The LOI is where you have the most leverage on a healthcare lease, because the landlord hasn't committed to you yet and your other sites are still in play. Nine terms carry most of the risk: the financials (rent, TI, free rent, escalation), key dates, the landlord work letter, guarantees, the permitting contingency, assignment, use and exclusivity, parking, and signage. Anything you leave out of the LOI is much harder to win back once the lease is in drafting.
An LOI is usually non-binding, so it can feel like a warm-up for the real negotiation. In practice it works the other way. Once both sides sign it, the attorneys draft the lease against those business terms, and reopening a business term at that stage costs you time, goodwill, and often a concession somewhere else. The landlord's team treats the LOI as the deal. You should too.
I've reviewed LOIs on more than 200 leases, and the terms below are the ones that show up later as a capital call, a delayed opening, or a problem in diligence. For the EBITDA and exit lens on the same document, pair this with LOI & Lease Negotiation.
This post is for informational and educational purposes only and is not legal advice. Retained CRE is not a law firm. Consult qualified legal counsel specializing in real estate and healthcare regulatory compliance for advice specific to your situation.
Which LOI terms matter most for a healthcare clinic?
The financials: rent, TI, and free rent together
This locks in your basic monthly cost and how much the landlord contributes to your build-out.
Base rent gets the most attention, but the TI allowance and free rent move your cash position just as much. Model all three together. A higher TI allowance reduces what you spend out of pocket on construction. Free-rent months cover startup operating costs and give you cushion if construction runs late. A landlord will often trade one for another, so know which one your budget needs most before you counter. How the TI money actually reaches you is its own negotiation, covered in the TI allowance fine print.
Push for a fixed annual escalation, typically 3% or lower, rather than CPI. A CPI-tied increase makes your rent unpredictable and complicates lease accounting under ASC 842. The rate compounds. On 6,000 square feet at $40 per foot, 3% annual escalation puts year 10 rent at about $313,000. At 5% it's about $372,000, and the ten-year total is roughly $267,000 higher.
The LOI should commit the landlord to a rent table in the final lease that shows, for every year of the term:
- Base rent per square foot
- Monthly rent payment
- Annual rent payment
Key dates: tie rent to delivery, not the calendar
The calendar milestones for when the landlord must deliver the space and when you start paying rent.
Late delivery by the landlord is one of the most common delays I see on clinic projects, so the dates have to be tied together. The delivery date is when you get possession to start your work. Protect it with a late-delivery remedy, often day-for-day additional free rent. The rent commencement date is when full rent begins. Define it as a set number of days after delivery or the day you open for business, whichever is later.
Avoid a rent commencement date set to a fixed calendar date when you don't control delivery. On 6,000 square feet at $40 NNN, every month of gap between rent starting and patients arriving is roughly $20,000.
Landlord work letter: who pays for power, HVAC, and plumbing
The document defining exactly what the landlord builds, pays for, and delivers before your contractor steps onsite.
The work letter decides who pays for the expensive infrastructure. Assign these to the landlord, or fold them into the TI calculation so you know what's left for your build-out:
- Electrical supply: the landlord delivers the amperage your program needs to the perimeter of your space
- HVAC capacity: enough tonnage for your equipment and patient load, in units with useful life left or a landlord commitment to replace
- Water and sewer: line sizing that supports your fixture count. Healthcare water and sewer demand runs far higher than the office or retail user the building was likely designed for
Confirm all three against a test fit before you sign the LOI, because the work letter can only assign what someone has measured.
Guarantees: alternatives to a personal guarantee
The legal assurance that someone pays the rent if your practice defaults. A personal guarantee makes you personally liable, down to your house and savings.
Start from the position that you won't sign a personal guarantee, and give the landlord other ways to get comfortable. The landlord's concern is that a young company has few assets to collect against. Address that concern directly:
- Corporate guarantee: a parent or holding company guarantees instead of you
- Larger security deposit: more cash upfront, ideally with a burn-down as you hit payment milestones
- Letter of credit: a bank-backed instrument that keeps your personal assets out of it
Contingencies: the permitting window
A condition that must be met before you're legally bound. If it isn't met by the deadline, you walk away penalty-free.
For a new clinic, the permitting contingency carries more weight than any other contingency. It lets you terminate if you can't get the permits for your build-out. Landlords often propose 30 days. The window has to cover construction drawings plus the jurisdiction's review, which commonly runs 120 to 180 days. If you can't legally build the space, you shouldn't be locked into paying for it. (This is the same clock that drives the overall launch timeline.)
Assignment: keeping your exit open
Your right to transfer the lease to another company during the term.
