February 3, 2025

Lease Provisions That Make Retail Centers Ideal for Healthcare Tenants

Holland & Knight Retail and Commercial Development and Leasing Blog
Jeffrey A. Calk
Retail and Commercial Development and Leasing Blog

In recent years, there has been a steady migration of healthcare providers becoming tenants in retail shopping centers. These healthcare tenants are operating urgent care clinics, physician offices, freestanding emergency departments and specialty clinics (oncology or renal care clinics). The trend has been for healthcare systems to establish a "beachhead" for services in thriving shopping centers or be the anchor tenant in the conversion of a struggling retail center for use as medical, dental and similar professional offices.

What can a retail shopping center owner do to make its property more user-friendly to prospective healthcare tenants? Or, stated differently, what unique lease documentation requests should a retail shopping center anticipate from a prospective healthcare tenant?

Here are the things we've seen that are often requested by – and deemed very desirable to – healthcare tenants in a retail shopping center:

  1. If the prospective tenant is expected to be treating frail or seriously ill patients or those needing assistance entering the premises – such as at an oncology clinic or renal dialysis clinic – the tenant may request reserved parking spaces close to the front door of the premises. The tenant may also want to construct a canopy permitting patients to be dropped off at covered curbside location.
  2. In most cases, the prospective tenant will request that it be the exclusive provider of certain healthcare services such as cardiology, dialysis or urgent care. For tenants making a substantial capital investment in the property, such as a freestanding emergency department (FSED), the prospective tenant may request a more expansive right to be the exclusive healthcare service provider in the shopping center. Regardless, the shopping center owner should expect tenants to request changes to the "permitted use" provision in the typical retail shopping center lease.
  3. If the tenant's business operates on a 24/7 basis or beyond the shopping center's normal business hours, the tenant may request relief from certain restrictions and protective covenants encumbering the shopping center. In particular, if the tenant is operating an FSED, the tenant may want special provisions addressing ambulance access and permission to use sirens and emergency lighting. Note that most ambulance traffic at FSEDs occurs when a patient at the FSED needs to be transferred to a hospital. Most FSED patients arrive without the use of emergency transportation.
  4. Many healthcare providers require emergency power systems (generators) to keep lighting, medical equipment and refrigeration systems operational. If emergency power is not available in the shopping center – and even if it is – the prospective tenant may need a pad site near its premises to install its own independent emergency power system.
  5. The prospective healthcare tenant may request relief from use restrictions and covenants burdening the shopping center. Shopping center declarations often target large-box grocery stores as an anchor tenant, which will include a pharmacy department. As consequence, it is not unusual to find that the declaration creates ambiguity regarding whether healthcare services are permitted in the shopping center.
  6. If the prospective tenant is a hospital or healthcare system, it and its counsel will be concerned about the lease's compliance with unique healthcare laws and regulations such as the Stark Law and Anti-Kickback Statute. As a result, these tenants will ask for special provisions to be included in the lease – which likely will not be familiar to the shopping center owner. Such provisions may include representations from the shopping center owner as to the absence of physician ownership in the shopping center and provisions relating to compliance with healthcare regulations to which the healthcare system is subject.
  7. Depending on the services to be provided and medical equipment to be installed, tenants may request permission to make facility alterations to accommodate imaging equipment and other built-in specialty medical equipment. Likewise, the tenant may have need for upgrades to utility services for dedicated/independent utilities serving only the premises or special HVAC needs.
  8. If the tenant is a hospital or healthcare system, the tenant may ask for flexibility in the insurance provisions in the shopping center's standard lease form. Most healthcare systems have a complex risk management program involving self-insurance programs and blanket insurance policies covering a portfolio of properties. Healthcare is a high risk business, so shopping center owners who are open to altering their standard lease's insurance provisions will be appreciated by these tenants.

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