that may go beyond that of a traditional commercial tenant, or requesting a space that surpasses the legal limits of ADA to offer more handicapped parking spaces or accessible ramps. The client can then best choose the right building from those landlords willing to work within those parameters.
“There are a lot of things you need to consider in the lease for the rules and operations of the building,” Johnson said, and the lease should cover everything down to the physical characteristics of the space. If a buildout is required, the effective start date of the lease should be negotiated to allow for any delays caused by the landlord, for example. Or if exam rooms, for instance, require plumbing, the lease should outline that adjacent units can be accessed for construction.
Whitson said it’s important for designers to be involved in the RFP process, too, to help clients better envision what they need from a space and what will need to be added to make it work, helping a real estate broker narrow down options and quicken the selection and elimination process.
Other pitfalls to avoid include details as simple as ensuring the lease is dated and signed or that no attachments are missing, Johnson said, while Whitson recommended to know your limits and what's simply unacceptable in an agreement—as well as to develop an exit strategy if conditions change after signing a lease. Meyer added it’s best to ensure a right to renew when the lease is up for one or more contiguous floors on the chance that needs change and growth, rather than an exit, is needed.