Educational content only. This post explains how financial concepts and published data apply generally to healthcare practices — it does not constitute advice for your specific situation. Consult your accountant, lender, and relevant advisors before making any significant business or financial decisions.
The lease negotiation happens once. Everything that follows — your rent structure for the next 5–10 years, your fit-out budget, your ability to assign or sell the practice, and your exit options — flows from what's in that document. Most clinic operators spend more time researching equipment than they do understanding their lease. That imbalance has consequences.
This post covers the terms published commercial real estate and healthcare business resources consistently identify as most significant for clinic operators. It's not legal advice — lease review requires a real estate lawyer with commercial experience. It's the vocabulary and context that makes that conversation more productive.
Base Rent and Escalation
Base rent is straightforward. What matters is the escalation clause — how much it increases each year and on what basis. Published commercial real estate literature describes two common structures: fixed annual increases (e.g. 2–3% per year) and CPI-indexed increases tied to the Consumer Price Index. Fixed increases are more predictable. CPI-indexed increases can be significantly higher in periods of elevated inflation.
Published benchmarking resources describe facility costs — rent as a percentage of revenue — as a key overhead ratio. For physiotherapy and chiropractic, the target range published benchmarks describe is approximately 8–15%. For dental, 5–10%. An escalation clause that pushes rent above those ranges before the lease term ends is worth modelling explicitly before signing.
Tenant Improvement Allowance
Published commercial real estate resources describe TI allowances — funds provided by the landlord to offset fit-out costs — as negotiable, particularly in markets with elevated vacancy rates or where the landlord is seeking a long-term healthcare tenant. Published resources describe healthcare tenants as generally attractive to landlords because of long lease terms, low default rates, and high relocation costs (which means low turnover).
The amount available varies enormously by market, landlord, and lease term. What matters is asking — and asking before the lease is drafted, not after. A TI allowance negotiated into the lease term meaningfully reduces the equity requirement and the financing burden at opening.
Permitted Use Clause
The permitted use clause defines what activities can be conducted in the space. Published commercial lease resources describe this as a clause that can either enable or constrain a practice's service offering — a permitted use written narrowly (e.g. "physiotherapy services only") may require landlord consent to add services like massage, acupuncture, or nutrition counselling. A broader permitted use clause (e.g. "healthcare services and related activities") provides more operational flexibility.
For a practice that anticipates expanding its service model — adding modalities, bringing in additional practitioners, or diversifying revenue — the permitted use clause is worth reviewing carefully before signing.
Assignment and Subletting
Published commercial real estate literature and healthcare M&A resources both describe the assignment clause as one of the most consequential terms for a practice owner planning any future transition. If the lease cannot be assigned to a buyer without landlord consent, a practice sale is materially complicated — and in some cases prevented — by a landlord who withholds that consent.
Published practice transition resources describe a lease with clear assignment rights — specifying that consent cannot be unreasonably withheld — as standard in well-structured healthcare practice leases. This is worth confirming with a lawyer before signing, not discovering at the point of a transaction.
Lease Term and Renewal Options
Published lending resources describe lease term as affecting financing eligibility — SBA guidelines in the US and most Canadian lenders require that the remaining lease term exceed the loan repayment period. A 5-year lease with no renewal option may not support a 7-year loan. Ensuring the lease term and renewal options together provide sufficient runway for the financing structure is a pre-signing check worth running.
Renewal options should specify the rent for the renewal period — or at minimum the basis on which it will be determined. "Fair market rent to be negotiated" at renewal puts the operator in a weaker position than a formula-based renewal rate. Published resources describe renewal rent certainty as a negotiating objective worth pursuing.
Personal Guarantee
Published commercial lease resources describe personal guarantee requirements as standard in most Canadian and US commercial leases, particularly for new business tenants without operating history. The personal guarantee makes the operator personally liable for the lease obligations if the business cannot meet them. Published resources note that the scope of the guarantee is negotiable — limiting it to a portion of the remaining term rather than the full lease obligation is described as achievable in some markets and with some landlords, particularly when the tenant has a strong personal financial profile.
→ See also: How Leasehold Improvements Work — Financing, Depreciation, and What to Push For
See how lease costs feed into your total startup model — and how rent as a percentage of revenue compares to published benchmarks for your specialty and market.
Model Your Startup Costs →Disclaimer: All figures referenced are from published industry sources and represent general patterns — not estimates for any specific practice. KlinDeck is not a financial advisor, accountant, lender, or lawyer. Tools are educational references only. Consult qualified professionals before making significant business or financial decisions.