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Signing a Lease on a Medical Office Space

My partner and I have been in search of a medical office space in Northern California for a medical laser practice. We want to sign a lease this month on a medical office space and after an exhaustive search, we finally found a unit we both like.

In this post I’ll share with you what I’ve learned about searching and acquiring a medical office space.

If you are trying to transition from inpatient medicine to outpatient and want to start your own medical practice, this should be relevant to you.

And if you’re doing telemedicine and all you need is a little private office then skip all this and rent out a shared office in a coworking space.

 

Medical Office Space

A medical office space is different from a retail space, an industrial space, or a regular office when it comes to regulations. There are certain criteria that have to be met in a medical office space such as ADA accessibility and en suite sinks and bathrooms. Some cities will even require certain amount of parking to be available as well as have medical waste management rules.

Most medical office spaces will also need central air and exam rooms with sinks. For laser therapy, the exam room would need a 220V outlet and stronger air conditioning since those suckers heat up the ambient air quite a bit.

ADA guidelines (pdf) are federally mandated, though your local state licensing office may have their own little unique interpretations worth knowing. These would be things like metal rails in the bathrooms, larger doorways for wheelchairs, ramps to enter your building, and elevators if needed.

 

Where to Look

We didn’t get anywhere with a commercial realtor. We were told that the best ways to look for a medical office space is to do the following:

  • drive around and look for signs
  • look on Craigslist
  • ask for word of mouth referrals
  • look on LoopNet

Word of mouth has been the most successful. My partner has a large network of friends and colleagues and sent out a mass message and received multiple recommendations.

One of these medical office space recommendations seems to have panned out for us. It was also listed on Craigslist but we never considered the city of Orinda as an option for our laser clinic.

 

Dealing with Landlords

A physician who wants to open a medical office or a dentist who wants to open a dental practice is gold to a landlord. They know these businesses rarely fail and if they do, the medical professionals are likely to handle it responsibly.

Landlords will make a lot of promises and they know how to come across very warm and fuzzy and cooperative in the beginning. Though I don’t mean to paint a negative picture of commercial landlords, it’s helpful to understand their intentions and sales techniques.

When you first tour a place, it’s common for the landlord to say “anything is possible” and that “we will work with you to make it happen”. This is often in regards to making changes to the unit.

Once the lease is signed, however, the story changes and there are all sorts of limitations. Whatever you need and want done should be negotiated before the lease is signed and if it’s something major, it should be included in the lease.

 

City Ordinances/Limitations

If we look for a medical office space in the city of Oakland then we will need to abide by their rules and guidelines.

If we hop one little city over, such as Orinda, then we have to abide by their rules. For example, Orinda allows only 1 sign per business. They also don’t allow medical offices to be in visible or traditional retail spaces.

You can visit the city website for your particular locale and there will be some resources listed. You should also visit the county website for licensing requirements and any necessary inspections you might need.

Such resources are handy but having a competent, local lawyer who can guide you is ideal. They will know how to navigate local codes and minimize headaches.

 

Space Renovations

You will likely need to make some changes to the space after you move in. Maybe remove a wall, paint some areas, or change the flooring.

Discuss these with the property manager and get your details written out in a contract. Most of the work will likely be safe to do with a handyman but other work should be done by a licensed and bonded contractor.

Inquire about a preferred contractor for the commercial space. They will likely save you money since they are familiar with that particular commercial building and have done some sort of work on a medical office space before.

Ask the property manager about any furniture that previous tenants have left behind. Or if there is a unit that might be emptied soon, ask them if you can contact the tenant to purchase some of their office equipment.

We were able to get a few free things to furnish our medical office space from a previous pediatric office that was emptied out.

 

Electricity & Plumbing

Most commercial spaces are designed well enough that access to sewage, water, gas, and electricity will be simple. Some units have the sewage and water under the concrete slab – this makes for expensive renovations when you need to add another sink or move the bathroom.

Electricity shouldn’t be an issue since it usually runs in the walls, or even better, in the ceilings.

