As a practice owner landlord, what should I include in a contract to sublease to another doctor?

A common question frequently asked on our thread is how to sublease a office space. Many comprehensive ophthalmologists want to lease to an optometrist or subspecialist; many sub specialists lease form a comprehensive ophthalmologist a day per week.

Here’s a example of a question:

I this a broken record of a thread… but I’m considering renting out some space in my office to a local optometrist for a month or two. She had water damage to her office with the rains we got in NorCal during Jan-Feb.

I’d be letting her use ~ 750 sq ft of space for her diagnostic equip, computers, and staff work area. She’ll also be occupying one exam lane, use of the waiting room, bathroom, and my parking lot (~12 spaces). 

She wants to try and be in the office when I’m in the OR and the half day that I spend in academics. Also she wants to work a full Saturday when the office is closed. She would be occupying ~25% of the office space for about 20% of the week. I pay ~ $6000 / month for my 2200 sq ft office space.

I was going to charge her ~$1200 / month. And I was going to ask that she obtains a rider from her liability carrier to acknowledge a temporary change in address for place of business. 

Does this sound reasonable to the group? Have I missed anything? Think I need to draw this up with a lawyer even though its only for 1-2 months while her office is repaired??

It sounds like you’re doing a friend a favor for a few weeks. You could gouge them on the rent but I am a firm believer what goes around comes around so your rate sounds fair to me. If you were displaced you would hope to be charged market rates which it sounds like you’re doing. 

You will want to avoid the appearance you’re giving a lease with favorable terms to induce referrals. The safe harbor to avoid stark and anti kickback violations if you sublease, is to charge fair market value for a year.

Of course, either party can terminate with or without cause before a year- but if they do, the parties shouldn’t rent from each other for 12 months.  After 12 months you can go month to month for six months. 

Why all these rules?  Because they don’t want you to “adjust” the rent based on the number of referrals. 

This is from a different lecture but confirms the above, see slide 9:

Of course, if there is no referral relationship such as renting a space from a psychiatrist then the rules may not apply. 

Believe it or not, when I attended a course about this the instructor cited a ophthalmologist renting a closet in an optometrist’s office at $360/ square foot per month. The level to which some of our colleagues will stoop…

You will want to have your tenant list you as an additional insured on their liability certificate. You should contractually require this be provided to you before the lease commences. You might also check with your office insurance carrier to see if landlord insurance is necessary.

I required the first when I did a 10 day leaseback of my condo- what if one of their movers falls down the stairs and is pinned down by a sofa?

Finally although this sounds like a friend because you’re entertaining not going with a contract- I would definitely go with a contract, with a hold harmless/ release of liability agreement, even if you completely trust this person. Heaven forbid something happen and a patient goes after your tenant and your practice is named…

Instead of lawyering up here are some sample contracts you can amend to your situation:

If anyone wants me to help edit, email me through the blog and I’ll do it for $250 per hour 🙂

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