How to Control Health Care Tenant's Use of Space
The fast-growing health care field could provide a new source of prospective tenants for your building. But if you're thinking about leasing to a health care tenant—such as a physician or dentist—remember that the tenant's special use of your space may create unique risks for you, as well as others in your building. For instance, a health care tenant may treat so many patients that your building's lobbies and hallways become overcrowded. Or the tenant could improperly store medical waste in its space, posing a health hazard to all your building occupants.
To protect yourself against those risks, New York City attorney Stuart D. Byron and New Jersey attorney Marc L. Ripp recommend covering the following nine points in the use clause of a health care tenant's lease.
Nine-Point Use Clause Checklist
* Require Tenant to Be Properly Licensed
Make sure that the health care tenant is properly licensed, certified, or registered by your department of health, advises Ripp. Bear in mind that health care providers—such as physicians—can practice medicine individually, in a partnership, limited liability company, or professional service corporation, adds Byron. So get a copy of the license, certification, or registration for the appropriate entity before you sign the lease, he advises.
And add language to your lease in which the health care tenant agrees to keep its license, certification, or registration in effect during the lease term.
Model Lease Language
Tenant represents and warrants that it is, and will at all times during the Term, be licensed, certified, or registered by the appropriate governmental agency to conduct its activities in the Premises. Tenant further represents and warrants that it shall maintain at all times, at its sole expense, all permits, licenses, certifications, or registrations that are required in connection with Tenant's activities in the Premises.
* Require Tenant to Dispose of Medical Waste Properly
Require the health care tenant to store and dispose of medical waste in accordance with all federal, state, and local laws and in a manner that's acceptable to you, says Byron. For example, hypodermic needles must go through a special storage and disposal process, which varies from state to state, he explains. Otherwise, the tenant could violate federal, state, or local environmental laws, he warns. Worse, your building could become environmentally contaminated. And you could be held responsible for part of the cleanup costs.
Model Lease Language
Tenant covenants and agrees that the storage, handling, removal, and disposal of all medical waste at or from the Premises shall be done in compliance with all applicable laws and legal requirements now or hereafter existing and in a manner acceptable to Landlord, in its sole discretion; and such storage, handling, removal, and disposal shall be performed by Tenant at Tenant's sole cost and expense.
* Bar Undesirable Uses
Place as many restrictions as possible on how a health care tenant can use its space, says Byron, since there are some health care activities that you may prefer to keep out of your building.
But before adding restrictions to the use clause, consult your attorney. Some restrictions may violate federal, state, or local laws, such as the Americans with Disabilities Act, says Byron. For example, it's questionable whether you can directly bar drug or alcohol abuse rehabilitation centers, he says. You may be concerned that a rehabilitation center's clients are dangerous and that tenants whose leases are up for renewal, and prospective tenants, will feel threatened by these clients and choose to go elsewhere. But patients at such rehabilitation centers are probably protected from discrimination by federal and state laws that apply to those with certain disabilities, Byron points out.
* Make Tenant Responsible for Installing Equipment
Make the health care tenant responsible for paying all costs of installing, maintaining, and replacing its equipment, says Ripp. And say that the tenant must comply with all current and future federal, state, or local regulations that apply to the installation and use of its equipment, adds Byron. If the health care tenant is forced to close down because of a violation, you would not only be left with an empty space but could also get hit with a violation, he says.
Model Lease Language
No X-ray machines or other electrical, electronic, laser, electromagnetic, or other health care equipment, machines, or devices now existing or hereafter invented shall be installed or used in the Premises, unless installed, maintained, and replaced completely at Tenant's sole cost and expense, in accordance with all the terms and conditions of this Lease, including, without limitation, rules, regulations, and requirements of the local board of fire underwriters, the local fire insurance exchange, and all Federal, State, and Municipal authorities having jurisdiction thereof.
