LOI & Lease Negotiation: Protecting EBITDA, Exit Value, and Founder Equity
In healthcare real estate, the biggest EBITDA decisions get made before the lease is signed — in the LOI. Seven terms carry most of the risk: rent structure, personal guarantee, assignment, SNDA, TI allowance, permit/CUP contingency, and HVAC. Negotiate them at the LOI stage, while leverage is still clean. After that, the lawyers are only documenting what you already gave away.
This matters for founders, and it matters just as much for the PE firms and VCs behind them. The wrong LOI doesn't just raise occupancy cost. It introduces volatility, slows scale, absorbs capital, and complicates a future transaction. Your lease is not a real estate document so much as a financial instrument, and it shapes EBITDA, capital exposure, and exit optionality for years.
The reframe: the LOI is where founders decide whether they're leasing space or underwriting years of avoidable EBITDA drag. Zoning gets you into the deal. The LOI determines whether you survive it. (If you haven't locked the site yet, start with choosing the right physical site.)
What founders optimize for
Lowest headline rent, fastest path to signature, and locking up the site before someone else does.
What investors need protected
Stable occupancy cost, limited downside, preserved transfer rights, and a lease that doesn't damage the exit.
NNN, gross, or modified gross: which rent structure should you sign?
What it is. The rent structure decides who pays for taxes, insurance, CAM, and maintenance on top of base rent. Under NNN you pay base rent plus your share of building expenses; under a gross lease you pay one flat rent and the landlord covers operating costs; modified gross is base rent plus a defined subset of expenses.
Why it matters. Founders fixate on the face rent and underestimate the volatility hiding beneath it. In an NNN structure, reassessed taxes, insurance spikes, and uncontrolled operating expenses flow straight into your P&L. For an investor, that means you aren't just underwriting rent, you're underwriting cost variability that can compress EBITDA later.
- Cap controllable operating expenses, ideally at 3% non-cumulative
- Define what is and isn't "controllable"
- Ask for historical operating expenses before you sign
- Model fully loaded occupancy cost, not just starting base rent
Should a founder sign a personal guarantee on a clinic lease?
What it is. A personal guarantee (PG) is the legal hook that makes a founder personally liable for lease obligations if the company defaults.
Why it matters. This is where company risk starts bleeding into personal balance-sheet risk, and it's especially dangerous in early-stage healthcare where the founder is already carrying operating, fundraising, and execution risk at once. A broad PG doesn't just increase exposure; it distorts founder decision-making later, because they end up protecting personal downside rather than the best corporate outcome.
- Avoid the personal guarantee entirely if you can
- Offer a security deposit or letter of credit as a substitute
- If a PG is unavoidable, negotiate a burn-down after 24 to 36 months of on-time payments
- Don't collateralize personal assets for a long-term lease unless there's no other path
Can your lease block the sale of your company?
What it is. The assignment and subletting section governs whether the lease can be transferred to another entity, sold to a buyer, or subleased if the business changes direction.
Why it matters. This is one of the few clauses that can block an acquisition. If the landlord has sole discretion over assignment, they effectively hold leverage over your exit, and it shows up late in diligence when the company has the least room to renegotiate. For PE and VC-backed businesses, this clause is part of the exit path.
- Include permitted-transfer language for affiliates, successors, and purchasers of the business
- Remove "sole discretion" standards where possible
- Push for a reasonableness standard if consent is required
- Make sure a change of control doesn't accidentally trigger default or landlord veto rights
Example: a founder can build a valuable company and still lose negotiating leverage in a sale because the landlord retained too much control over transfer rights in the original lease.
What is an SNDA, and why does a healthcare tenant need one?
What it is. An SNDA (Subordination, Non-Disturbance, and Attornment) is an agreement among you, the landlord, and the landlord's lender that defines what happens if the property is foreclosed on or transferred to the lender.
Why it matters. This is one of the most commonly missed protections in founder-led deals. Without non-disturbance language, the lender may not be obligated to honor your lease if the landlord defaults. You can pay rent, operate correctly, and still lose the space because of someone else's capital structure. That's operational risk, activation risk, and EBITDA risk wrapped into one clause.
- Request an SNDA early, not after the lease is already papered
- Make sure the non-disturbance obligation is explicit
- Confirm your lease stays in place if the lender steps in
- Don't assume this protection is automatic just because the building is financed
How much tenant improvement allowance does a healthcare build-out really need?
What it is. The TI allowance is the money the landlord contributes toward your build-out, usually expressed as a dollar amount per square foot.
Why it matters. Healthcare improvements cost materially more than standard office or retail. If the TI allowance is expected to cover everything, founders discover too late that it disappears into HVAC upgrades, plumbing, and electrical capacity before clinical build-out even starts. In practice that means more equity, more debt, or a weaker facility than the care model actually requires. I went deeper on this in The True Cost of Scaling.
