Will you be prepared when the time comes to renew your medical office lease? Healthcare providers know that the office space is the driver for your practice. The location, layout, and condition of your office impact your patients, staff, and bottom line.
As a Tenant you need to be prepared and leverage the opportunity of the renewal to improve your current lease terms. WAIT: Before you accept the landlordās proposed renewal terms, get educated to negotiate a better deal.
Start the Process Early
Begin thinking about practice goals and needs up to one year in advance but ideally, you should begin discussions 200+ days before your lease expires. Its always best to mark dates on the calendar as you may have some restrictive language stating 180 days notice. Overall this timeline will allow you to avoid forced decisions.
Gather InformationĀ
Take time to thoroughly review your current lease agreement and understand key concepts including:
- Lease termination date
- Renewal options and specific notice dates
- Base rent rate
- Annual rent escalation
- Operating expenses, and potential increases
Research current market rates for comparable medical office spaces in your area. Try to assess what are other healthcare tenants paying? What concessions are landlords may be offering new tenants and what type of Tenant Improvement or construction amounts?
Gathering market information will help you develop your negotiation strategy.
Tenant Improvement Allowance
The condition of your office space may be good but a renewal is an opportunity to ask the landlord to fund future renovations or improvements. If there are specific needs to enhance the patient experience, create more efficiency or simply replace flooring, paint, upgrade lighting fixtures this is the ideal time.
Negotiate Lower Rent IncreasesĀ
Typical medical office leases have annual escalation clauses increasing rent by 3% or more. Today, Landlords are seeking higher increases however, with successful leasing history any effort to minimize future increases further manages occupancy costs.
Review Operating Expenses
Typically, Tenants pay a pro rata share of expenses like CAM or maintenance, property taxes and insurance. Make sure you thoroughly understand what you are being charged and seek reasonable limits on how much your share can increase in each year.
Send Renewal Proposal in Writing
Itās prudent to have your proposal in writing to send to the landlord. In fact, many leases specify this and provide a key date. Be specific and complete in addressing proposed changes to rent, lease term length, tenant improvement allowance, operating expenses, and other key items.
Ā Regardless of the terms you seek or request,Ā the landlord will likely counter your proposal or reject certain requests. Itās a long run game here so keeping dialogue and level thinking is to key to achieving a fair deal. Clearly, each party will likely make concessions to work it out.
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