Entering a commercial property lease is a big deal for your healthcare practice, especially when starting. Finding the right location with just the right space to lease can be the key to propelling your business’ success. However, it’s also vital that you have a clear and fair lease to sign.
You’ll need to avoid roadblocks along the way and thoroughly understand the lease terms presented to you. It’s not uncommon for leases to include unfavorable clauses, so you must be vigilant. Before signing a lease contract with a landlord, look out for these top five red flags that I’ve commonly encountered in my everyday practice.
1. Landlord’s Financial Troubles
Take a very good look around the property presented to you and explore beyond the office itself. Ask yourself these questions:
- Has the property been adequately maintained and cleaned?
- Are there numerous unoccupied spaces in the property?
- Have you heard positive or negative testimonials from other tenants?
- Is the landlord offering you abated rent but unwilling to discuss tenant improvement (TI) allowances?
A landlord’s financial troubles can manifest in different forms. Keep an eye out for any sign of financial constraint because the landlord’s problems can become your practice’s problems. Depending on how grave their situation is, a landlord may not be able to carry their portion of the financial obligations of the contract, which will negatively impact you, the tenant.
2. Lack of a Non-Disturbance Clause
If your lease doesn’t include a non-disturbance clause, it’s another red flag that warrants further negotiation. A non-disturbance clause is a provision in a contract that ensures that a rental agreement between the tenant and the landlord will continue under any circumstances. This clause is intended to protect you, the tenant, from eviction if the property goes into foreclosure if the landlord is having financial difficulties.
3. Relocation Clauses
If your office is in a multi-tenant property (e.g., shopping center, minimall), a relocation clause gives the landlord the right to move your business to another space within the property. When this happens, it’s not only a nuisance but may also have damaging effects on your business. It all depends on the new office or area you’ve been moved to. Harmful factors include poor visibility, inadequate parking, or confusion for patients visiting your office.
Any relocation clause in your lease should be removed. At the very least, it should be crafted to benefit your business by ensuring the landlord gives you plenty of notice and that the new space is equal to or better than your existing space.
4. Unclear CAM Charges
Common Area Maintenance charges, commonly referred to as “CAM,” are maintenance fees that landlords pass on to their tenants. CAM charges usually cover maintaining, repairing, and cleaning the common areas of the leased property.
CAM charges typically benefit the landlord, allowing them to be reimbursed for certain costs associated with owning and managing the property. However, the danger in a vaguely written CAM coverage provision is you may get hit with a bill for maintenance or repairs that you didn’t expect or understand. Therefore, you must clarify exactly what CAM charges can include and solidify the details with the landlord in writing.
5. Recapture Clauses
If you plan to sell your practice down the line and assign the lease to a new buyer, you must understand the recapture clause. This clause grants the landlord the right to retain possession of the property before the expiration of the lease.
In essence, this clause allows the landlord to cancel the lease instead of assigning it to a new buyer, making it nearly impossible to sell your practice. Recapture clauses can be standard in commercial office leases, but it doesn’t mean you should agree to them. So don’t sign a lease with a recapture clause included in it.
Additional Red Flags & Next Steps
These top five red flags are just the beginning, and the list doesn’t end here. Countless sneaky provisions find their way into leases every day. I highly recommend that anyone signing a lease seek experienced legal advice to protect their investment and best interests. My office has helped many practices achieve success and peace of mind with their commercial leases. Reach out to us if you have any questions about your healthcare lease — we’d be happy to help.
