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Look Before You Lease

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When St. Francis Hospital & Health Centers relocated services to a new campus several years ago, it found itself with several nursing units of empty space. The three-hospital system in Indiana wasn’t marketing the vacancy at its Beech Grove campus, but an acute long-term care facility wanted to lease the space.

Such an arrangement gave St. Francis the opportunity to offset operating costs and generate additional revenue. But the system didn’t just dive in. “We make the decision to lease only if it fits within our strategic objectives and only if that company’s mission and philosophy fits with our own,” says Keith Jewell, senior vice president and chief operating officer.

Eight years later, St Francis’ “hospital within a hospital” arrangement continues to benefit both companies, Jewell says. But ensuring a perfect fit means more than measuring square footage. Rental agreements must document an organization’s expectations of its tenants. St. Francis’ rental agreement, for instance, outlines who will clean and maintain common areas, as well as keep them secure. Any support services provided by St. Francis, such as housekeeping, security and patient meals, are figured into the lease rate.

Hospital space comes with regulatory obligations regardless of whether you’re the tenant or the landlord, says Tom Huser, safety coordinator at Clarian Health, a five-hospital system based in Indianapolis. “Surveyors will look at host hospitals’ records for Environment of Care, emergency management, facilities and building maintenance programs for that location.”

If shared, exit routes, parking lots and cafeterias are all open to regulatory requirements regardless of who technically owns them, Huser says. And tenants should ensure proper credentialing as they would their own employees.

Fixed equipment is generally the responsibility of the building owner, but items that are mounted yet removable, such as fire extinguishers, can cause complications. A rental agreement should outline who’s responsible for maintaining these types of equipment, Huser says.

Leases evolve over time, but the more specificity that is built into the initial contract, the fewer interpretation problems that will arise. Ultimately, the tenant is as important as the terms of the lease, Jewell says. “We have a pretty good lease, but, as much as anything, we have a great tenant.”

—Molly Rowe