Top Concerns for Healthcare Landlords: Termination Rights
By Lora Mays, Product Marketing Manager
This is the third in a series of four blog posts discussing the top concerns for healthcare landlords. In case you missed it, check out the previous blog posts:
- Top Concerns for Healthcare Landlords: Timeshare Leasing
- Top Concerns for Healthcare Landlords: Laws and Regulations
Thinking through termination rights while negotiating a lease will protect both parties when the partnership concludes. It can be difficult to think about the end when just beginning your partnership, but it's an important step – especially when taking laws and regulations like the Stark Law into consideration.
One of the key reasons why termination rights are a challenge for healthcare landlords is Stark Law. The Stark Law lease exception does not allow healthcare landlords to amend a lease agreement during the first year to change how much rent would be charged, which relates to any other provision that would affect how much rent would be charged to the tenant.
To make an amendment like this, the landlord and tenant would have to agree to terminate the lease and re-create a new lease. However, Stark Law mandates that all leases must be at least one year long.
Because of this, these termination provisions must be decided upon during lease negotiations. Thinking through "what if" scenarios allows you to address them within the lease to ensure that you have appropriate termination rights. For instance, what if:
- The physician decides to terminate the lease because they lose his or her medical qualifications?
- The physician practice needs to expand or, in a case quite common in today's environment, is acquired by a healthcare system or hospital?
- A physician tenant becomes disabled or dies?
While some of these circumstances seem extenuating, they are important to address and ensure that you, as the healthcare landlord, are protected and that the tenant can also be successful with said lease terms. In addition, they need to adhere with the Stark Law to ensure you are in compliance.
Once you've established termination rights, tracking them can be a challenge – especially if they vary based on physician or physician group. Using a lease administration software can help you track termination rights and ensure that you have easy access to this data when you need it.