All leases deal with a fairly standard list of business and legal terms:  rent, expenses, casualty, subleasing . . . and the list goes on.   Healthcare leases, however,  have some unique clauses not found in a standard office lease, including:

• Responsibility for the disposal of medical waste; and
• Restrictions on tenants' ability to bring hazardous substances onto the property when used in the course of their practice.

Frequently, the most unique and challenging lease clause to negotiate is the one dealing with Exclusivity. Not typically a concern in a standard office lease, exclusivity clauses are common in retail leases. The Cold Stone Creamery doesn't want to see a Ben & Jerry's store opening in the same block.  Crafting an exclusivity clause that adequately protects a healthcare tenant, requires a thorough understanding of where the risks to the tenant's business lay. (who is your Ben & Jerry's?)

HOW TO DEFINE YOUR COMPETITORS

1)    Define the competition in terms of the service you are providing at the leased space.

• Type of practice: orthopedic, breast care
• Services provided: surgical and non-surgical orthopedics; mammography and breast MRI

2)    Define the competition in terms of services you are providing elsewhere:     

• Any hospital line of business

3)    Define the competition in terms of who they aren't:

• Members of the medical staff of General Hospital

4)    Define the competition in terms of who they are:

• Members of the medical staff of University Hospital and Caring Hospital
• University Hospital Corporation and Caring Hospital Corporation

5)    Define the competition in terms of what you require to operate:

• Healthcare services requiring Department of Public Health approval

6)    Define the competition in terms of your industry:

     *  Any hospital or healthcare system

In general, the broader the definition the better the protection against competitors. "Any patient care activities" provides more protection than "orthopedic practices." [Note: even if the tenant is a private orthopedic practice, the broader definition may be of value if the practice is ever sold to a healthcare system.]

HOW IS THE LANDLORD LIKELY TO RESPOND?

Exclusivity clauses restrict a landlord's universe of potential tenants. The landlord's response will depend in large part on the size of the property, the importance of the tenant's lease to the property, and the whether the property is targeted primarily at medical tenants.

An 80,000 square foot building has the potential for more vacant space (and more red ink) than a 10,000 square foot building. If the pending lease is for 40,000 square feet, the landlord will be less concerned about limiting the pool of his potential future tenants, than if the lease is for only 10,000 square feet. If the property is a multi-tenanted office building whose tenants are primarily general office users, as opposed to medical office users, the landlord will be less concerned about limits on leasing to other medical tenants. If, however, a building has a high percentage of medical office tenants, and the landlord feels his continued ability to attract medical users to the property is important to the building's long-term viability, the landlord will resist any constraints on future leasing.

The dynamics of negotiating an exclusivity clause are totally changed if the property owner is an affiliate of a healthcare system. If the building is located on a hospital campus, tenants will be members of the hospital's medical staff and in all likelihood exclusives will not be granted to any practice. If the building is located off-campus the healthcare system may consider restrictions on competing practices. Its willingness to do so may be driven by other business considerations.

Exclusivity clauses should never be overlooked when negotiating a healthcare real estate transaction.  Establishing a new patient care location is an expensive and time consuming process.  Protecting and promoting the viability of the business at a location is the job of an Exclusivity Clause.