A Brave New World

January 27, 2017 • Healthcare is on everyone’s mind these days, as the Trump administration promises (or threatens, depending on your perspective) to repeal and replace the Affordable Care Act. With or without the Act, the healthcare landscape will continue to evolve, and it’s altogether likely that today’s urgent care center, which did not exist yesterday, will be unrecognizable tomorrow.

Healthcare Leases: A Moving Target

For those of us tasked with leasing commercial properties for healthcare uses, planning for these changes is comparable to the future-proofing challenges we face as a result of the rapid changes the retail, office, industrial, residential, and hospitality property sectors are undergoing.
 
In addition to striking the right balance between flexibility and certainty so landlords and tenants can respond to the ever-changing healthcare landscape, here are some basic safeguards that are particular to healthcare leases every real estate professional should keep in mind.

Safeguard Your Leases

First, beware of the stark reality that healthcare properties are subject to federal and state laws (some of which are often referred to as Stark Laws). These may impose strict liability and criminal penalties for, among other things, financial arrangements that would otherwise be benign, including below-market rents and percentage rent.

Second, healthcare properties give rise to operational risks and responsibilities that must be allocated ahead of time between landlord and tenant so the wrong party doesn’t end up on the right side of liability. Heavy water use, as can be expected in ambulatory surgical centers, can lead to mold, which goes hand in hand with challenging remediation and disclosure requirements.  Unsuspecting landlords entering a healthcare property to perform repairs could find themselves inadvertently guilty of violating patient privacy rights if those rights haven’t been appropriately safeguarded by the tenant.

Beware of Certain Uses

Third, specific healthcare uses pose specific risks. Leasing space to a medical marijuana dispensary is a violation of Federal drug laws irrespective of state laws that sanction them.  Women’s health centers may become targets of protests and violence, putting other tenants and occupants at risk.
 
Finally, because healthcare uses don’t fit neatly into typical retail, office, or residential land use categories, a landlord may not have the right to enter into a healthcare lease. Zoning rules and private contractual restrictions can get in the way.