Health Law Advisor

In our ongoing series of blog posts, we have examined key negotiating points for tenants in triple net health care leases. We also have offered suggestions for certain lease provisions designed to protect tenants from overreaching and unfair expenses, overly burdensome obligations, and ambiguous terms with respect to the rights and responsibilities of the parties. These suggestions are intended to result in efficient lease negotiations and favorable lease terms from a tenant’s perspective. In our previous blog posts, we considered the importance of negotiating initial terms and renewal terms, operating expense provisions, assignment and subletting terms, maintenance and repair obligations, holdover provisions and surrender terms, and tenant improvement allowances. This latest blog post focuses on negotiating lease terms governing exclusivity, expansion and relocation.  A tenant should carefully negotiate these terms in order to protect its interest in the leased premises during the term.

Exclusivity provisions protect a tenant’s interest in leased premises by restricting landlords from leasing space in the same building or shopping center as tenant’s space for a similar permitted use. These provisions are not only important for retail tenants but should be negotiated for by healthcare tenants as well. For example, a tenant that operates a dermatology practice in a shopping center may want to restrict landlord form leasing space to other tenants who provide many of the same services. It is also important to define what tenant’s recourse is if landlord breaches the exclusivity or if another tenant operates outside of its permitted use in violation of the exclusivity provision. This may include a reduction in rent for a certain period of time while landlord attempts to resolve the violation, and eventually a termination right if landlord is unable to cause the rogue tenant to cease the violation.

Expansion provisions allow tenants the flexibility to expand into additional space that may become available for lease by landlord during the lease term, usually contiguous space or other space in the same building. Tenants should push for a right of first offer if such space should become available, even if the tenant is uncertain of what its future needs may be during the term.  Negotiated rent and coterminous terms should be included in the lease.