What to ask before signing a medical or dental office lease

Before you sign a medical or dental lease, find out whether the space can physically support your practice, what the build-out will cost after the landlord's contribution, and whether rent starts before you can realistically open. Most expensive surprises in a build-out trace back to a lease term that was agreed before anyone priced the work. The questions below are the construction side of that review. They do not replace advice from your attorney and broker.

Can the building support your practice?

Lease negotiations focus on rent and term. A health care tenant also needs to know what the building can deliver, because the answers set the construction budget.

• Permitted use. Does the lease allow everything you plan to do, including imaging, sedation, surgery, lab work, or after-hours care? Does zoning allow it?
• Plumbing. Is the space on grade, where the slab can be cut, or over another tenant, where drains must run in the ceiling below? Will the landlord and that tenant allow access?
• Electrical. What service size is available to the suite, and is it enough for imaging, sterilizers, compressors, or lasers?
• Air conditioning. Who owns, maintains, and replaces the units? How old are they? Can you add capacity, outside air, and exhaust? If the building has a central system, what hours does it run and what do after-hours charges cost?
• Structure. Can the floor carry heavy equipment, and can the roof carry added mechanical units?
• Ceiling height. Is there room above the ceiling for the ductwork and equipment you need?
• Special rooms. Will the landlord allow lead shielding, medical gas storage, a generator, or a vacuum pump exhaust through the roof or wall?
• Parking and access. Is the parking ratio enough for a medical use? Is there a covered drop-off or a route for patients who cannot walk far?

Who builds, and who pays?

The tenant improvement allowance is the landlord's contribution to your build-out. The amount matters less than the terms around it.

• What is the allowance, and what can it be spent on? Construction only, or also design fees, permits, cabling, and equipment?
• How is it paid: as the work progresses, or as a reimbursement after you open? If it is a reimbursement, you finance the build-out in the meantime.
• What documents does the landlord require before paying, such as lien waivers and a certificate of occupancy?
• Does the landlord charge a construction management or supervision fee against the allowance?
• Can you choose your own contractor, or must you use the landlord's? If the landlord builds, can you see competitive pricing?
• What happens to any unused allowance?
• Are you required to use the building's fire alarm, sprinkler, roofing, or controls vendors?

What exactly is the landlord delivering?

The work letter is the exhibit that describes the condition of the space at turnover and who does what. Vague wording such as "as-is" or "building standard" should be replaced with a list. Ask for these in writing:

• Slab condition, including any areas left out for plumbing
• Demising walls, and whether they are finished, insulated, and rated
• Electrical service size and where it terminates
• Air conditioning units, tonnage, and distribution
• Sprinkler main and existing head layout
• Restrooms, if they are inside the suite
• Water, sewer, and gas connections, meters, and any impact or tap fees
• The delivery date, and what you receive if it is missed

When does rent start?

This is the term most likely to cost money. Rent that begins on a fixed calendar date keeps running if design, permitting, or construction takes longer than assumed. A health care build-out has more steps ahead of opening than an ordinary office:

• Design and equipment coordination
• Landlord approval of the drawings
• City plan review and permit, which varies by city
• The Texas accessibility registration, plan review, and inspection through the Texas Department of Licensing and Regulation (TDLR), required for projects with an estimated construction cost of $50,000 or more. Smaller projects still have to meet the Texas Accessibility Standards, but they do not have to be registered
• Construction, inspections, and the certificate of occupancy
• Equipment installation, X-ray registration, and any state license your facility type needs

Ask for a rent start tied to a realistic build-out period, with extensions for delays the landlord causes, such as late delivery of the space or slow drawing approval. Before agreeing to a number of days, ask an architect and a contractor how long the steps above take in that city. That period depends on design time, the city's permit review, the condition of the space, and equipment lead times, so get the answer for your space before you sign.

Who is responsible for code and accessibility upgrades?

Your alterations must meet current building codes and the Texas Accessibility Standards. In an older building, work inside your suite can raise questions about the route to it: parking, entrances, corridors, and shared restrooms. The lease should say who pays to correct conditions outside your suite and existing conditions inside it.

Ask the same about asbestos. Texas requires an asbestos survey of the area being renovated before work starts in a commercial building, whatever its age, and the city will ask for proof before it issues the permit. For a newer building, a city may instead accept a certification from a Texas architect or engineer that the affected area contains no asbestos. Ask whether the landlord has a survey and who pays if material has to be removed.

Operating terms that affect construction

• Hours for noisy work, deliveries, and slab cutting, and whether after-hours work is required
• Use of the freight elevator, loading dock, and dumpster locations
• Exterior signage rights and the building's sign criteria
• Medical waste storage and pickup
• The right to install equipment on the roof and to maintain it

What happens at the end of the lease?

Read the surrender and restoration clause. Some leases require the tenant to remove specialized improvements when the lease ends, such as shielding, medical gas piping, under-slab plumbing, or rooftop equipment. Removing them can be costly. Negotiate now which improvements stay.

Before you sign: a short checklist

• Test fit from an architect showing your rooms fit
• Site walk with a contractor and your equipment supplier
• Budget for the build-out, compared with the allowance
• Realistic schedule from signing to opening, compared with the rent start
• Work letter that lists what the landlord delivers
• Review of the lease by a health care real estate attorney

We will walk a space with you before you sign the lease, and there is no charge for the first budget. It is an early range, and a detailed estimate comes later, priced from the drawings. If you are still weighing a lease against a building of your own, see own or lease?

Structures and Interiors builds medical and dental offices across North Texas, in lease space and as new buildings from the ground up such as Colleyville Vision Associates. See our medical construction and dental office construction pages, or look at two completed offices: Texas Centers for Infectious Disease Associates and Robinson Dentistry, both in Dallas.

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