We are commonly asked questions that pertain to concerns which are healthcare industry-specific, yet we can always find a way these issues relate back to the contractual obligations of real estate commitments. As a courtesy to those that are seeking guidance explicitly for when the rubber meets the road (real estate meets healthcare), we have provided some fairly uncomplicated scenarios that will likely exist in a health facility lease transaction.
Landlord Vs. HIPAA
Commonly, a lease agreement will allow the landlord entry onto the premises for the purposes of inspections and repairs. HIPAA provides guidelines to protect medical records and personal health information. A lease within a medical facility will typically provide that the landlord may not enter an exam room with patients present. Further, most leases will indicate that any location within the spatial premises leased by the tenant, if entered, will have the potential to breach privacy or confidentiality of patients or medical records.
Tenant Vs. Medical Waste
A medical lease agreement will typically include a provision that prohibits a tenant from using or storing any hazardous materials on the property without the consent of the landlord. If the tenant will require the use of such materials, the lease will commonly indicate that the materials commonly used in concert with the permitted use of the leased premises will be allowed, as long as the materials are stored in compliance with strict regulatory commitments.
As for the disposal of hazardous waste, leases commonly provide that the landlord will be responsible for janitorial services, but will require the tenant to arrange for its own disposal of medical waste.
Stark Law Vs. Landlord/Tenant
It is important to consider if a relationship exists that has the ability to breach Stark laws, or potentially, Texas law. The Anti-Kickback Statute deems it a felony to offer, tender or receive fee, or compensation, if the payment is determined to influence referrals for patients. So, it is important for a lease to exist and to comply with the following:
- Be in Writing
- Identify the Premises
- Term of Lease at Least 1 Year
- If Interval (Time Share, etc), Lease to Specify Schedule and Rent for Interval
- Rent must be Fair Market Value
Permitted Use Vs. Technology
A lease agreement will include a permitted use provision that restricts the use of the space to certain business operations. Yet, a tenant wants to maintain flexibility, especially with the newly minted technological changes that are required to adapt and compete within a specialty. So, a tenant wants the provision to be as broad as possible, while a landlord seeks to restrict the use to improve tenant mix and provide other tenants with exclusive rights. While a rare bone of contention today, technology will eventually force tenants to seek very general, or highly specific opportunities.
Building Vs. Equipment
The medical industry has some of the most cumbersome and demanding equipment. It requires specific attention when placing on the premises of a multi-story structure. Thus, some buildings have special provisions for weight distribution or electrical capacity. The location and installation of necessary landlord and tenant is commonly addressed in lease.
Improvements Vs Landlord/Tenant
The lease agreement will provide how each party will become responsible for design, materials and installation of the tenant’s improvements. While a highly negotiable item within the lease, it should determine the control of implementation and ownership of improvements.
Lease Vs. Physician Practice
A greater number of leases are requiring personal guaranties from key members within a physician group for the purposes of adherence to contractual obligations. With more physicians defecting to hospitals, merging practices, or even leaving certain jurisdictions, we are noticing considerations for physicians to be released from guaranty if the leave the practice, while including those that enter. Other limits include guaranty amounts proportionate to ownership share of practice.
These are abbreviated responses to a few common inquiries pertaining to medical real estate, none of which constitute legal advice. Please make sure to contact Robert S. “Bob” Lowery for guidance with your healthcare real estate decisions.
