Tenant Medical Practice: Sublease vs Licence Agreement Explained
If you’re a practice manager of a busy medical practice with spare rooms on hand that are not used every day, you’ve probably thought about the best way to make use of those spare rooms.
A great solution is to get a tenant doctor or other allied health professional into the spare room when it is not otherwise in use. This arrangement is common across the industry, but the terminology and processes around room hire in the medical industry can often be overwhelming if it’s a new concept for you. Should you sublease the room? Or is a licence agreement better? What’s the difference?
As medical contract lawyers, we are well placed to help you overcome that overwhelm. While both a sublease and a licence agreement allow you to use the space, the two options are very different and the way you document a room rental agreement has lasting legal implications. Choosing the right option can save time, money, and hassle in the long run.
We have prepared a guide to help you understand the differences between a sublease and licence agreement and why a licence agreement is often the preferred choice for tenant doctors in Australia.
Important note about this article
Before you read on, please note this article is about a room rental in a medical practice to a tenant doctor or other allied health professional.
If you want a Doctor in to occupy the room but also engage them in your practice, you may wish to explore our article on whether to engage them as a contractor or employee here; and if you want to provide reception and other services to an independent medical practitioner as well as renting a room, head over here.
Sublease or Licence: What’s the difference?
When medical practices think about renting space, they often automatically refer to “a lease”. However, all “leases” are not created equal and in the many conversations we have with practice managers and medical practice owners, we find it is sometimes used as an umbrella term for any room hire arrangement. Because of this, we unpack the difference between a sublease or a licence below.
Sublease (or lease)
A sublease grants the tenant doctor “exclusive possession” of a room and potentially other spaces in a practice, similar to renting a house or an apartment. This means the doctor has full control over the space and who enters and uses it for the duration of the agreement. Because of this, leases often come with more responsibilities, like paying for electricity, cleaning or maintenance. A lease is also more complex, especially when it involves subleasing from someone who is already renting the space as a tenant, because the head landlord also needs to agree and give their consent.
Licence Agreement
A licence agreement, on the other hand, offers the tenant doctor permission to use the room without taking control of it or granting exclusive possession. For example, when you book a cabana at a fancy resort for the day, you’re granted permission to use it for the day but don’t have control over it other than you can sit there and no one else can use it that day. So when you think about a tenant doctor or other allied health professional renting a room in your medical practice with a licence agreement (the first tenant doctor), they are paying you for the right to use the room at certain times (say 3 days a week between 9am – 5pm) but the medical practice keeps control of the room and can even rent it out to a second tenant doctor on the days it is not being used by the first tenant doctor.
Licence agreements are generally simpler, shorter-term, and easier to terminate, making them a good fit for professionals like doctors or other allied health professionals who may not need a permanent setup or could have changing needs as rosters change.
Sublease Agreement or Licence Agreement: Which one is better for tenant doctors and allied health professionals?
When considering whether to sublease or use a licence agreement in your medical practice, it is important to think about the specific needs of your medical practice and how much control you want over the space.
Key factors to consider
Commitment
Subleasing requires a more formal agreement and, most of the time, formal documented approval from the head landlord in the form of a consent to sublease. This can involve extra legal costs and paperwork, not to mention limitations or strict conditions set by the landlord, especially where the head lease is a registered lease.
A licence agreement is often much simpler and requires fewer formalities. There’s no need for such stringent landlord approval (though check your head lease as the landlord may still need to approve a licence arrangement too), and the arrangement can typically be adjusted or ended more easily.
Flexibility
Subleases are generally long-term and harder to change, which may not be ideal for doctors who only need a space temporarily or on a part-time basis with changing hospital rosters.
Licence agreements are designed to be flexible. They can be set up and terminated on short notice, and the doctor can quickly move on if they no longer need the space. This flexibility can be a huge advantage in the medical profession, where needs and schedules often change.
Cost
Licence agreements are generally more cost-effective, both to put in place and in relation to how the fees are calculated. This arrangement can be perfect for doctors who only need a room occasionally and don’t want to take on financial obligations that come with a sublease such as payment of electricity, cleaning etc.
Exclusive Use of the Area
When a tenant doctor signs a licence agreement with your medical practice, they receive permission to use the space at the agreed times, while the practice retains control over the room. This difference in legal standing means the medical practice has more flexibility to negotiate, adjust, or end a licence without needing the landlord’s approval.
Why a Licence Agreement is often the preferred choice for tenant doctors or tenant allied health professionals?
Most medical practices benefit from the simplicity and flexibility of licence agreements. These arrangements allow practice managers to retain control over the space while accommodating the fluctuating needs of tenant doctors. Licences are also generally easier to set up and exit than a sublease, giving both your medical practice and tenant doctors peace of mind.
What if reception and other services are included too?
Sometimes, doctors renting rooms in a clinic also need front-desk or reception support. For example, you may need a receptionist to help with bookings, patient check-in, or administrative tasks such as payment and appointment booking. If you need both room access and reception services, you will also need a services agreement as well as a room licensing agreement with your tenant doctor or allied health professional. Or if a tenant doctor moves from a room licensing agreement to also requesting reception services, a service agreement may need to follow the room licensing agreement.
Next steps to put a licence agreement into place for your tenant doctors
When considering renting a room in your medical practice to a tenant doctor or an allied health tenant, think carefully about the type of control the medical practice should retain over the room and room availability. How best can you fill the room? Perhaps it is a combination of 2 or 2 tenant doctors and allied health professionals? Or maybe it is a short-term licence of the room?
A licence agreement is often a more practical choice, allowing doctors the flexibility and simplicity they need to focus on patient care and allowing your medical practice to keep more control over the whole premises. Remember too if one of those tenant doctors or allied health professionals chooses to add reception and other services, you need both a room licensing agreement and a services agreement. Whatever choice you make, ensure it aligns with your practice’s needs and allows you to run things smoothly.
Our team has extensive experience in providing advice and insights into best practices for reviewing leases and hiring rooms in your medical practice to tenant doctors. We have assisted in many such arrangements. If you are ready to set up this arrangement or need advice tailored to your practice’s needs, contact our team here, and we will put you in touch with the best professional for your needs.