Financial Terms in LOIs to Focus On

Christian Gile • September 12, 2025

When it comes to leasing space for your medical practice, the Letter of Intent (LOI) is more than just an outline. It is the first step in shaping the financial foundation of your lease agreement. By addressing key financial terms early, you can avoid costly surprises later and ensure your practice is positioned for long-term success.

Here are three of the most important financial terms to pay close attention to in your LOI.

Lease Rate

The lease rate is often the most visible number in any deal, but it is also one of the most misunderstood. Rates can be quoted in a variety of ways: monthly or annually, full-service-gross (FSG) or triple-net (NNN), etc. A FSG rate typically includes operating expenses like taxes, insurance, and maintenance wrapped into the rental amount, while a NNN rate separates those costs out and you pay an additional amount (PSF) on top of your base rent.

For doctors, even small differences in the rate can add up to tens of thousands of dollars over the life of a lease. Comparing offers side by side is only meaningful if you fully understand what is included in each offer. Always request a clear breakdown so you know the true cost of occupancy.

Tenant Improvement (TI) Allowance

Medical practices often require specialized build-outs—exam rooms (which require plumbing), ADA-compliant restrooms, imaging areas, the right patient flow, and more. These improvements are rarely inexpensive, which makes the Tenant Improvement (TI) allowance one of the most valuable pieces of your lease.

A TI allowance is the contribution a landlord makes toward the build-out of your space. While the amount can vary widely depending on the market and the other terms of the deal, negotiating a higher allowance can mean the difference between moving into a ready-to-use space, or carrying significant construction expenses. It is also important to clarify how and when the allowance is disbursed, what it can be used for, and whether unused funds can be applied to other costs.

Abated Rent

Abated rent, also known as free rent, provides financial breathing room during the early stages of occupancy. Landlords may offer one or more months of free base rent to incentivize tenants, especially in competitive markets.

For a medical practice, this period can be invaluable. If negotiated properly, it allows time to complete the build-out, hire staff, and begin seeing patients before full rent obligations kick in. However, be sure to confirm whether operating expenses are still due during the abatement period. Some landlords waive them, while others require payment regardless.

Putting It All Together

The lease rate, TI allowance, and abated rent work together to define the financial backbone of your lease. A slightly higher rate may be offset by a generous TI package, while a lower rate with minimal TI support could leave you paying more upfront. Similarly, a well-structured abatement period can ease the transition into a new location and preserve cash flow.

For doctors, where real estate costs often rank as one of the largest line items on the profit and loss statement, understanding and negotiating these terms is critical. A thoughtfully crafted LOI not only secures a fair deal but also protects the long-term health of your practice.

After graduating from the United States Air Force Academy in 1998, Christian served in the U.S. Air Force for 13 years in Texas, California, Arizona, and Colorado. After his service, Christian Gile founded GILE Commercial Real Estate specializing in medical real estate and investment services. Christian has personally negotiated over 3,000 Commercial Real Estate deals for his clients. Christian loves what he does, enabling him to produce extraordinary results; the evidence? It is in the wealth he has created for his clients.

Phone: (602) 980-3171

Email: christian@gilecre.com

< Older Post

Newer Post >

When to Sell Your Practice: Understanding the Impact of Declining Revenues

By Christian Gile • April 30, 2026

One of the hardest conversations I have with physician clients is regarding selling their practice. Most of them think the ideal time to sell is when the business is humming: revenues are strong, patients are loyal, and all is well. They're right. What many don’t anticipate, however, is how significantly timing can impact outcomes. Declining revenues are more than just a warning sign—they can meaningfully affect the overall value of a practice. Why Declining Revenues Decrease Value in Your Practice When you sell your practice, buyers aren't buying your “past” success. They're buying cash flow in the future. The moment revenues start going down, you've really changed what you're selling. A revenue-declining practice sends a buyer one message: Risk. Buyers will discount substantially for that risk. Practice valuations are normally done on a multiple of EBITDA or gross revenues. If your revenues decline 15% and your margins contract, you're not only losing 15% of your practice value. You're losing that plus the multiplier effect, which can reduce your valuation by 30% or more. Hang on another year while revenues continue to fall, and you might find yourself with an unsellable practice at any price. The "Just One More Year" Trap I see this pattern all the time. A physician notices profits slacking but convinces themselves that it is only temporary. Maybe it's a seasonal dip, some key patients moved away, or insurance reimbursements were received late. They convince themselves they'll turn things around and sell next year when the numbers are better. The problem is next year rarely gets better. What started as a 5% reduction in revenue becomes 10%, then 15%. Margins shrink. Turnover increases. By the time the physician is ready to admit they need to sell, they're already negotiating in a position of weakness. The practice that could have sold for $1.2 million two years earlier might now fetch $600,000, if anyone will even look. Conclusion The best time to sell is when your practice is profitable, and the story you have for a buyer is one of growth and possibility. Deteriorating revenues are a red flag and must not be ignored. If you see a pattern of declining revenues taking shape, don't wait until it reverses itself. Have an independent assessment, talk to an advisor familiar with practice sales, and determine what options you have. The line between selling at the right time and waiting too long can be the difference between financial anxiety, and an easy retirement. Timing is not everything when it comes to selling your practice, but it is close.

Should I Buy an Established Practice or Scratch-Start?

By Christian Gile • April 23, 2026

One of the first major decisions physicians make when going into private practice is purchasing an existing practice, or starting one from scratch. Both can succeed, but they involve radically different risk, timelines, and expense. The Case for Buying an Established Practice Buying an established practice likely gives you immediate cash flow. You receive a patient base, trained personnel, existing payer contracts, and infrastructure. That is to say that you start making money immediately, instead of taking months or years to establish a patient base from zero. The finances are likely more stable. You can analyze prior revenue statements, learn about referral patterns, and establish profitability before investing. This is sometimes simpler to obtain financing for. The compromise is cost in the long run. You are, in essence, purchasing the seller's reputation and systems which may not always be the perfect fit. If the previous owner had poor relationships with referral sources or outdated processes, you will have those problems to resolve. The Case for a Scratch-Start Beginning from scratch gives you total control. You choose the location, design the space to your own specifications, hire your own staff, and build the culture that you want. No legacy baggage and no politics of inheriting another person's practice. The entry cost is sometimes intimidating. Sure, you'll still be paying for build-out and equipment, but you're also not paying top dollar for goodwill. The down side is time and risk. Building up a patient base requires time, and during that time, you'll have expenses while working on increasing your revenue. Conclusion If you need to start in a hurry, buying an existing practice is usually the better choice. If you are not bothered about a longer timeline and value autonomy, a scratch-start may be preferable. There isn't a one-size-fits-all, “right” solution. Talk to advisors who understand practice ownership, be conservative in assumptions, and choose the path that best suits your objectives and risk tolerance. The wrong choice will cost you money and time. The right one sets you up for long-term success.