How the Affordable Care act will affect the demand for lease and rental market for medial office space.
The dynamics of leasing medical office space are changing rapidly and new trends are emerging as the Affordable Care Act is implemented. Competition for new patients is forcing medical practitioners to increasingly considering non-hospital campus properties and more conveniently accessible locations to accommodate their patient base. More and more urgent care clinics are showing up in urban metropolitan areas and an increased development of smaller suburban medial office projects. Medical practitioners are less likely to relocate as often as general office tenants and typically enter into longer lease terms which make it more cost effective to build-out buildings or space for medical practices.
There are many nuances that are unique to medical office tenants which require special consideration including whether tenant should retain the assistance of a broker with medical leasing experience. While a tenant representative is a prudent choice for any tenant, brokers with experience in medical office leasing can be particularly helpful due to their knowledge of local market trends, available space suited for medical offices and their understanding of the nuances and special considerations involved with leasing medical office space.
Key considerations include:
- Use: Many medical practices utilize hazardous materials and generate biomedical waste. Medical tenants may also utilize CT scans, X-ray machines and other equipment which may generate harmful radiation. These special requirements should be addressed in the lease to ensure compliance.
- American Disabilities Act: Many medical practices have patients who have special access needs and requirements. Both building owners and medical practitioners must comply with ADA and are subject to ADA scrutiny. Medical tenants should carefully review ADA provisions within the lease and have a thorough understanding who is responsible for ADA compliance.
- After-hours & access to utilities: It is not unusual for medical tenants to see patients after normal building hours or in the case of some practices, to operate for extended hours or on a 24 hour basis e.g. urgent care clinics. Medical tenants should carefully review utilities provisions within the lease and have a thorough understanding how building utility fees are assessed on an after hours basis.
- Entry by Landlord and privacy: Most commercial leases contain provisions in which the landlord has the right to re-enter space for maintenance, repairs, to inspect for compliance with lease terms and to show space to prospective future tenants. Given the nature of most medical practices, health care providers should limit landlord’s access to examining rooms and other areas during certain hours and protect confidentiality of patient records.
- Anti-kick-back: Also known as the STARK LAW prohibits any physician to get any kick back by referring to other physicians or hospitals. Federal laws mandate special requirements for leases between medical tenants and properties that are hospital or physician owned. Proper compliance and documentation is necessary in those cases in which this type of landlord / tenant relationship exists.
- Exclusivity: Often, leases contain provisions in which the landlord agrees not to lease other space in the building or development to a party whose use would be in competition of the tenant’s use of the space. In certain medical practices, it would be prudent to obtain such protection.
- Death or Disability Clause: Should a tenant be an individual practitioner, it’s imperative that tenant includes a death or disability clause within the lease which enables the tenant to terminate the lease (typically with penalty) in the event the physician is unable to practice due to death or disability. Landlord may require tenant to add landlord as additional insure to tenant’s death or disability insurance to further mitigate landlord’s losses.
- Tenant Improvements: Medical office space lease or rental typically requires build-out at a cost which significantly exceeds that of a general office tenant. In today’s environment, a typical medical office space build-out can run from $40 to $80 per square foot. Generally, extensive renovations including plumbing, fixtures, mill work, installation of equipment as well as upgrades of the general office appearance, will create additional costs to landlord which have a direct impact on occupancy cost.
Other lease transaction issues that should be considered:
- Relocation provision
- Contactor & Architect
- Restoration of Premises
If you have questions about medical office space for lease or rent, please contact Urban Realty today.