Five Key Things to Consider Before Executing a Commercial Lease for Medical and Dental Offices

Before entering into a commercial lease for medical or dental offices, there are a number of issues to consider.  Five are set forth below:

1 -Personal Guaranties – Medical or dental practitioners may have formed a business entity such as a limited liability company or professional corporation to shield themselves from personal liability.  However, many commercial landlords commonly require personal guaranties from the individual owners of the business entity, which may expose practitioners and their personal assets to liability if the tenant defaults under the lease. Also, if you do have such an entity, execute the Lease in its name and not as an individual.

2- Renovations/Improvements – The commercial lease should set forth whether the landlord will be designing and constructing the tenant improvements at its sole cost, the landlord will be giving the tenant an allowance for tenant improvements or the tenant will be responsible for designing and constructing the tenant improvements at its sole cost.   The lease should also expressly state who is the owner of all tenant improvements, and whether that tenant may remove its improvements at the expiration or termination of the lease.  If tenant is allowed to remove them, the lease should specify in what condition the space must be left.

3- Equipment – The lease should expressly state that all trade fixtures and equipment installed by tenant will remain tenant’s property and that tenant may remove its trade fixtures and equipment upon expiration or termination of the lease.  Clarity is needed, including defining what is in each category so that the potential arguments as to what may or may not be removed is reduced.

4- Death or Disability Clause – A closely-held medical or dental practice needs to consider whether it would be able to continue to operate if a critical owner or employee dies or becomes disabled and cannot work.  It should try to negotiate including a provision allowing it to automatically terminate the lease if it so loses its critical person.  This is particularly important in a sole owner practice situation.  One does not want to burden one’s family with the financial obligations of such a lease if it can be avoided.

5- Assignment – A medical or dental practice may want to include a provision allowing it to assign the lease to a buyer of the practice without the landlord’s prior consent because a requirement that landlord approve the assignment may be a significant hurdle in selling the practice.  Sometimes this is not attainable.  If not, then seek language that, although such consent will need to be obtained, “it will not be unreasonably withheld.” Also, some form leases require that the landlord be notified if/when the tenant’s ownership structure changes.  This can be burdensome.

A landlord’s form lease will generally contain landlord-favorable provisions.  Some are more onerous than others.  Always read every term in the lease and engage a real estate attorney to explain the lease provisions to you and attempt to negotiate more favorable terms on your behalf.

Helen H. Mountain is a partner at Lamb McErlane PC. She concentrates her practice representing companies in corporate and business law counseling, as well as corporate and financing transactions. She also has extensive skills and experience in real estate and development matters and serves clients in a range of municipal finance projects including serving as bond counsel. 610-701-3269.