Make sure there are adequate outlets and that they have high enough amperage for your needs. A 220V outlet isn’t hard to install for an electrician as long as the electrical system of the commercial unit is in good enough shape.

It’s easy to forget about air conditioning and you’d be amazing how many units don’t have A/C. Some medical office spaces have individual A/C units and so you’ll be responsible for servicing your own. Others, will have A/C that supplies all the units in the commercial building.

 

Rent Price

Rent prices can get confusing. Some units will be listed at $2.45/sqft such as the unit we will be leasing – nothing more to it. Others, have a price per square foot plus additional triple net lease (NNN).

The first unit we looked at was advertised at $2.60/sqft which was fantastic. It was a 1,300 sqft first floor suite with great visibility and plenty of covered parking.

Unfortunately, after touring the unit we found out about the NNN lease which took the price up to nearly $5,000/month. Also, the landlord was calculating a shared waiting room space into the overall space square footage. The unit itself was <1,100 sqft.

 

Square Footage

We are used to thinking of square footage in terms of residential real estate. But it doesn’t work that way for commercial spaces and medical office spaces. Commercial spaces are often much more space efficient as I’ll explain below.

The typical medical exam room is only 100 sqft – that’s the size of the average small kitchen – that’s a 10′ foot wall adjacent to another 10′ wall. We toured a 1,300 sqft medical office space which had 7 exam rooms!

Consider whether you’ll want a separate office space or break room for your employees. These can be as small as 50 sqft. Though, without a window it might feel claustrophobic.

A waiting room for a small medical practice doesn’t need to be much bigger than 200 sqft.

Once you account for all of this, you can see that 800 sqft can easily allow for:

  • a waiting room
  • 3 exam rooms
  • a break room
  • an ADA compliant bathroom
  • a wide hallway

In fact, that’s exactly the unit we found. The previous tenant was a satellite medical office, affiliated with a local hospital group. They outgrew that space but left all the renovations behind.

 

Sample Lease

You can view this sample 9-page commercial lease agreement by clicking on this pdf link. For the most part it’s quite similar to a standard lease with a few more conditions to wrestle.

Use. The specific use of the property will often be indicated. If you sign a lease on a medial office space and end up not doing medicine in that office space then your landlord could protest. It has to do with you competing with other local businesses.

Subletting. This is important because you may want to lease a portion of your space out to someone else. If you have a spare exam room, for example, you may want to rent it out to a chiropractor or acupuncturist. Will your lease allow it? What are the terms?

Insurance. What kind of property insurance will the landlord require you to carry? Usually this will be in the $1M range.

Cost Increases. There are two instances when your rent payments will increase and these are often written into the contract. 1) There is an annual cost of living increase which is indexed to the consumer price index. 2) If property taxes for the commercial space owner increase by a certain amount then they may pass some of that cost on to you.

Parking. A medical office space might have a lot of patients coming and going, using the parking spaces. Be sure to ask about this so that you don’t have to deal with pissed off neighbors who have to watch your onslaught of geriatric patients taking 30 minutes to get in and out of their cars.

Competition. This part likely won’t be in the contract and it’s something you should request. If you start a medical laser clinic then you don’t want someone else duplicating your business next door. Stipulate this in the contract to minimize competition.

Lease Duration. Usually it’s in the landlord’s best interest to have you sign the longest lease possible – 5-7 years. For the small entrepreneur it’s helpful to have options. Signing a shorter lease is better – aim for 3 years. This will decrease your ability to negotiate on the renovation costs which some landlords will take on for the right client.

 

One reply on “Signing a Lease on a Medical Office Space”

Thanks for pointing out that whatever you need and want done should be negotiated before the lease is signed and if it’s something major, it should be included in the lease. I think that if you were looking for a medical office space for sale or rent it would be smart to hire a real estate agent that could help you find the right one. I also think that would be smart because they could probably help you negotiate your lease or any other paperwork that you had so that you could get what you needed from it.

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