Second-Generation Medical Space: Reusing a Prior Build-Out

First-generation space has never been occupied in its current form, so you build from a shell. Second-generation space was built for a previous tenant, and you inherit what they left. In clinical space, that can mean exam rooms with sinks, water and drain lines already in the walls, extra HVAC zones, a sterilization area and sometimes a shielded imaging room.

The savings are real when the old layout is close to yours, because you avoid some demolition, plumbing runs and mechanical work, and you may open sooner. They shrink quickly when you need to move walls, relocate plumbing or replace worn systems. An old layout you have to reorganize can cost more than you expect, since demolition comes first and the existing systems may limit the design.

So the fair comparison is not used space against new space in general. It is the contractor's estimate for this suite against the estimate for your other finalists.

Systems that look fine on a tour may be old, undersized or capped off behind a wall. A dental attorney writing in Dental Economics recommends a walk-through with an experienced contractor to confirm there are no major structural or plumbing obstacles. For clinical space, it is worth hiring a mechanical, electrical and plumbing engineer for anything beyond minor changes.

• ✓Where do water and drain lines run, and are they in use, capped or abandoned?
• ✓Can drain lines reach new locations if we move a room, and at what slope?
• ✓What is the age and condition of each HVAC unit, and who pays to repair or replace it?
• ✓Is there enough electrical capacity for our equipment, and are panels labeled and current?
• ✓Are after-hours heating and cooling available, and on what terms?
• ✓Are specialty systems such as vacuum, compressed air or medical gas working and documented, or simply abandoned in place?
• ✓Do any permits, as-built drawings or inspection records exist for the prior work?
• ✓Are there signs of past leaks, mold or patched floors around wet rooms?

A shielded room is one of the more attractive things a prior tenant can leave, and also one of the easiest to misread. Shielding is designed around a specific machine, its placement, how much it is used and who occupies the rooms around it. Existing lead does not prove the room is right for your equipment.

Requirements depend on the state. South Carolina's guidance, for example, requires shielding plans for diagnostic medical x-ray units at new facilities and for relocation of a unit, and says not to assume a new plan is unneeded. Minnesota's rule requires a shielding plan for certain new construction and structural remodeling, with exemptions such as dental facilities with only intraoral capabilities. Ask your state radiation control program and a qualified physicist what applies before you rely on what is in the walls.

The opposite case comes up too. If you will not use the imaging room, ask what to do with it. A Health Physics Society expert answer says other facilities have reused former x-ray rooms for non-x-ray purposes while leaving lead drywall in place, and recommends contacting your state's radiation control office for any requirements.

An existing build-out was approved, if at all, for the prior tenant and the prior use. Your use may be different, and your changes may bring current requirements into play.

• Occupancy. Adding sedation or procedures can change how a suite is classified under the life safety code. A CMS memo on the code quotes its definition of an ambulatory health care occupancy: outpatient treatment or anesthesia that leaves four or more patients at one time unable to act for self-preservation without help. Ask your architect which edition and classification apply to your suite.
• Accessibility. ADA.gov says the ADA sets requirements for new construction and alterations, and that existing facilities must remove barriers where that is readily achievable. An old suite built to earlier expectations may need work. Have a qualified consultant review it.
• Items left behind. Prior equipment, waste and records are not a gift. A real estate article on medical leases notes that a lease should address storage and destruction of files and computers left behind. Ask the landlord to confirm in writing that all records and medical waste have been removed.

The biggest risk in a reused build-out may be at the end of your lease. If the lease says you must return the space to shell condition, you could end up paying to demolish improvements you did not build and benefited from only partly. That can also reduce your practice's value, since a future buyer inherits the same obligation.

Restoration obligations like that one can be a real cost when a practice moves. For a second-generation suite, ask for three things in the lease: a statement that you need not remove improvements that existed when you took possession, a list and photos of the condition at move-in, and clear language on lead shielding. Landlords may want to keep the right to decide later, particularly in case another medical tenant might want the space, so raise this early.

Used space should be reflected in the deal. A landlord saves money and avoids downtime when a tenant can reuse a suite, but it may also see the improvements as something you are getting for free. Be ready to show what the suite really needs.

1. Have a contractor price your plan in this suite and in at least one alternative.
2. List deficiencies from the inspection and ask the landlord to fix them or fund them through an allowance.
3. Ask that HVAC and other major systems be in working order at delivery, with a warranty period.
4. Confirm any allowance can pay for repairing old systems as well as for new work.
5. Settle restoration and move-in condition in the term sheet, not in the last lease draft.
6. Compare total cost over the term with the alternatives.

TAG represents the tenant in these deals, and when a suite is second-generation we help bring the inspection findings into the negotiation, so the value of the prior work and its risks are both reflected in the terms.