4. Negotiating for Space
Next up are lease negotiations.
Although you're highly skilled at saving patients' lives, you're probably don't have any negotiating skills. And why should you? Your expertise lies in another area.
That's why you should hire a tenant rep who specializes in healthcare real estate to do the negotiating for you.
What You Should Ask for In Your Negotiations
Compared to their residential counterparts, commercial leases are incredibly complicated.
And, how long it'll take to negotiate one depends on the size of your space and the amount of back and forth that's required between you and your landlord. Sit down with your broker and list the topics you want to discuss. By making a list, you'll clarify your priorities, and what's worth fighting for will suddenly become apparent to you.
By now, you should have done some comparison shopping to see what other landlords leasing medical office space are charging. Know that everything is negotiable—including rent.
Ask your tenant rep to negotiate the rent down to between 5% and 20% of what your landlord is asking. And for each year of your lease term, try to get one month of free rent.
Who Pays for the Build-Out?
Build-outs can either be turnkey, where the landlord is in charge of improvements and hands over the keys to the tenant when his guys are done, or they can be overseen by the tenant. When they're managed by the tenant, the tenant hires a project manager to make the improvements.
Whether or not your landlord gives you any money towards improvements is something you'll have to decide during negotiations. Shoot for a lease term of 5 to 15 years with options to renew.
A lease that's a year or less in length will buy you very little negotiating power. So, if this is the length of your contract, you'll probably have to take the space as is, and you'll have to pay for any tenant improvements yourself.
Often, your landlord will pay for the build-out if you rent the space for three years or more. Many landlords will be open to discussing paying for build-outs if this means it'll increase the chances of the tenant renting from them and not going elsewhere.
If your landlord agrees to pay for the renovations, negotiate with him to establish a per-square-foot cost. But don't just take the guy at his word.
Measure it yourself.
The landlord might also set conditions you'll have to meet before he releases any tenant improvement funds to you.
For example, if you're taking out a loan to cover construction costs, he might ask you to sign a lien waiver. This is an agreement signed by a contractor saying he got paid for his work on the build-out and is releasing any claim he had on the property in case his services weren't paid for.
If the landlord doesn't give you any tenant improvement money, try to negotiate for reduced rent or even free rent for a certain number of months to help offset build-out costs.
Offers and Counter Offers
The negotiation process is going to be a series of offers and counteroffers. Each time a party makes a counteroffer, the other party is given a chance to review it. Each round can take a week or more depending on how many changes are proposed.
The landlord is going to try to write the agreement so that it favors him. Make sure your tenant rep advocates strenuously on your behalf so that your lease is beneficial to you.
Don't rush the process either. Allow at least four weeks to hammer out all the details. And, have other team members look at the lease and make a list of things they want to be added or changed.
There are a couple of provisions you'll want to have in your lease.
One of them is a provision allowing for the storage and the eventual removal of medical waste. The landlord will want to know if you're planning on having hazardous materials on the property because this exposes him to potential liability.
The landlord might mandate periodic inspections by a qualified specialist to make sure you're adhering to all applicable laws. He may also want specific clauses inserted into the lease, clearing him of any legal liability that could result from the waste storage.
And in case a spill happens, the landlord might want assurances that only a certified chemical or biological cleanup company will take care of it.
Another essential provision is one that addresses property liens.
Landlords often want the right to place a lien on a tenant's property to protect themselves in case of a default. If the tenant can't pay the rent, the lien gives the landlord the right to keep any property that belongs to the tenant left in the office space.
If one of these clauses is in your lease, make sure it excludes patient files so that there is no violation of patient confidentiality.
And because you have confidential records on site, you're going to need to negotiate for the right to have you or your representative accompany your landlord should he need to enter your office area for any reason.
This makes sure your patients' confidentiality is upheld.