4 key terms of a commercial lease for a medical practice

When you are opening a medical practice, it is likely that you will be required to enter into a commercial lease (unless you own the freehold of the Premises).

A commercial lease is an agreement that provides a tenant with premises for commercial use. Whether you are looking to rent some consultation rooms or an entire premises, it is important that the lease meets the goals and expectations of your new practice and that the permitted use of the premises is specified in the lease.

Signing a lease with unfavourable terms can have significant negative long-term consequences, which is why you should speak to a leasing lawyer before entering into any agreement. These are the key terms a medical practitioner should look out for when entering into a commercial lease:

Rent

One of the most important terms of a commercial lease for a new medical practice is the cost of rent.

It is important to remember that rent will not remain fixed for the entire duration of a lease. A lease will usually specify 1 of 3 ways that your rent may increase or decrease. A fixed rate increase occurs where rent increases at a fixed rate or percentage on a yearly basis. For example, the rent for your medical practice may increase by 4% every year. Rent may also be based on an annual or periodic market review. A property valuer, real estate agent or the landlord will review the current market rent to determine what your rent should be. A rent review may also be based on an evaluation of Consumer Price Index (‘CPI’). A CPI review evaluates the inflation in the price of goods and services and usually takes place on a yearly basis. Increases in rent can have a serious negative impact upon the cash flow of a new medical practice, so it is important that you speak to a leasing lawyer before signing any commercial lease.

Use of the premises

A commercial lease will always describe the permitted use of the premises, noting the tenant must adhere to this permitted use. Therefore, you should ensure that your lease permits you to administer medical procedures and to provide medical consultations. Certain lessors may not be willing to permit medical practitioners to lease their property due to the additional risk it may pose.

It is crucial that you speak to a leasing lawyer to ensure that you have clearly described what your practice will be doing.

Key Dates – handover, commencement, renewal of options

There are a number of key dates you should be paying particular attention to in the lease. The handover date refers to when the premises will be provided to your practice. During this time, you will be allowed to make certain fit-outs to your premises to make sure your practice is ready to open. This period is usually rent free, so it is important to negotiate a sufficient period of time to make any necessary changes to the premises. The lease commencement date is the date when a lease will commence. On this date, your practice will be required to be ready to open and pay rent. A leasing lawyer may also be able to negotiate a rent-free period. The option date provides deadlines for the renewal of any lease option (discussed further below).

Options for renewal

All commercial leases prescribe a date for expiry. As a medical practitioner, you rely on the patients and goodwill you build up in a community, so it is important to ensure that there is some mechanism for renewal of your lease to provide security of tenure in the Premises where possible. Your leasing lawyer will let you know about any formal requirements for exercising this option, noting this will be inbuilt in the lease.

Conclusion

Are you about to start a medical practice? Make sure you go through the lease with a leasing lawyer. At LegalVision, we’ve helped a number of practitioners start their new practices. Contact LegalVision on 1300 544 755 to speak to one of our commercial leasing lawyers today.