A clinical fit-out is the most expensive thing most practitioners will ever install in a building they do not own. Chairs, plant, shielding, plumbing, data, nurse call, sterilisation benches: by the time a dental surgery or an imaging suite is operational, the spend often rivals a deposit on a house. The lease decides who pays for it, who owns it, and what has to be torn out at the end. Those three questions are usually answered badly, and almost always answered in the landlord’s favour unless you negotiate.
What a fit-out contribution actually buys
Landlords competing for a long-term medical tenant will often offer a contribution towards the fit-out. It sounds like free money. It rarely is. A contribution is usually structured either as a cash payment on practical completion, as a rent abatement over the first year or two, or as works the landlord performs itself. Each has different consequences, and the third is the one that catches people out, because a landlord-built fit-out is generally the landlord’s property from day one. You will have paid for it through rent and you will still have no claim to it.
Where the contribution is cash or abatement, read the clawback. Most leases make the contribution repayable on a pro rata basis if you default or if the lease ends early, which is reasonable, but some make it repayable in full on any early termination however caused, including a termination the landlord triggers. Check also whether the contribution is treated as an inducement with tax consequences, and get your accountant across it before you sign rather than at the end of the financial year.
Who owns the plant
Clinical premises blur the line between the building and the equipment inside it. A dental chair bolted to a slab and plumbed into suction and compressed air is, in practical terms, part of the building. A CT or MRI unit sits inside a shielded room that was built around it. The legal question is whether an item is a fixture, which generally passes to the landlord, or a tenant’s chattel, which you can remove.
Do not leave that to the general law. Schedule the items. A good lease carries an annexure listing, item by item, what remains your property and may be removed at the end of the term, and what is accepted as landlord’s fixtures. Where equipment is financed or leased, the financier will want that schedule too, and may want the landlord to sign a short acknowledgement that it will allow access to recover the unit. Arranging that at the start takes an email. Arranging it when a financier is nervous and a lease is expiring takes months.
Make good is the real cost
Make good is the obligation to return the premises to a defined condition at the end of the lease. In a plain office this is painting and patching. In clinical premises it can be ruinous. A full make good on an imaging suite may require removing lead or concrete shielding, filling a shielded floor slab, decommissioning three phase power, capping medical gas, removing suction and compressor plant, and reinstating ceilings and services that were rerouted a decade earlier. Quotes in the tens of thousands are ordinary. Quotes well beyond that are not unusual for radiology.
The clause itself is where the money is won or lost, and the differences are easy to miss on a first read:
- Return to base building condition: the most onerous. Everything you installed comes out, including works the landlord contributed to.
- Return to the condition at the commencement of the lease: better, and much better still if a photographic condition report is annexed so there is no argument about what that condition was.
- Remove only the tenant’s alterations made without consent: the most favourable, and achievable where you have real bargaining power.
- No make good, leave the fit-out in place: sometimes available where the landlord sees value in re-letting clinical premises to another practitioner.
Watch for a make good clause that lets the landlord elect, at the end of the term, either to require physical works or to take a cash payment calculated on its own estimate. Those clauses transfer all the valuation risk to you. If you cannot remove the election, cap the payment.
Approvals, and the gap between signing and opening
Clinical use frequently needs a planning permit, and the fit-out itself will need a building permit. Shielding needs certification. Medical gas and plumbing need compliant installation and sign-off. None of that is quick, and none of it is within your control. The lease should not commence, and rent should not run, until the approvals you need are in hand. The usual mechanism is a condition precedent plus a rent-free period that starts at handover rather than at signing, with a right to terminate if a permit is refused or takes longer than an agreed outer date.
Check too whether the landlord’s consent to your fit-out plans is required and, if so, whether consent must not be unreasonably withheld and must be given within a set number of business days. An unqualified consent right is a veto over your entire project.
Match the term to the money
A fit-out amortised over ten years does not belong in a three-year lease. If the capital spend is heavy, you want a term, plus options, that at least covers the depreciation, and you want those options drafted so they are exercisable on notice without the landlord being able to reopen the rent to whatever the market will bear. Where the practice may be sold during the term, the assignment clause matters just as much, because a buyer is purchasing your right to stay in the premises as much as the goodwill.
We advise practitioners and practice owners on fit-out, make good and lease negotiation across Melbourne, with pricing disclosed before you engage us so there are no surprises. Book a free first consultation, or read more about our property and leasing work. You may also find our guides to leasing medical premises and leasing radiology and imaging premises useful background.
Frequently asked questions
Can I negotiate make good out of a lease entirely?
Occasionally, yes. Landlords are most willing to waive or soften make good where clinical premises are purpose-built, where the fit-out would have real value to the next practitioner tenant, and where you are taking a long term. Even when a full waiver is not available, narrowing the obligation to the condition recorded in an annexed photographic report, and capping any cash alternative, removes most of the uncertainty.
Who pays to remove radiation shielding at the end of the lease?
Whoever the lease says. In the absence of a specific clause, a broad make good obligation will usually capture it, and the cost falls on the tenant. Because shielding removal is one of the largest single make good items in imaging and dental practices, deal with it expressly: either exclude shielding from make good, or agree that it may be left in place in return for an agreed payment.
Should I take a landlord-built fit-out or build it myself?
Building it yourself gives you control over specification, program and contractor, and leaves the equipment schedule in your hands, but you carry the cost and the construction risk. A landlord-built fit-out conserves your capital and shifts delivery risk, but the result is generally the landlord’s property and you may be paying for it through higher rent for the whole term. The answer depends on your capital position and how long you intend to stay.