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Negotiating Use Restrictions On Property Near Hospitals

Published: December 22nd, 2014
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Medical office properties located near hospital facilities are sometimes subjected to publicly recorded use restrictions.  These restrictions are usually contained in deeds in the chain of title or separate declarations.  Typically, the use restrictions forbid future occupants from performing or providing specific types of medical services.  They also may contain more generic language which forbids any services which are in competition with, or duplicative of, services offered by the hospital.   The prohibitions may include outpatient centers or the providing of emergency medical or diagnostic imaging services.   These types of restrictions can have a detrimental effect on the value of the affected properties by making them less useful, and less attractive, to owners and potential tenants.

Use restrictions of this sort are oftentimes the subject matter of negotiations involving the purchase or leasing of such properties.   For owners of these types of properties, simply revising the restrictions to allow specific types of procedures is not a long-term solution because the types of procedures and services which are commonly conducted within the offices of physician providers is constantly evolving.  The preferable compromise is to allow (as an exclusion from the restrictions) services and procedures which are ancillary and incidental to the medical practice being conducted on the premises.  While this type of compromise protects the hospital from competition from wholesale or specialty providers of competing services, it allows a typical medical practice to offer such services to its patients.  The hospital may also want to add a requirement that the services or procedures be usual and customary for in-office activities of physicians with similar specialties.  The phrases “ancillary and incidental” and “usual and customary” are almost always utilized in the documents which result from these types of negotiations.

The negotiations of these types of restrictive provisions (and their exceptions) can become a central, and contentious, aspect of efforts to finalize the purchase or leasing of real property.  However, the failure to properly address them can yield potentially disastrous and expensive results.  A real estate attorney with experience in this area can be a good investment in preventing conflict and litigation in the future.