Choosing a space to run your private practice out of has many longstanding implications for the success of your private practice. Once you’ve gone through the hard work of choosing a location for your private practice, it’s time to negotiate a lease and sign an agreement. Similarly, when that lease comes up for renewal, it’s important to use that as a way to renegotiate more favorable terms instead of just automatically extending the lease (unless of course you’re very happy with the terms you got!). We see lots of physicians on our online physician communities who are unsure of what they can negotiate, red flags to look out for in lease agreements, and how much is appropriate to pay in rent. We’ll try and cover as many of these questions as possible below.
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What are general concepts to keep in mind when negotiating your private practice lease?
Know the rent data and comparables for other similar spaces
You should make sure that you are aware of what the going rate for similar spaces in the area is. You can do this by speaking to other practice owners in the area about the terms of their lease and how much they’re paying, talking to your commercial real estate agent about comparables, and looking on websites that list office spaces for rent.
Understand that you can negotiate more than just the rent amount
As with your physician job contract negotiations, consider everything negotiable. This includes things like who pays for utilities, maintenance, and repairs, credits towards improvements on the property, the length of the lease, whether or not you have the first right of refusal for renewing your lease at the end of your term or are guaranteed an option to renew, ways you can get out of your lease, rent escalators, and more. We’ll talk about these in more detail below.
Know your must haves, deal breakers, and what you’re willing to negotiate on
Depending on your practice situation, certain things are going to be more important than others. If for example you know that you need the ability to alter the building in some way to make it functional for your needs, make sure that’s discussed upfront. Similarly, if you know that you need to stay in that area for a particular reason, you’re going to want to have stronger wording regarding lease extensions.
Learn more about knowing your deal breakers and when to walk away.
Understand why they might want you as a tenant, and leverage those points in negotiations
Maybe they have other tenants with synergistic practices, and they think you’d be a good fit (and ensure they have continuity in leases as everyone will want to stay together). Maybe they want a stable tenant and you’re able to sign a long term lease with better terms. Maybe you have a very strong reputation in the area and they think your presence in the complex will drive business to other businesses in the area. If you have other offices where you have happy landlords, use them as references.
As always with negotiations, know that your best tool is the power to walk away
Don’t be in a position where this is your only option. Make sure that they know you have other options. Using a broker in your negotiations can be a good signal that you’re looking at other properties. Don’t start the process so late that they can twist your arm into signing something unfavorable because your other lease is expiring or you have already hired a physician for the new office but don’t have space yet. The more cool you can play it, the better terms you’ll get.
Utilize expertise such as commercial real estate brokers and commercial real estate attorneys
Don’t go at this alone if you’re not experienced in these matters (and likely even if you are!). A good lawyer or broker will pay themselves off with dividends. The attorney will know the state and local laws and can ensure that the lease is in compliance, as well as provide you with guidance on other things you should negotiate or that they’ve seen successfully negotiated. If you need help finding an attorney, check out our attorney database for physicians.
Make sure all agreements are in writing
These leases are long term contracts for most medical practices, and there can be turnaround in management on both sides of the equation - the landlord as well as your practice. You don’t want to run into a he said-she said situation. If something is agreed to during the negotiations process, make sure you put it in writing in the final lease agreement.
Things to negotiate within your private practice lease agreement or renewal
Rent amount
Obviously, this is one of the most important aspects of the lease. You of course want the lowest monthly rent possible. See what factors the landlord is looking for that would incentivize them to give you a lower rent. Look for things like how long the property has been on the market or how desirable the location is to judge how much leverage you have.
Rent increase or built-in rent escalator
Every lease is different but many include provisions about planned rent increases or the amount that the rent can be increased and on what terms. You want to ensure that the percentage increase annually, if applicable, is fair. Many office spaces will propose annual rent increases in the 3% range. If you have negotiating power or if this is a lease renewal and you have a good relationship, try and leverage that to ask for a smaller percentage or even just a flat amount per square foot.
Also, as a caution, don’t assume the market will always be what it is. For example, those that locked in on a long term lease in 2019 may have found themselves unhappy with their lease terms when the pandemic hit and commercial office space rental amounts plummeted. If possible, have it tied to a metric that reflects the market, or is minimal enough that you know you can comfortably afford the budget adjustment annually.
