Lease Renewals and Options for Medical and Allied Health Practices

For a practice with a clinical fit-out in the ground, the end of a lease is not a routine administrative date. It is the point at which your tenure, your rent for the next five or ten years, and possibly a large make good bill are all decided at once. Practices that handle it well start a year out. Practices that handle it badly discover, six weeks before expiry, that an option lapsed eight months ago.

An option is a right, and it has a deadline

An option to renew gives you, the tenant, a unilateral right to extend for a further term. The landlord cannot refuse if you exercise it correctly. That is valuable, and it is also fragile, because almost every option is expressed as exercisable only within a defined window, typically somewhere between twelve and three months before expiry, by written notice given in a specified way.

Miss the window and the general position is that the option is gone. You are then holding over, often month to month, at the landlord’s pleasure and on whatever terms it now proposes, with your fit-out as a hostage. Retail premises leases carry statutory protections that soften this, including an obligation on the landlord to notify the tenant of the option date in advance and consequences where it does not, but relying on your landlord to remind you is not a strategy. Diarise the window the day you sign the lease, and diarise a reminder six months before it opens.

Exercise it properly, too. If the lease says notice must be in writing and served at a nominated address, do exactly that and keep proof of service. If it requires you to not be in breach at the date of exercise, deal with any outstanding breach first, because an unapproved alteration or an unpaid outgoing can be used to argue the exercise was invalid.

What the rent will be

Exercising an option fixes your tenure but not always your rent. The lease will specify how rent for the further term is set, and the method matters enormously:

• A fixed percentage or fixed dollar increase: predictable, and the easiest to plan around.
• Indexed to a published measure: reasonably predictable, and usually acceptable.
• Market review: the rent is reset to market, determined by a valuer if the parties cannot agree. This is where a practice can face a substantial increase, because clinical premises with an established fit-out are sometimes argued to command a premium.
• Greater of market and the previous rent, often called a ratchet: your rent can go up but never down, whatever the market does.

On a market review, the value of your own fit-out should generally be excluded from the assessment, because you paid for it. Whether the lease says so expressly is worth checking before the review, not during it. Retail premises leases also provide a process for disputing a market determination, with timeframes that are easy to blow.

If there is no option

Then you are negotiating a new lease, and your position depends almost entirely on how movable you are. A general practice or allied health clinic can relocate at real but manageable cost. A dental practice with multiple plumbed chairs, or an imaging practice with a shielded room and a fixed unit, often cannot relocate at any sensible price. Landlords know this, and the negotiation reflects it.

Which is why the only effective counter is to start early and to genuinely investigate alternatives. Having a second site priced and a relocation cost calculated changes the conversation, even if you never intend to move. Starting the discussion twelve to eighteen months out also means the landlord is dealing with a tenant who has options, rather than one with ninety days left.

Use the renewal to fix what is wrong

A renewal is the one moment when the lease is reopened, so treat it as an opportunity rather than a formality. The items most worth pursuing are the ones that were conceded when you were a new tenant with no track record: narrowing the make good obligation and annexing a condition report; adding or extending options so the term matches the remaining life of your fit-out; improving the assignment clause if a practice sale is anywhere on the horizon; adding a right to install or upgrade equipment without fresh consent each time; capping recoverable outgoings or excluding capital items; and reducing a bank guarantee that has sat at the original figure while your covenant strength improved.

Where disclosure obligations apply, as they do for retail premises leases, the landlord must give you a disclosure statement before the renewal takes effect. Read it against the lease. Discrepancies between the two are common and are much easier to resolve before you commit.

A twelve-month checklist

Twelve months out, pull the lease and confirm the expiry date, whether an option exists, the exact exercise window and the rent review method. Check for any breach that needs curing. Get your make good exposure estimated by a builder who has done clinical work, because that number drives whether staying is cheaper than going. Price at least one alternative site. Decide what you want changed. Then open the conversation. Three months out, with the option window closing and no alternative priced, you are not negotiating, you are accepting.

We act for medical, dental and allied health practices on renewals, options and rent reviews across Melbourne, with pricing disclosed before you engage us so there are no surprises. Book a free first consultation, or read about our property and leasing work. Our guides to leasing medical premises and retail versus commercial leases explain the framework these rights sit inside.

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