The advertised rate for medical office space is only the beginning of the cost analysis. Physician practice owners should identify every expense included in the lease, expenses that are billed separately, and costs that can change over time before comparing properties.
This is especially important when two buildings use different lease structures. A lower base rate can produce a higher total obligation once taxes, insurance, maintenance, utilities, and common-area expenses are added.
Understand the two common structures
Full-service lease
In a full-service structure, the quoted rate generally combines base rent with certain operating expenses. The exact package varies. Utilities, janitorial service, or other items may still be excluded, and the lease may allow expense increases above an established base year.
Triple-net lease
In a triple-net structure, the tenant pays base rent plus its share of property taxes, building insurance, and maintenance or operating expenses. Those pass-through costs can change, so the practice should understand how they are calculated, reconciled, and controlled.
Neither label tells the whole story. Landlords may define categories differently, which makes the lease language and a detailed cost worksheet more important than the marketing term.
Ask what the quoted rate excludes
- Common-area maintenance, often called CAM
- Property taxes and building insurance
- Electricity, gas, water, and after-hours HVAC
- Janitorial service and waste removal
- Parking, security, signage, and access charges
- Repairs inside the suite and maintenance of equipment serving only the suite
- Administrative or management fees
- Annual reconciliations and increases over a base year
A practice should ask for recent operating-expense information when it is available and review whether unusual vacancies, major repairs, or allocation methods could affect its share. Any relevant caps, exclusions, audit rights, and notice requirements should be addressed in the lease review.
Model the total cost over the full term
A meaningful comparison should cover the full expected term, not only the first year. Include scheduled rent increases, estimated operating expenses, tenant improvement allowances, construction costs, free-rent periods, moving costs, and the value of renewal or expansion rights.
Practice owners should also test the budget under more than one scenario. If operating expenses rise or construction takes longer than planned, can the practice absorb the difference without disrupting payroll, equipment purchases, or other investments?
Protect the practice during buildout and opening
Medical office buildouts can involve specialized plumbing, electrical, imaging, life-safety, accessibility, and technology requirements. Rent commencement should be coordinated with delivery of the space, construction responsibilities, permits, inspections, and the practice’s ability to begin seeing patients.
We recommend allowing adequate buildout time and avoiding rent while the practice cannot generate revenue in the space. The final business terms should then be accurately reflected in the lease and reviewed by experienced counsel.
Use a consistent comparison checklist
- Base rent and annual increases
- Operating expenses and reconciliation method
- Utilities and service exclusions
- Tenant improvement allowance and responsibility for overruns
- Rent commencement and construction-delay provisions
- Parking, signage, access, and after-hours use
- Repair and replacement obligations
- Renewal, expansion, relocation, assignment, and termination options
The bottom line
A lease that appears simple can carry significant variable costs. Physician owners can make a clearer decision by translating each proposal into a total occupancy budget and comparing the same categories across every option.
A lease decision should fit the practice’s complete financial picture. Kassouf Healthcare Solutions helps physician leaders evaluate performance, planning assumptions, and strategic priorities so they can move forward with greater clarity. Contact us to get started.