- Optimizing for the lowest starting rent instead of the lowest long-term risk
- Letting legal paper over terms that should have been negotiated in the LOI
- Accepting lease language that quietly compresses EBITDA or blocks a future exit
- Assuming the founder can “just handle it” without a real estate advisor riding shotgun
The result: the company commits to financial and operational constraints that investors end up inheriting later.
In healthcare real estate, the biggest EBITDA decisions are usually made before the lease is signed. They are made in the LOI.
That matters for founders, but it also matters for PE firms and VCs. The wrong LOI does not just raise occupancy cost. It can introduce volatility, slow scale, absorb capital, and complicate a future transaction.
Your lease is not a real estate document. It is a financial instrument that shapes EBITDA, capital exposure, and exit optionality.
“The LOI is where founders decide whether they are leasing space—or underwriting years of avoidable EBITDA drag.”
If the first post in this series was about choosing the right market and site, this is the next filter. Zoning gets you into the deal. The LOI determines whether you survive it.
What founders often optimize for
Lowest headline rent, fastest path to signature, and “getting the site locked up” before someone else takes it.
What investors actually need protected
Stable occupancy cost, limited downside, preserved transfer rights, and a lease that does not damage the company’s exit pathway.
1. Rent Structure: NNN vs. Gross vs. Modified Gross
What it is
These structures determine who pays for taxes, insurance, CAM, maintenance, and other operating expenses on top of base rent.
NNN: You pay base rent plus your share of building expenses. Gross: You pay one flat rent and the landlord covers the operating costs. Modified Gross: You pay base rent plus a defined subset of additional expenses.
Why it matters
In healthcare, founders often focus on the face rent and underestimate the volatility hiding underneath it. In a NNN structure, reassessed taxes, insurance spikes, and uncontrolled operating expenses flow directly into your P&L.
For an investor, that means you are not just underwriting rent. You are underwriting cost variability that can compress EBITDA later.
What to negotiate
Protect the expense line
- Cap controllable operating expenses, ideally at 3% non-cumulative
- Define what is and is not “controllable”
- Ask for historical operating expenses before you sign
- Model the fully loaded occupancy cost, not just the starting base rent
2. Personal Guarantee (PG) & the Burn Down
What it is
A personal guarantee 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. It is especially dangerous in early-stage healthcare businesses where the founder is already taking operating, fundraising, and execution risk at the same time.
A broad personal guarantee does not just increase exposure. It can distort founder decision-making later because they are protecting personal downside, not just corporate outcomes.
What to negotiate
Reduce or replace it
- 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
- Do not collateralize personal assets for a long-term lease unless there is no other path
3. Assignment & Subletting (The Exit Ramp)
What it is
This 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 quietly block an acquisition. If the landlord has sole discretion over assignment, they effectively hold leverage over your exit. That is not theoretical. It shows up late in diligence, when the company has the least room to renegotiate.
For PE and VC-backed businesses, this clause is not administrative. It is part of the exit path.
What to negotiate
Preserve transfer flexibility
- 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 does not accidentally trigger default or landlord veto rights
Example: a founder can build a valuable company and still lose negotiating leverage in a sale process because the landlord retained too much control over transfer rights in the original lease.
4. SNDA (Subordination, Non-Disturbance, and Attornment)
What it is
An SNDA 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 is operational risk, activation risk, and EBITDA risk wrapped into one clause.
What to negotiate
Make occupancy survivable
- Request an SNDA early, not after the lease is already papered
- Make sure the non-disturbance obligation is explicit
- Confirm your lease remains in place if the lender steps in
- Do not assume this protection is automatic just because the landlord says the building is financed
5. TI Allowance (Tenant Improvement Allowance)
What it is
This is the amount of money the landlord contributes toward your build-out, usually expressed as a dollar amount per square foot.
Why it matters
Healthcare improvements are materially more expensive than standard office or retail improvements. If the landlord’s TI allowance is expected to cover everything, founders often discover too late that the money disappears into HVAC upgrades, plumbing, electrical capacity, and other infrastructure before clinical build-out even starts.
In practice, that means more equity, more debt, or a weaker facility than the care model actually requires.
What to negotiate
Separate the allowance from the infrastructure burden
- Push for the landlord to cover major base-building or infrastructure items separately
- Clarify whether TI can be used for soft costs, permits, and design fees
- Confirm the timing of reimbursement so you are not floating the entire project
- Compare the TI package to actual healthcare build-out cost, not generic tenant improvement benchmarks
Example: if the allowance gets consumed by MEP upgrades and HVAC work, the founder is effectively self-funding the clinic long before drywall, finishes, and equipment coordination are complete.
6. Permit & CUP Contingency
What it is
This is your contractual right to terminate the deal if permits, zoning approvals, or a Conditional Use Permit are denied or delayed beyond a workable threshold.
Why it matters
Healthcare is not 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 will not allow.
This is exactly where regulatory risk turns into dead rent and wasted capital.
What to negotiate
Keep the lease soft until approvals are real
- 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
- Do not let the rent clock start before the project is actually feasible
7. HVAC: Replacement vs. Maintenance
What it is
This clause determines who maintains the HVAC units and who pays if they fail and need replacement.
Why it matters
Founders often accept HVAC language that sounds harmless because it is buried in the repair section. But healthcare operations are highly sensitive to mechanical performance, and older rooftop units can fail at the worst possible time. If the lease pushes replacement responsibility to the tenant, one aging unit can become a five-figure surprise.
That is not routine maintenance. That is unexpected capital expenditure on a building you do not own.
What to negotiate
Separate service from capital replacement
- 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
- Do not inherit full replacement liability for legacy equipment without a meaningful concession elsewhere
The Bottom Line
The LOI is the only stage of the process where leverage is still relatively clean. After that, the lawyers are documenting economics and risk allocation that should have already been decided.
For founders: do not treat lease negotiation as a paperwork step. This is where you decide how much volatility, personal exposure, and strategic constraint the business will carry.
For PE firms and VCs: this is one of the earliest moments where EBITDA quality can either be protected or quietly undermined. A real estate advisor riding shotgun with the founder is not overhead. It is risk control.
Protect the Deal Before It Becomes a Lease
We 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 start compounding
- How to protect transfer rights, contingencies, and downside exposure
- What investors should pressure test before a founder signs