- Push for the landlord to cover major base-building and infrastructure items separately
- Clarify whether TI can be used for soft costs, permits, and design fees
- Confirm the timing of reimbursement so you aren't floating the entire project
- Compare the TI package to actual healthcare build-out cost, not generic benchmarks
Example: if the allowance gets consumed by MEP upgrades and HVAC work, the founder is self-funding the clinic long before drywall, finishes, and equipment coordination are complete.
Why do you need a permit and CUP contingency in a healthcare lease?
What it is. A permit and Conditional Use Permit (CUP) contingency is your contractual right to terminate the deal if permits, zoning approvals, or a CUP are denied or delayed beyond a workable threshold.
Why it matters. Healthcare isn't generic commercial real estate. A site can be attractive, affordable, and physically workable and still fail at the city level. Without a permit contingency, the company can become obligated on rent for a clinic use the municipality won't allow. This is exactly where regulatory risk turns into dead rent and wasted capital.
- Build in at least 180 days for permitting and CUP approvals where the jurisdiction requires it
- Preserve termination rights if the use is denied or materially conditioned
- Make sure the contingency language covers both delay and denial
- Don't let the rent clock start before the project is actually feasible
Who should pay for HVAC replacement in a clinic lease?
What it is. The HVAC clause determines who maintains the units and who pays if they fail and need replacement.
Why it matters. Founders often accept HVAC language that sounds harmless because it's buried in the repair section. But healthcare operations are highly sensitive to mechanical performance, and older rooftop units fail at the worst possible time. If the lease pushes replacement responsibility to the tenant, one aging unit becomes a five-figure surprise — unexpected capital expenditure on a building you don't own.
- Agree to routine maintenance such as filters, service, and tune-ups
- Require the landlord to replace failed units, especially older equipment
- Ask for the age, service history, and expected remaining life of the units
- Don't inherit full replacement liability for legacy equipment without a meaningful concession elsewhere
Key takeaways
- The LOI, not the lease, is where occupancy cost, personal exposure, and exit flexibility get decided — and the only stage where leverage is still relatively clean.
- Underwrite fully loaded occupancy cost, not headline rent: cap controllable opex (around 3% non-cumulative) and pull historical expenses before signing.
- Avoid or burn down the personal guarantee, and substitute a security deposit or letter of credit where you can.
- Assignment and SNDA clauses are exit and continuity risk: preserve transfer rights with a reasonableness standard, and demand explicit non-disturbance.
- Healthcare TI rarely covers infrastructure, so separate base-building and MEP from the allowance, and keep the lease soft with a permit/CUP contingency until approvals are real.
Frequently asked questions
How do you negotiate a healthcare LOI to protect EBITDA?
Negotiate the high-risk terms at the LOI stage, before legal documentation begins, because that's where leverage is cleanest. Focus on seven: rent structure, personal guarantee, assignment and subletting, SNDA, TI allowance, permit/CUP contingency, and HVAC responsibility. Each one can compress EBITDA, increase downside, or constrain a future exit if it's left to be papered later.
What is the difference between NNN, gross, and modified gross leases?
Under an NNN lease you pay base rent plus your share of taxes, insurance, CAM, and maintenance, so cost variability sits with you. A gross lease bundles those into one flat rent the landlord covers. Modified gross is in between: base rent plus a defined subset of expenses. In NNN deals, cap controllable operating expenses and model fully loaded occupancy cost, not headline rent.
Should a healthcare founder sign a personal guarantee?
Avoid it if you can, because a personal guarantee moves company risk onto the founder's personal balance sheet and can distort decision-making later. Offer a security deposit or letter of credit as a substitute. If a guarantee is unavoidable, negotiate a burn-down that releases it after 24 to 36 months of on-time payments rather than collateralizing personal assets for the full term.
What is an SNDA and why does a healthcare tenant need one?
An SNDA (Subordination, Non-Disturbance, and Attornment) is an agreement among tenant, landlord, and the landlord's lender governing what happens if the property is foreclosed on. Without explicit non-disturbance language, a lender may not honor your lease if the landlord defaults, meaning you could lose the space despite paying rent and operating correctly. Request it early and confirm the lease survives a lender stepping in.
Why does the assignment clause matter to investors?
Because it can quietly block an acquisition. If the landlord has sole discretion over assignment, they hold leverage over your exit, and it surfaces late in diligence when you have the least room to renegotiate. Preserve permitted transfers for affiliates, successors, and purchasers, replace sole-discretion standards with a reasonableness standard, and ensure a change of control doesn't trigger default.
Protect the Deal Before It Becomes a Lease
I help founders and investors negotiate LOIs that protect EBITDA, reduce operational risk, and preserve exit flexibility. We'll walk through:
- Where lease economics quietly erode EBITDA
- What terms belong in the LOI before legal fees compound
- How to protect transfer rights, contingencies, and downside exposure
- What investors should pressure-test before a founder signs
