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Negotiating a Medical Office Lease Takeover: Key Strategies for Success

LMS - Negotiating a Medical Office Lease Takeover_ Key Strategies for Success
Dr Mitra Sadhu
By Dr. Mitra Sadhu, Founder, Link Medical Spaces

When you are taking over a retiring physician’s practice, it is most beneficial to be able to stay at the same location. It is least disruptive to the practice and its patients and staff. However, taking over the lease from the retiring physician involves navigating the lease transfer process and securing favorable lease terms. And that takes careful strategy and negotiation.

If you’re considering taking over a lease but have concerns about rent increases, space size, or lease terms, this guide will walk you through how to evaluate assignability, negotiate with the landlord, and secure a fair deal.

Step 1: Determine If the Lease Is Assignable

Before assuming you can take over the lease, you need to determine whether the existing lease allows for assignment. The lease must include a clause permitting the current tenant (the retiring physician) to transfer their lease obligations to another party.

Key Factors in Lease Assignability:

Does the Lease Allow Assignments?

  • Some leases prohibit assignment without the landlord’s approval.
  • Others allow it but may have conditions, such as a review of the new tenant’s financials.

Will the Landlord Approve the Transfer?

  • Even if assignability is allowed, the landlord almost always retains the right to approve the new tenant.
  • Expect the landlord to evaluate your financial stability, business experience, and potential long-term commitment.

Are There Fees for Assignment?

  • Some leases require assignment fees paid by either the retiring physician or the new tenant.
  • Be clear on who is responsible for these costs before proceeding.

Will the Retiring Physician Still Be Liable?

  • Some leases include a continuing liability clause, meaning the original tenant remains responsible if the new tenant defaults.
  • If you’re the retiring physician, negotiate a release of liability upon assignment.

Can You Sublease Instead?

  • If assignment is not allowed, subleasing may be an option.
  • However, the original tenant remains on the lease and is still liable, which could be risky for both parties.

What If the Lease Isn’t Assignable?

If assignment isn’t an option, you have a few choices:

  • Negotiate a new lease with the landlord using the existing lease terms as leverage.
  • Convince the landlord to make an exception based on the benefits of keeping you as a tenant.
  • Explore subleasing as a temporary arrangement, if permitted.

Once you confirm that the lease is assignable or that the landlord is open to negotiation, it’s time to craft a solid lease negotiation strategy.

Step 2: Understand the Landlord’s Position

Before negotiating, consider the landlord’s priorities. What do they value most?

📌 Do they prefer lease continuity? Landlords often prefer keeping a medical tenant in place to maintain cash flow.
📌 Are they looking to raise rents? If market rates have increased, they may see this as an opportunity to adjust lease terms.
📌 Would they rather start fresh? Some landlords might prefer a new lease over an assignment, giving them more flexibility with terms.

By understanding their position, you can craft a negotiation strategy that highlights why keeping you in the space is a win-win for both parties.

Step 3: Use Your Leverage to Negotiate Favorable Lease Terms

Now that you’ve established assignability and the landlord’s motivations, use your leverage points to negotiate a better lease deal.

Your Strongest Negotiation Points:

Existing Buildout Saves the Landlord Money
Medical office renovations are expensive, often costing between $50 to $250 per square foot

👉 Since you’re taking the space as-is, the landlord avoids:

  • Costly renovations for a new tenant.
  • Extended vacancy periods if the space remains unoccupied.
  • Time and effort spent marketing the space to find another tenant.

💡 Negotiation Tip: Highlight that landlords typically offer tenant improvement (TI) allowances to attract tenants. Since you’re not asking for one, request that savings be reflected in a lower rental rate.

Research comparable properties
Do your homework. Research market rates in your area for comparable medical office spaces. 

Ask other property listings about available incentives, such as tenant improvements and rent-free months, to bring back to the negotiating table.

💡 Negotiation Tip: Even if you don’t plan to move, showing the landlord you have other options increases your bargaining power.

Lease Term Flexibility
Offering a longer lease term can incentivize the landlord to provide better terms. However, this only makes sense if you plan to stay long-term.

🔹 If the landlord pushes for a rent increase, offer a longer lease in exchange for a lower rate.
🔹 If you need flexibility, negotiate a shorter lease with renewal options.
🔹 Consider a “Right of First Offer” clause to downsize to a smaller unit if one becomes available.

Control Over Operating Costs

Since utilities are not included, make sure to address:
A cap on Common Area Maintenance (CAM) charges to prevent unexpected cost increases.
More transparency in utility costs to avoid excessive pass-through charges.
The ability to sublease part of the space if it’s larger than you need.

💡 Negotiation Tip: If the lease is triple net (NNN) (meaning you cover taxes, insurance, and maintenance), ask if some costs can be converted into a gross lease where the landlord absorbs certain expenses.

Counteroffer Aggressively

Landlords expect negotiation, so never accept the first offer. Instead:
📉 Start by countering below your target rent (e.g., if they offer $27.50/sqft, counter at $25/sqft).
📉 Negotiate for lower annual increases (e.g., request 2% instead of 3%).
📉 Ask for incentives like a month of free rent to offset move-in costs.

Step 4: Bring in Expert Support

Even if you have experience negotiating, working with professionals can significantly improve your results.

Tenant-Rep Broker
A broker who specializes in medical real estate can:

  • Provide market data to support your negotiation.
  • Help uncover hidden lease incentives.
  • Handle back-and-forth negotiations with the landlord.

Real Estate Attorney

Before signing, have a real estate attorney review the lease. Medical office leases often include clauses that can impact your practice long-term.

Final Thoughts: Secure the Best Lease for Your Practice

Taking over a retiring physician’s lease is an excellent opportunity, but only if you negotiate favorable terms. By leveraging the existing buildout, researching market rates, and countering strategically, you can save thousands of dollars over the life of your lease.

Key Takeaways:

✔ Confirm if lease assignment is allowed and negotiate landlord approval.
✔ Use the existing buildout as leverage to lower rent.
Research comparable spaces and highlight better deals to strengthen your position.

Disclaimer: This content is for informational purposes only and does not constitute legal, financial, or professional advice. Please consult a qualified expert before making decisions related to healthcare real estate or regulatory compliance.

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