Thinking of leasing part of your medical office for just a few months? While short-term arrangements may seem practical — especially for flexible, part-time, or mobile practices — they can create significant legal and regulatory risk under both the Anti-Kickback Statute (AKS) and the Stark Law if not properly structured.
Here’s what every healthcare professional, landlord, and medical real estate investor should know before entering into a lease agreement with a duration of less than one year.
Understanding the Legal Landscape: Why Lease Duration Matters
🛡 The Anti-Kickback Statute (AKS)
The AKS is a federal law that prohibits the exchange of anything of value to induce or reward referrals for services reimbursable under Medicare, Medicaid, and other federal healthcare programs. Violations can lead to:
- Civil fines and criminal penalties
- Exclusion from federal healthcare programs
- Damaged reputation and legal liability
So where do leases come in? The Department of Health and Human Services (HHS) has created “safe harbors” — protected arrangements that, if properly structured, are not subject to enforcement under AKS. One such safe harbor relates to the rental of office space, but it comes with very specific criteria.
One of those criteria is duration:
The lease must be for a term of at least one year.
If the lease is shorter — say, month-to-month or 6 months — it does not qualify for AKS safe harbor protection. That opens the door for regulators to examine whether the lease is being used to reward or incentivize referrals.
he Stark Law
The Stark Law, or Physician Self-Referral Law, prohibits a physician from referring Medicare or Medicaid patients to an entity with which they (or an immediate family member) have a financial relationship — unless a specific exception applies.
For real estate arrangements, that exception is the “Rental of Office Space” exception, which is outlined in 42 C.F.R. § 411.357(a)(3). This regulation states:
“The duration of the lease arrangement is at least 1 year. To meet this requirement, if the lease arrangement is terminated with or without cause, the parties may not enter into a new lease arrangement for the same space during the first year of the original lease arrangement.”
This rule is meant to prevent arrangements that could be used as vehicles for indirect referral payments. It requires that leases between physicians and entities to which they refer patients be intended to last at least one year.
Even if the agreement is terminated early (which is allowed), the parties cannot enter into a new lease for the same space within the first year — unless a different Stark Law exception applies.
The Risk of Sub-Year Lease Agreements
Here’s where things get tricky:
Even if your intention is to simply allow another provider — maybe a colleague or a part-time specialist — to use your space for a few months without any direct referral activity, the lease still needs to be compliant if you bill federal programs or have any referral relationship.
Why regulators care:
Short-term leases can be manipulated to provide favorable terms only when referrals are flowing — and stopped when they’re not. This kind of arrangement can be seen as disguised remuneration, even if the parties don’t view it that way.
✅ Best Practices for Structuring Compliant Lease Agreements
If you’re considering sharing space or leasing part of your office, here are practical, legally sound steps to structure your agreement:
1. Stick to a One-Year Term (Minimum)
- Draft lease agreements with a minimum term of one year.
- Clearly state that the lease is for a full year, even if you include termination rights (which are permitted).
2. Include Early Termination Clauses Carefully
- You can allow either party to terminate the agreement early — with notice — but you cannot sign a new lease for the same space within that one-year window with the same party.
- Document that the termination is not tied to referral volume or financial arrangements.
3. Establish Fair Market Value (FMV) Rent
- The lease must reflect fair market rent, independent of referrals or payer mix.
- Get a third-party valuation or benchmark against comparable local medical office rates.
4. Put It in Writing — Always
- The agreement must be in writing and signed by both parties.
- Oral or informal “handshake” agreements will not satisfy safe harbor or Stark Law requirements.
5. Avoid Variable Rent Based on Referrals
- Rent or other terms cannot fluctuate based on how many patients are referred, revenue generated, or services ordered.
- Flat monthly rates are generally the safest structure.
6. Ensure Space Exclusivity
- During the times when the lessee is using the space, they should have control of that area.
- Shared spaces can still be compliant if the usage is clearly delineated.
Sample Agreement Clauses
Here’s how you might reflect these rules in a simple lease or license agreement:
“This agreement is for a term of twelve (12) months, beginning on [Start Date]. Either party may terminate this agreement with thirty (30) days written notice. In the event of early termination, the parties agree not to enter into a new agreement for the same space during the remainder of the original twelve-month term, per applicable healthcare regulations.”
“The monthly rent of $X is based on the fair market value of the space and is not related to the volume or value of referrals between the parties.”
These clauses protect you by directly addressing Stark and AKS concerns — and showing regulators that you’ve structured the arrangement with compliance in mind.
🏥 Who This Applies To
This isn’t just a hospital or health system issue — it applies to any healthcare professional involved in referrals and federal reimbursement, including:
- Independent physicians
- Group practices
- Specialty clinics
- Physical therapy and rehab centers
- Behavioral health providers
- Dental providers (if federal program participation is involved)
If you’re sharing space, offering part-time rentals, or bringing in another clinician — you need to ensure your lease terms meet federal standards.
✅ Key Takeaways: Lease Compliance Checklist
✔ Lease term is at least 1 year
✔ Agreement is in writing and signed
✔ Rent reflects fair market value
✔ No payments tied to referrals or volume
✔ Early termination clause is carefully written
✔ Parties agree not to re-lease within one year if terminated
✔ Lease includes clear description of space and usage rights
