Medical Office Leasing: Terms You Need to Know

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After paying your staff, your office space may be your biggest business expense. So, during medical office leasing, it’s always a good idea to negotiate the most favorable terms you possibly can. Just as your patients know to turn to you, the professional, when they need medical advice, it may serve you well to have a tenant representative help you when it’s time to find a new office space.

Medical leasing is quite different than typical office leasing, and lease terms vary broadly from one contract to the next. Medical office leasing also involves complicated terminology, so the more you familiarize yourself with the following terms and concepts, the more likely you’ll be to understand what you’re getting into and avoid common leasing pitfalls.

Rent Escalator

A rent escalator is a standard lease provision in most commercial real estate contracts. Essentially, it allows your landlord to raise your rent by an agreed-upon percentage each year to account for inflation. Negotiating as low of an escalator as possible is in your best interests. The escalator can play a big role in determining your overall occupancy costs. The lower your rent escalator, the more money you can save over time.

Tenant Improvement Allowance

The tenant improvement allowance is something the landlord agrees to pay so that you can outfit your clinic or doctor office as needed. The allowance comes in a certain amount per square foot, i.e. $50/sq. ft. In new construction, it typically goes toward building walls, cabinets, ductwork and other essentials. You may also be able to negotiate a small tenant improvement allowance when renewing an existing medical office lease so you can add, for example, new carpeting or fresh paint.

Rentable vs. Usable Square Feet

“Usable square feet” refers to the square footage of your individual office space. “Rentable square feet,” which your rent will ultimately be based on, refers to your usable square feet plus a percentage of any common areas, bathrooms, lobbies — space you and the other doctors and administrators in your practice regularly use.

Understanding these concepts and how to negotiate them to your advantage can save you substantial money in terms of overhead costs. Let Plaza Companies help by calling 623.972.1184 or getting in touch online.

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