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.
