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What to Look For in Healthcare Medical Office Leases and Timeshares?
Medical Office Leases have been a "hot spot" for Stark and Anti-Kickback Statute. As you view new offices spaces or show it to your medical tenants, there are federal areas of concern that you should know about.
Regulatory Checklist for a Lease:
Stark lease exception and Anti-Kickback Statutes generally require that:
- The Lease should be signed in writing by the parties,
- The leased space should be specifically described or designated,
- The Lease should be for at least one year,
- The leased space should not exceed what is reasonable and necessary for its legitimate business purpose,
- The arrangement should be commercially reasonable,
- The charges should be set in advance and should be consistent with fair market values, without considering volume or value of referrals,
- When the space is being used it should exclusively be use by the tenant.
So what does all that mean? it is all in context of what is going on - meaning the facts and circumstances of the situation. Some of these things are easy to check-off and get right, but there are times when one wonders, does my lease arrangement pass the muster. That is when you will need healthcare legal counsel to step in ang go through the situation with you. So call us if you are concerned about Stark or the Anti-Kickback statutes.
Other healthcare specific provisions include: (i) protection of HIPAA information, (ii) access to premises by landlord, (iii) government audit clauses, (iv) downstream audits by CMS, (v) handling of medical waste and hazardous materials, (vi) healthcare facility licensing compliance and vehicle parking requirements, (vii) HVAC infectious disease concerns, (vii) cleansing stations with running water, (ix) sound barriers between rooms, (x) generator power when the electricity is out, and (xi) the ability to sublease and (xii) provide signage in the event a specific healthcare promotional program has to be run out of the same premises under a different "brand name." These provisions are typically not intended to be handled by a regular business or real estate attorney, for they have not had the experience in guiding healthcare institutions. However, we at Mirza Healthcare Law Partners, have quite a bit of experience handling such unique issues.
Leases come in multiple forms: one is an exclusive lease to an area for a period of years, and another is a "timeshare" lease. Timeshare leases allow a tenant to occupy the premises for a few days a month and the rest of the time the property is used by someone else.
When you select an office space to rent, whether as a tenant or as the landlord, it takes a team: typically the business' representative(s) from operations and finance, the real estate broker(s), and legal counsel, and often times a general contractor, to help put together the Letter of Intent (LOI) and the lease.
Preliminary Site Checklist - Before Negotiating the Lease:
When there is a lease you should check on certain things that make or break the lease, before you even begin to negotiate the lease:
- Location and its appropriateness for the business you are in,
- Licensing, can your current license effectively help you or limit you from operating at the proposed
- The background of the landlord and the tenant, years in business, financial strength, propensity to litigate,
- Site status with the local governmental authorities: meaning has the property passed all permits and inspections necessary, including the 40 year building recertification that certain counties require,
Checklist for Negotiating the Lease:
When you begin to negotiate the lease there are many things to look out for, and here are a few of them:
- Who are the parties? the exact names of the landlord and the tenant is important.
- How long is the lease? and is it terminable earlier than stated, and by which side - the landlord or the tenant?
- What is the lease rate for the lease? and does it include common area maintenance charges? does it include capital improvement? or fixture replacement costs (such as the roof or the air conditioner or elevators or the painting of the exterior or the repaving of the parking lot). How will those expenses be shared among the tenants?
- What happens if a natural disaster occurs or a the city condemns the building?
- Who is going to pay for tenant improvements and to what extent? Who has the right to approve or disapprove the improvements to the building?
- What happens if a visitor slips and falls, who will bear the risk? What if the person falls in the common area? What if the person falls inside a unit? or nthe bathroom?
- Will the landlord allow for tenant's competitors to move into the building? Is there an exclusivity of use?
- What if a few years later the tenant needs more space or less space, does the lease have provisions for that?
- Who will indemnify, waive or release whom if something goes wrong?
- Will the Tenant have the right to audit the Landlord?
- What if the Landlord decides to sell the property? Will the tenant just sign and subordination agreement and allow for the sale?
- Is there is first right of refusal to buy the unit and/or the building?
There are a myriad of questions that will arise as you are about to enter into a lease. At Mirza Healthcare Law Partners, we help you understand the transactions you are about to enter into, We hold strategy discussions with our tenants to see what is the right way the best works for them.
If you are concerned about attorney fees for healthcare leases, we can allay your worries. At Mirza Healthcare Law Partners, we can do it for you on an hourly rate or we can do it at flat fee special pricing for reviewing healthcare leases.
MHL's pricing for Medical Office Building Lease review is $1,400 flat fee.
We review medical office building leases and check for things like: (i) insurance liability coverage, (ii) non-compete or exclusive tenant use provisions, (iii) community association governing documents, (iv) representations and warranties of landlords and tenants, (v) accessibility to office space and securing of patient records, (vi) rent and common area expense escalators and limitations, (vii) provisions for auditing building expenses (vii) termination clauses, (viii) renewal and extension clause, (ix) release, waiver, and (x) indemnity clauses. With this we will provide you with our feedback of what are things to be cautious about and what we would consider deal breakers, along with proposed changes. The $1,400 includes all strategy discussions, all emails, all phone consults, and proposing document changes, but it does not include negotiating with the opposing side. The ability to call and text and discuss things with legal counsel is a must, before signing any contract. Without a grounded and level conversation no strategy is complete.
To find out more about how we charge for reviewing and negotiating leases please go to our pricing page here.