Lease term
Depending on your situation and practice plans, you may want a longer lease or a shorter lease. For example, if you don’t plan on leaving this location, a longer lease may help you negotiate lower rents, as landlords typically like stability. However, if you know you are building your own practice medical office building, you may not want to lock in for a longer length of time. Examine terms that specify under what conditions you are permitted to terminate your lease earlier, including what notice is needed and what any penalties may be if applicable. Most physicians on our communities say not to sign a lease greater than 5 years, as you risk too much change in regards to your needs or losing leverage to renegotiate terms with any interim issues that pop up.
Subleases
Along the lines of not signing too long of a lease, see if you can include the option to sublease the property to someone else if it turns out that you need to leave. Another reason to have a clause about subleases is if you anticipate your practice growing over time and want to secure the space, but don’t have the current need for the space. Similarly, if you think you need space but find yourself not using all of it, this will give you an option to recoup some money for the rent you’re paying for space you’re not using.
Outfitting the medical office space for your needs
Depending on whether this is a medical office building or if you have special needs or wants for your space, chances are you’ll have to make at least some alterations to the space to make it yours. Understand what is allowed and what’s not, as you don’t want to run into issues later. The last thing you want is to be in a situation where you need to make these changes, they won’t allow it, and you’re locked into a long term lease. Be as specific as possible about things that you are certain you will need to do so that you have explicit permission. Also see if you can get a certain credit at the time of lease signing or otherwise to help you to do this. If the changes you make will improve the property’s resale value or desirability long term, the landlord may be willing to subsidize it (or they may be willing just to get you to sign).
Tenant improvement allowances
If this is a lease renewal, you may be happy with how the space is at the moment, but want to give yourself the freedom to make some changes and improvements as the years go on. Renovations or improvements may significantly improve the value of the landlord’s property or their space’s desirability for future tenants, so again, get them to chip in when you’re negotiating that renewal. Examples of things many practices will want to do over time include repainting, replacing the floors, adding sinks or plumbing fixtures, replacing or redoing lighting and light fixtures, or taking down or putting up extra walls to repurpose space.
Maintenance responsibilities and costs
It’s important for your lease to specify which maintenance items are your responsibility and which ones are the landlords. Buildings require a lot of maintenance, which can not only be costly but also take up a lot of time. The building may also have specific contractors they’d like to use, and you want to make sure that if they’re passing the bill onto you, that you set limits for how much those routine maintenance costs can increase or total.
Utilities and other costs such as insurance, garbage and cleaning services, and security systems
Depending on the type of agreement you’re signing and the way that the building is set up and who the other tenants are, sharing of costs can get complicated. Understand what your responsibilities are towards pooled expenses, or if they’ve been built into the rent, make sure you feel the portion allotted to you is fair and reasonable. These costs can be numerous, but include things like security systems, cleaning services, waste removal services, snow removal, heating and cooling, internet and phone lines, electricity, water, gas, and more.
Parking spots
Ask about the parking situation, as this could be a make or break for patients who are choosing where to get your care (not to mention a royal pain for you and your staff as well). If it’s a large parking lot and/or if you are the only tenant in the building, this may not be an issue. However, if you are sharing spots with other tenants, need permits (paid or unpaid), if you have a lot of elderly patients who will need handicap spots right near your office entrance, or other considerations, you will want to know these things and negotiate the best deal for yourself. Make sure that you are allotted enough parking spots.
American with Disabilities Act (ADA) compliance
Verify with the landlord that the building is up to date on ADA compliance (and ask for written proof). If there are things that need to be done to the space to make sure that it is ADA compliant, this is the time to negotiate it in.
Personal guarantees
Many buildings ask for personal guarantees on the lease agreement. While this makes a lot of sense as a landlord looking for as much security as possible, it adds to the risk of starting a practice if you know you’re on the hook for rent payments for 5 years even if the practice doesn’t take off. If it’s not possible to remove it altogether (which many times it may not be), try to shorten the term for which you are personally liable if the practice shuts down.
Resolve any current issues with the lease
If this is a lease renewal and there have been any problems or hiccups along the last few years, this is the time to address them or negotiate changes to the original contract. For example, if there were disputes about who had to pay for a particular repair, the timeframe in which a maintenance request was complied with, or recurrent leaks in the ceilings, this is the time to ask for those things to be addressed prior to starting a new lease.
Conclusion
Signing a lease agreement for your private practice is a huge commitment. While it provides you with stability, you also want to make sure you know exactly what you’re on the hook for. As this is going to be one of your private practice’s largest expenses, negotiate as many discounts and perks into the agreement as possible. Your success in doing so is going to depend on how much leverage you have, so make sure that you look at multiple options for your private practice location, rather than having your heart set on one location. If you haven't already, explore negotiation tips, tactics, and strategies all physicians should know and use.
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