Acquiring or leasing real estate for a medical or dental practice involves complex financial, regulatory, and operational considerations. Owner-occupied facilities, where the healthcare provider owns the property used by their practice, offer unique advantages but also introduce long-term commitments and compliance responsibilities. Deciding whether to buy or lease should be based on a careful assessment of financial goals, operational flexibility, and future growth plans.
This overview examines key differences between ownership and leasing, identifies critical contingencies in healthcare property transactions, provides a high-level summary of the SBA 504 loan program, and concludes with a due diligence checklist and recommended transaction timeline for healthcare professionals evaluating real estate decisions.
Buy vs. Lease: Evaluating Ownership Benefits and Obligations
Ownership Advantages
Purchasing a property for healthcare operations allows practitioners to control their environment, stabilize occupancy costs, and build long-term equity. Ownership provides the flexibility to modify the premises to meet clinical requirements—such as radiographic shielding, plumbing for dental chairs, or specialty HVAC systems—without seeking landlord approval.
Additionally, property ownership can offer potential tax advantages through depreciation and mortgage interest deductions. Long-term stability supports continuity of care and patient retention by eliminating the risk of non-renewal or relocation at lease expiration. For multi-provider practices, owning the facility can also serve as an investment asset or a vehicle for succession planning.
Leasing Advantages
Leasing, by contrast, provides greater flexibility and lower upfront costs. It allows medical and dental professionals to allocate more capital toward equipment, staffing, and marketing during early growth stages. Leasing also facilitates relocation or expansion as patient volume increases or demographic trends shift.
However, lease renewals can be subject to rent escalations or operational restrictions. Tenants may also face limitations on modifications to the property or restrictions on the types of services that can be provided. When leasing, it is essential to negotiate clear build-out allowances, renewal options, and compliance-related responsibilities to avoid costly disputes later.
Common Contingencies in Medical and Dental Real Estate Transactions
Zoning and Use Compliance
Zoning verification is one of the most critical pre-purchase contingencies. Healthcare uses often require specific zoning classifications, conditional-use permits, or compliance with municipal occupancy codes. Before proceeding, practitioners should confirm that the property allows for medical or dental operations, patient care, and related uses such as imaging or laboratory services. Early verification prevents project delays and potential enforcement actions.
Imaging and Radiation Shielding Requirements
Practices that provide diagnostic imaging or use radiographic equipment must evaluate the property’s suitability for radiation shielding installation. Structural reinforcement, lead-lined walls, or specialized equipment rooms may be required to meet local, state, and federal safety standards. Engaging a certified medical physicist or compliance engineer during due diligence ensures that the facility can safely accommodate such equipment before acquisition or construction begins.
Permitting and Licensing
Obtaining proper building, health, and occupancy permits is essential for timely project completion. Local health departments and building authorities may require separate approvals for plumbing, waste disposal, and infection control systems. The buyer or tenant should verify that all required permits are obtainable for the intended use and confirm the property meets Americans with Disabilities Act (ADA) accessibility standards. Failure to secure these permits before closing or possession can significantly delay operations.
Financing Overview: Understanding the SBA 504 Loan Program
The U.S. Small Business Administration (SBA) 504 loan program offers a favorable financing structure for owner-occupied commercial real estate, particularly suited for healthcare professionals seeking to purchase or construct a practice facility.
Under this program, financing is typically divided into three components:
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A bank or private lender provides approximately 50% of the project cost through a first mortgage.
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A Certified Development Company (CDC), working with the SBA, provides up to 40% through a second mortgage with a fixed, below-market rate.
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The borrower contributes the remaining 10% as a down payment, although certain specialized projects may require up to 15%.
Eligible uses of SBA 504 financing include the purchase of existing buildings, land acquisition, new construction, and improvements such as equipment installation or energy-efficient upgrades. Loan terms typically range from 10 to 25 years, allowing healthcare providers to preserve liquidity while building long-term equity.
Practitioners should ensure that at least 51% of the purchased property is occupied by their own business to qualify as an owner-occupied facility under SBA requirements. The 504 program can be an effective strategy for healthcare professionals seeking predictable payments, long-term stability, and the ability to control their practice environment.
Due Diligence Checklist for Healthcare Real Estate Transactions
Before closing on a purchase or lease, healthcare tenants and buyers should conduct a thorough due diligence process to confirm compliance, suitability, and financial feasibility. This evaluation should begin with zoning and use confirmation to ensure local ordinances permit healthcare operations and no variances are required. An environmental review, such as a Phase I Environmental Site Assessment, should follow to identify any potential contamination or hazardous materials. Structural and mechanical inspections must assess building integrity, HVAC performance, electrical capacity, and plumbing adequacy for medical equipment.
ADA and accessibility reviews are equally important to verify that parking, entrances, restrooms, and patient areas meet all ADA requirements. The infrastructure’s capacity—including electrical load, water pressure, and ventilation—should be evaluated to ensure it can support imaging, sterilization, and treatment systems. Permitting and licensing checks must confirm that all necessary approvals can be obtained without major modifications. Financial analysis should include a review of projected operating costs, property taxes, and financing terms in relation to the practice’s revenue expectations.
Additionally, a title and survey review ensures a clear title, accurate property boundaries, and the absence of encroachments or restrictive covenants. Prospective buyers should also obtain insurance estimates for property, liability, and business interruption coverage. Finally, exit and resale considerations—such as the property’s long-term marketability and potential for subleasing or sale—should be factored into the decision. Completing these steps before signing any contract helps mitigate risk, prevent compliance issues, and ensure the property aligns with both operational and financial goals.
Recommended Transaction Timeline
While timelines vary based on property complexity and financing structure, most owner-occupied real estate transactions for medical or dental practices follow a structured progression over approximately 90 to 150 days:
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Weeks 1–3: Initial Evaluation and Letter of Intent – Identify target property, confirm zoning, and negotiate preliminary terms.
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Weeks 4–8: Due Diligence Period – Conduct inspections, environmental assessments, and preliminary design planning.
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Weeks 9–12: Financing and Documentation – Submit loan applications, complete SBA 504 requirements, and finalize appraisals.
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Weeks 13–16: Permit Applications and Construction Planning – Begin building permit process, finalize space plans, and confirm contractor availability.
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Weeks 17–20: Closing and Occupancy Preparation – Complete title review, finalize loan documentation, and prepare for construction or occupancy.
Adhering to a defined schedule helps maintain regulatory compliance, secure financing efficiently, and ensure a timely opening of the healthcare facility.
How Our Firm Can Help You
At Leiva Law Firm, we assist healthcare professionals with all stages of real estate acquisition, leasing, and financing. Our attorneys review purchase contracts, loan documents, and lease agreements to ensure compliance with healthcare regulations and local zoning laws.
We provide strategic counsel on SBA 504 loan eligibility, property due diligence, and contingency management, helping clients structure transactions that support long-term operational success. Our team’s experience with medical and dental facilities allows us to anticipate regulatory complexities and protect your investment at every stage.
To discuss your real estate acquisition or financing goals, contact us at (818) 519-4465 to schedule a consultation with an experienced business lawyer in Los Angeles. We can help you navigate the purchase or lease of medical property with confidence and compliance.
