Physician Leasing: A Basic Primer for Young, Inexperienced Physicians in the Typical Terms and Considerations with Leasing an Office Space

Physician Leasing: A Basic Primer for Young, Inexperienced PhysiciansThe following are typical questions that many young physicians have when leasing their first office, or office share.

1. What is a personal guarantee and a “good guy clause” and what does this mean to me?

A personal guarantee means that you are guaranteeing the performance and payment of the obligations of another party signing the lease, like your professional corporation. In a general personal guarantee, the guarantor is on the hook for the entire term of the lease. A “good guy clause” is effectively a personal guarantee which exposes your personal assets to ensure the performance of the obligation on the lease but is more limited than a general guarantee. A “good guy clause” takes your personal assets off the hook when a certain set of terms and conditions are met. These conditions are usually:

  • Giving a certain amount notice of intent to vacate the premises,
  • Payment of any rent still due, up until that date,
  • Vacating the premises and turning the keys over to the landlord on or before that date.

Keep in mind that a “good guy clause” does not mean that your corporation is off the hook. Your corporation can still be held responsible for the full remaining amount and term of the lease.

2. What is CAM and what does that mean to me?

A typical way that landlords calculate expenses is called Common Area Maintenance (CAM). Common Areas are those shared by all tenants, such as elevators, security guards, and any shared hallway spaces. These expenses are usually calculated based upon the percentage of the building your office represents. If your office is 10% of the building, typically you will be responsible for 10% of the CAM charges. This is usually billed by the landlord, on a periodic basis, as additional rent.

3. What do I need to be concerned with when office sharing?

When a physician is renting from another physician, such as a sublet, attention needs to be paid to whether or not the rights of the sub-tenant are permitted under the lease. If the doctor you are renting from does not have the proper authorizations from his/her landlord, then the lease could be considered invalid and you could be evicted from the space. Additionally, if the doctor you are renting space from doesn’t pay the rent, there should be some form of remedy such as permitting the sub-tenant to pay the rent, so that you are not kicked out of the space. The payment can then be deducted from any rent amounts that may be due to the doctor in charge. Additionally, office space rentals come with an established office. Particular attention needs to be paid to the fair market value of the rent, if there are any patient referrals from any of the other doctors or the landlord doctor, to ensure compliance with Federal anti-kickback provisions.

4. What if my landlord wants me to pay based upon a percentage of my revenue?

This usually comes up in office sharing agreements with physicians, however, on rare occasions, a non-physician landlord may ask for a percentage of profits or revenue from a corporation. In the medical profession, percentage of revenue cannot be a method of payment of the lease to either a physician or non-physician landlord. Under Professional Responsibility and ethics regulations, this amounts to the splitting of professional fees and, if patient referrals are involved, to potential kickbacks which could lead not only to professional misconduct but criminal action.

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