Giving Exclusives to Medical Tenants

Q During lease negotiations for space in my medical office building, a physical therapist shocked me by demanding an exclusive. The physical therapist wants me to agree not to rent to any other tenant that will use its space primarily for physical therapy purposes. I've heard of granting exclusives to retailers, but never to medical tenants. Is this situation unique?

A It's not unique nowadays for certain medical tenants to demand exclusives in medical office buildings, notes property manager Richard F. Muhlebach. There's a good reason for them to want an exclusive. For instance, it helps them get referrals from other tenants in the building, he says. Or the medical tenant may have bought a very expensive piece of medical equipment—such as an MRI unit—and may want to be the only one using that equipment in the building, he adds. Muhlebach has dealt with a number of medical tenants (especially physical therapists and endodontists) who demand—and get—exclusives in an office building.

But if you grant an exclusive to a medical tenant, be sure to add limits to it, as you would with a retailer's exclusive, he advises. For instance, Muhlebach typically has the medical tenant who demands an exclusive agree that:

1) The owner won't be liable for any money damages if another tenant violates the exclusive (instead, the owner must only ask a court to stop the other tenant from conducting business in a way that violates the exclusive); and

2) The exclusive won't apply to existing tenants in the building, nor to their assignees, subtenants, and licensees.

Also, since an exclusive can severely hamper your rental efforts, consider further limiting it by having the exclusive end after the first or second lease year, Muhlebach suggests. That should give the tenant enough time to build relationships with other medical professionals in the building and encourage referrals.

CLLI Source

Richard F. Muhlebach, CPM, RPA: Senior Managing Director, Kennedy Wilson Properties, 275 118th Ave., Ste. 105, Bellevue, WA 98005; (425) 453-2500; rmuhlebach@KennedyWilson.com.