Medical Room Licences and Service Agreements: What Practitioners Are Really Signing

Many practitioners do not lease their rooms from a landlord at all — they occupy them under an arrangement with another practice, a medical centre operator or a hospital, often described as a “room licence”, a “service agreement” or a “sessional arrangement”. These documents decide how much of your billings you keep, whether you can leave with your patients, and whether the tax office treats you as a contractor or something else. This article explains the differences and what to negotiate.

Lease, licence or service agreement: what is the difference?

• A lease gives you exclusive possession of defined premises for a term. You control the space. If the premises are used to supply services to the public, the Retail Leases Act 2003 usually applies with its tenant protections.
• A licence gives you permission to use space without exclusive possession — typically a room on certain days, shared with others. Licences are easier to end and offer far fewer protections; whether a document is really a lease or a licence depends on what it does, not what it is called, and courts have re-characterised “licences” as leases where the occupier in practice had exclusive control.
• A service or facilities agreement is the common medical-centre model: the centre provides rooms, reception, nursing, equipment and billing in exchange for a percentage of your fees. You are the practitioner; the centre is the service provider. The percentage, what it covers and how you exit are the whole negotiation.

Percentage-of-billings arrangements: read the definitions

A “70/30 split” means little until you know what is being split. Is it gross billings, billings net of bulk-billing incentives, or receipts after bad debts? Are Medicare incentive payments, workers compensation and TAC billings, procedures, and after-hours loadings included in the base? Who bears the merchant fees? Small differences in definition move real money over a multi-year term. Ask for a worked example against your actual billings.

What the service fee actually buys

List what the centre provides: rooms and their hours, consumables, nursing time, reception and booking systems, practice software licences, indemnity for the centre’s own staff, marketing, cleaning, medical waste. Then list what you provide: your own registration, indemnity insurance, CPD, equipment specific to you. Anything not listed will be argued about later. Check whether the centre can vary the services, or the fee, unilaterally.

Restraints and patient records: the clauses that matter when you leave

Medical service agreements commonly include restraint-of-trade clauses preventing you from practising within a radius for a period after you leave, and clauses claiming ownership of patient records and the right to notify patients of your departure (or not). Restraints are enforceable in Victoria only to the extent they are reasonable to protect a legitimate interest — but a clause that has not been tested is still a clause the other side can threaten to enforce. Negotiate the radius and duration down, carve out existing patients who followed you into the practice, and settle in writing who holds the records and how patients are told where you have gone. Your professional obligations around continuity of care do not disappear because a contract says something different.

Contractor, employee or “payroll tax” — the question every practice is now asking

Victorian revenue authorities have taken the position that many medical centre arrangements involve “relevant contracts” for payroll tax purposes, so that payments flowing through the centre to practitioners can be treated as wages of the centre. The State Revenue Office’s rulings and the amnesty and exemption settings for general practice have changed several times; the details are beyond a leasing article, but the drafting of the service agreement — who bills the patient, whose bank account the fees enter first, who bears the risk — is central to the analysis. Get accounting and legal advice on the structure before you sign, not when an assessment arrives.

Practical points to negotiate

1. Term and notice. How long is the arrangement, and how much notice can each side give? Three months is common; less than that leaves you exposed if the centre changes hands.
2. Rooms and sessions. Which rooms, which days, and what happens if the centre wants to reallocate them. A vague “rooms as made available” clause is a licence to be moved into the smallest one.
3. Fee review. Whether the percentage or facility fee can change during the term and on what notice.
4. Exclusivity. Whether the centre can bring in another practitioner in your specialty.
5. Change of ownership. If the centre is sold, does the agreement transfer, and can you exit without penalty?
6. Insurance and indemnity. Who insures what, and whether the centre indemnifies you for its systems and staff.
7. Dispute resolution. Mediation before litigation, and which forum. Where the document is really a retail lease, the Victorian Small Business Commission is available regardless.

When a “licence” should be a lease

If you are the only practitioner in the rooms, have your own key, control who comes in, have fitted them out and intend to stay for years, you are in substance a tenant and should be documented as one. A lease gives you security of tenure, statutory protections and something to sell when you exit. A licence can be ended on a month’s notice regardless of what you have invested.

Empower Legal Solutions advises practitioners and practice owners on leases, room licences and service agreements across Melbourne, with pricing disclosed before you engage us. Book a free first consultation, or read our guide to leasing medical premises in Victoria.

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