Pay Attention To Utilities When Negotiating Healthcare Leases

Hospitals and health systems are increasingly looking to expand their brand and image and their ability to serve patients in convenient locations, which includes repurposed retail and office spaces. But, when hospitals become retail tenants, they create new issues for healthcare facility managers. The standard office or retail lease often fails to address the unique needs and practice patterns of off-campus healthcare tenants. For example, medical tenants typically have higher use of utilities than traditional tenants.

Early during lease negotiations, medical tenants should address these costs as well as the availability of utilities. Landlords also need to be aware of the issues surrounding utilities and understand that healthcare tenants will likely have greater demands during lease negotiations.

Electricity. Areas with medical equipment such as X-rays, CT scanners, and MRI units may require significant power use. An average MRI exam, for example, takes about 15 kilowatt-hours of power. Just two scans use the same amount of electricity as the daily use of the average American home, according to the U.S. Energy Information Administration.

Since the electrical load is significantly higher for most medical offices, a standard 220-volt outlet just won’t cut it. Many medical tenants will need 440-volt outlets to be installed. A medical office also requires additional space to store its massive electrical boxes.

Water. Plumbing, or the availability of potable water, is also unusually high for medically related uses. For example, dialysis centers use an enormous amount of water. Dialysis treatment for kidney failure requires ultra clean water, and in a dialysis center, the water treatment system may take up a whole room.

A typical office or retail lease often provides “utilities that satisfy needs” — this generic term will not work with a healthcare lease. Excess utilities need to be specifically addressed in the lease and passed through to the medical tenant. In an office or retail center with multiple tenants, common area maintenance (CAM) fees need to be separately metered. Unfortunately, separately metered water is a more complicated endeavor.

Lastly, considering the skyrocketing costs of healthcare, medical tenants and landlords need to consider adopting new technologies to monitor and control energy use in their facilities to stem long-term utility needs.

This is the eighth part of a 10-part series on healthcare leasing issues.

Brooks Smith is a commercial real estate and finance attorney for Bradley Arant Boult Cummings LLP. He regularly represents healthcare clients in all aspects of commercial real estate development, acquisition, disposition, leasing, and financing. Connect with Smith on LinkedIn or through Bradley Arant Boult Cummings’ website.

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