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By Glenn S. Demby, Esq.

By Glenn S. Demby, Esq.

In the last few years, the rise in medical office tenants leasing at retail properties or in office buildings has been a good development for many commercial owners. That’s because the pool of prospective tenants for dark space has widened, in some cases cutting down on vacancies. But medical tenants also present some challenges. And owners need to take several factors specific to this alternative type of tenant into account before determining whether such a lease is the right deal for their property. Consider these pros and cons before taking on a medical tenant.

Operating costs are one of the main cost concerns for both retail and office building tenants. So they’re one of the first things on a tenant’s radar when it’s looking to cut costs. A tenant trying to trim operating costs can spell trouble for you, however, if believing that it has overpaid for its share of the building’s operating expenses it decides to perform a lease audit—but you forgot to negotiate owner-favorable lease audit provisions before the lease was signed.

No matter how financially sound your tenants seem at the start of a lease, there’s no guarantee they will stay that way. So it’s important to take all possible steps to protect yourself. Once a tenant files for bankruptcy, bankruptcy laws control what you can collect from the bankrupt tenant or its court-appointed trustee and what it can do with the tenant’s lease. As a result, you could end up losing a lot of money or having to deal with an undesirable third party in the tenant’s space.

Over the years, commercial real estate owners and tenants have hammered out many issues surrounding compliance with the Americans with Disabilities Act, often specifying in their leases which party will be responsible for compliance. But if you don’t draft your lease terms carefully with a tenant that plans to do construction at your building or center, you could face an issue that is still controversial: who is responsible for making sure that common areas are up to ADA standards. Sacramento attorney Winnifred C.

Unlike office building tenants, many retail tenants rely on foot traffic to bring in at least some of their sales. If you own a shopping center for long enough, you’ve probably had to do maintenance work or make repairs to your property, which may have included erecting scaffolding or setting up other equipment that blocked storefronts to some degree.

The popularity of mixed-used properties—buildings with both residential occupants and retail tenants—has increased in recent years, creating a unique opportunity for some owners who can reap the benefits of such an arrangement. For example, popular retail tenants are exposed to additional on-site customer foot traffic. And potential residents may enjoy easy access to shopping, services, or entertainment.

Trying to fill vacant space while your office building or shopping center is undergoing renovations can be tricky. A new tenant might anticipate not having access to some of the amenities, equipment, or services that it expects to be able to use.

In some cases, either you or the tenant—or both parties—will want to end the tenant’s lease early. This isn’t necessarily a bad thing. The tenant may be having a hard time making ends meet and want to downsize, relocate to cheaper space, or go out of business, giving you the opportunity to re-rent the space to a more lucrative tenant—especially if you plan on collecting percentage rent that you’ve been missing out on with the current tenant’s lagging sales.