* Require Insulated Rooms
Require the health care tenant to ensure that all walls, floors, doors, and ceilings in the space are adequately insulated and comply with all laws, regulations, and rules to prevent the escape of any harmful rays from the equipment at the space, says Byron. Otherwise, the health care tenant's equipment might interfere with other tenants' equipment or hurt other building occupants, he says. To add this requirement, insert the following language after the Model Lease Language, above:
Model Lease Language
All walls, ceilings, floors, and doors of any room used for examination, diagnosis, testing, or therapy shall be properly insulated and shall comply with all rules, regulations, ordinances, and other requirements from time to time in effect, whether now or in the future, of any and all Federal, State, and Municipal authorities having jurisdiction thereof.
* Don't Let Patients Stay Overnight
Don't let the health care tenant keep anyone in its space overnight or on an in-patient basis, says Ripp. Their presence could cause a variety of security headaches for you, he warns.
Model Lease Language
No person may reside in or remain in the Premises on an overnight or in-patient basis.
* Prevent Disturbances to Other Building Occupants
Bar the health care tenant from producing any offensive odors, noises, or vibrations that could disturb other tenants or occupants in the building, says Byron. Otherwise, bad smells and loud noises could drive away prospective tenants. And strong vibrations from the health care tenant's equipment could damage the building by cracking the walls and ceilings, he adds.
Model Lease Language
Tenant covenants and agrees not to suffer, allow, or permit any offensive or obnoxious vibration, noise, odor, or other undesirable effect to emanate from the Premises or any machine or other installation therein, or otherwise suffer, allow, or permit the same to constitute a disturbance to occupants of the Building.
Practical Pointer: A savvy tenant may request that you change “constitute a disturbance” to “constitute a nuisance,” says Byron. Although that sounds like a minor change, don't agree to it, he says. It's much harder to prove a nuisance in court than a disturbance, he explains.
* Bar Use that's Inconsistent with Building
Bar the health care tenant from letting its employees, visitors, or patients do something that's inconsistent with a professional building, says Ripp—for example, leaving medical waste in the hallways. Also, since the health care tenant might want to operate a high-volume medical practice or clinic, bar the tenant from letting its employees, guests, or patients loiter in the common areas, says Byron. Otherwise, they may end up waiting in the lobbies, passageways, hallways, and other parts of your building, says Ripp. Then you may face complaints from other tenants if those employees, guests, and patients are too noisy or block access to their spaces, he warns.
Model Lease Language
No employee, agent, licensee, contractor, patron, patient, or other invitee of the Tenant may:
a. Engage in any conduct, which Landlord, in its sole discretion, deems inconsistent with the first-class, businesslike atmosphere of the Building that Landlord desires to promote; or
b. Loiter in, about, or near the Building or the parking areas serving the Building.
* Make Violation of Use Clause an ‘Event of Default’
Say in your lease that if the health care tenant violates the use clause, the violation will be an “Event of Default,” entitling you to resort to your remedies without giving the health care tenant any prior notice, says Ripp. That should give the health care tenant an incentive not to violate the use clause, he says.
Model Lease Language
Any breach or violation, whether material or immaterial, substantial or insubstantial, minor or otherwise, of Clause [insert #] shall:
a. Constitute an Event of Default under Clause [insert #] of this Lease, beyond any applicable grace period and without the requirement of notice from Landlord; and
b. Entitle Landlord, in its sole discretion, to exercise such remedies as it deems appropriate to terminate this Lease, enjoin any violation or breach of this Clause, and/or recover any damages, including consequential damages, to which Landlord may be exposed by virtue of any breach or violation of this Clause.
Practical Pointer: If the health care tenant or its activities are very controversial, consider adding language to your lease that lets you, in your sole discretion, hire security personnel to handle any demonstrations, picketing, or threats that may occur, says Byron. You should also get the right to pass through the cost of those security personnel to your tenant, he adds.
CLLI Sources
Stuart D. Byron, Esq.: Of Counsel, Blank Rome, LLP, 405 Lexington Ave., New York, NY 10174; (212) 885-5353; sdbyron@blankrome.com.
Marc L. Ripp, Esq.: Counsel, The Gale Company, 100 Campus Dr., Ste. 200, Florham Park, NJ 07932; (973) 301-9500; mripp@thegalecompany.com.