If you raise capital, restructure, or get acquired, the lease has to transfer cleanly. If the landlord can withhold consent, they can hold up a transaction or ask for a fee, and a buyer's diligence team will price that in. Push for permitted transfers that need no landlord consent:
- Internal restructuring: moving the lease to a related holding company or subsidiary
- Sale of the business: transferring to an acquirer when you sell all or substantially all of your assets
- Change of control: a new investor or board change is not an assignment requiring consent
Use and exclusivity: flexibility and protection
The use clause defines what you're allowed to do in the space. Exclusivity is the landlord's promise not to rent to named competitors.
You want a use clause broad enough to cover your primary use and the activities that come with running it, with language like "medical clinic and all uses incidental thereto, including but not limited to [specific services]." Landlords rarely grant broad exclusivity, so expect to narrow your exclusive to direct, named competitors in exchange for a flexible use clause. The full tradeoff is in exclusive use and cotenancy.
Parking: location, control, and compliance
Your right to use the landlord's common parking for your patients and staff.
Clinic parking has to work for patient access, staff, and ADA compliance at the same time.
- Location: negotiate reserved or designated patient parking closest to your entrance
- Staff relocation: reject language that lets the landlord move staff to a future, remote, or off-site lot
- Compliance: confirm the current parking ratio meets the zoning minimum for medical use, which is usually higher than office or retail
Signage: how patients find you
Your legal right to install physical signs on the building, monument, or directory.
Signage is wayfinding for patients and marketing for the clinic, and vague signage language in the LOI is how you end up with a directory listing and nothing on the building. Ask for "the maximum amount of signage permitted by the local jurisdiction, including but not limited to..." and name the placements you need (pylon, building face, directory) so the landlord confirms placement and size now.
- Illumination: access to electrical for illuminated signage
- Window graphics: if you rely on window branding, get it explicitly permitted in the LOI
Why does the LOI carry so much weight?
Nine terms is a lot to hold at once, and they interact. The landlord's team negotiates these every week, and their first draft is written to keep their flexibility and limit their risk. Yours has to do the same for you: protect your cash through construction, keep your opening date in your control, and keep a future sale or raise clean. The lease will be drafted from whatever the LOI says, so the LOI is where you decide what to protect.
Key takeaways
- The LOI sets rent, TI, risk, timeline, and exit. Business terms left out of it are much harder to win back once the lease is in drafting.
- Model base rent, TI allowance, and free rent together. Push for a fixed escalation of 3% or lower instead of CPI, and require a rent table in the lease. On 6,000 square feet at $40, 5% instead of 3% adds about $267,000 over ten years.
- Tie rent commencement to delivery plus build time or your opening, whichever is later, with a late-delivery remedy.
- Get a permitting contingency of 120 to 180 days, and offer a corporate guarantee, a larger deposit, or a letter of credit instead of a personal guarantee.
- Protect growth and exit with permitted-transfer assignment language, a workable use clause, and parking and signage rights written into the LOI.
Frequently asked questions
What is a Letter of Intent (LOI), and why does it matter for a healthcare lease?
An LOI is the term sheet the lease is drafted from. It sets the rent, TI allowance, key dates, risk allocation, and your ability to grow or exit. It's usually non-binding, but whatever you concede or leave out of the LOI is very hard to win back during lease drafting. For a healthcare clinic, it sets your budget, timeline, and flexibility before design begins.
What terms should be in a healthcare LOI?
Nine carry most of the risk: the financials (base rent, TI allowance, free rent, and escalation), key dates and late-delivery remedies, the landlord work letter for electrical, HVAC, and water and sewer, guarantees, the permitting contingency, assignment and transfer rights, use and exclusivity, parking, and signage. Retained CRE's LOI Review pairs the lease guide with 45 minutes on a live LOI before it goes back to the landlord.
How long should a permitting contingency be for a clinic build-out?
Long enough to cover construction drawings plus the jurisdiction's review, which commonly runs 120 to 180 days, not the 30 days landlords often propose. The permitting contingency lets you terminate penalty-free if you can't get the permits for your build-out. If you can't legally build the space, you shouldn't be locked into paying for it.
Should a healthcare founder sign a personal guarantee on a lease?
Avoid it where you can. A personal guarantee makes you personally liable, down to your home and savings. Landlords ask for it because a young company has few assets, so offer alternatives that answer that concern: a corporate or parent-entity guarantee, a larger security deposit, or a bank letter of credit. In Retained CRE's negotiations, we put those alternatives on the table in the first counter rather than waiting for the landlord to ask.
What rent escalation should I accept in an LOI?
Push for a fixed annual escalation, typically 3% or lower, and avoid CPI-linked increases. CPI-tied escalations make rent unpredictable and complicate lease accounting under ASC 842. On 6,000 square feet at $40 per foot, 5% instead of 3% adds about $267,000 over a ten-year term. Require a rent table in the lease showing the payment for every year.
Working Through an LOI Right Now?
The lease guide grades 26 clauses as tenant-favorable, market standard, or landlord-favorable, with the questions to put to your broker. LOI Review adds 45 minutes with me on your deal before it goes back. Your attorney redlines the language. You decide what to protect.
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