I have signed enough medical leases in Los Angeles County to know that the worst tenant problems are almost always visible before move-in. The warning signs are there during the tour, in the application, and in the way an operator answers a few direct questions. The trouble is that most landlords are so relieved to fill a vacancy that they skip the screening that would have saved them a year of missed rent.
Medical tenant screening is not the same as screening a law firm or an insurance office. A medical practice lives and dies on insurance reimbursement, Medicare timing, referral relationships, and licensing. A tenant can look busy and still be ninety days behind on cash because a payer is slow. This guide is the checklist I actually use before I sign anyone into one of my buildings.
Why Medical Tenant Screening Is Different
A medical practice carries risks a normal office tenant never touches. The build-out is expensive and specialized, so a default leaves you with plumbing, lead-lined walls, or extra electrical you cannot easily repurpose. The revenue is delayed because most medical income arrives through insurers and government programs, not at the point of service. And the licensing layer means a single regulatory problem can shut a tenant down overnight.
Because of that, I screen for survivability, not just the ability to pay this month's rent. I want to know whether the practice can absorb a slow payer, a staffing gap, or a bad quarter and still write me a check on the first.
Specialized improvements are hard to re-lease, so a default is more expensive than a standard office.
Revenue depends on third-party reimbursement, which is rarely paid on time.
Licensing and accreditation can pause operations without warning.
Some medical sub-sectors, such as home health and hospice, have been under real financial pressure in LA.
Verify the Business, Not Just the Person
Start with the legal entity. I want the exact name of the practice, its corporate structure, how long it has operated, and whether the doctors are owners or employees. A young practice is not automatically a no, but it changes how much security deposit and personal guaranty I require.
Confirm the entity is in good standing with the California Secretary of State.
Check the medical license status on the Medical Board of California site for the treating physicians.
Ask how long the practice has operated at its current location and why they are moving.
Search the address and practice name for lawsuits, liens, and reviews that mention billing or payroll problems.
The reason someone is leaving their last space tells you more than any reference. A practice outgrowing its location is a good sign. A practice that was asked to leave, or one chasing a cheaper rent because collections fell off, is a different conversation.
Read the Financials Like a Lender Would
I ask for two years of financial statements or tax returns, and recent bank statements. I am not trying to audit the practice. I am looking for whether rent is a small, comfortable slice of revenue or a number that keeps the owner up at night.
Rent should generally sit comfortably under monthly collections, not consume the cushion.
Look at the trend, not one good month. Three months of declining deposits is a flag.
Ask about their largest payers and what share of revenue is Medicare or Medi-Cal.
Heavy reliance on a single slow-paying program raises the odds of a cash-flow gap.
When a prospect refuses to share anything financial, that is itself information. Established, healthy practices expect this. The ones who push back hardest are often the ones with the most to hide.
Understand the Payer Mix and Reimbursement Risk
This is the screen most landlords miss entirely. Two practices with identical revenue can have completely different risk profiles based on who pays them. A cash-pay dermatology or aesthetics practice collects at the counter. A home health agency may wait sixty to ninety days for Medicare, and any audit can freeze payments.
Ask directly: what percentage of your revenue comes from commercial insurance, Medicare, Medi-Cal, and cash? The more a tenant leans on delayed government reimbursement, the more I want a stronger guaranty and a larger deposit to cover the gaps I know are coming.
The Guaranty and Deposit Are Your Real Protection
A lease is only as strong as who stands behind it. With newer practices or thinner financials, I require a personal guaranty from the owners so I am not chasing a shell entity if things go wrong. I also size the security deposit to the build-out and the risk, not to a generic one-month default.
Get a personal guaranty from the owning physicians on anything but a strong, established entity.
Increase the deposit when the build-out cost or reimbursement risk is high.
Consider a step-down guaranty that shrinks as the tenant proves they pay on time.
Confirm who actually signs and whether they have the authority to bind the practice.
Walk the Space Together and Talk Operations
A tour tells you how a tenant will actually use the building. I ask about patient volume, hours, equipment loads, plumbing needs, and parking demand. A practice that will run forty patients a day through a suite with three parking stalls is a parking dispute waiting to happen, and I would rather solve that on paper than in month four.
I also pay attention to how organized they are. The operator who shows up prepared, answers plainly, and asks good questions about the building tends to run a tidy practice and pay rent the same way.
Lessons From Tenants Who Looked Great and Failed
Some of my hardest losses came from tenants who interviewed beautifully. A polished operator with a confident pitch and a busy-looking practice can still be one slow payer away from trouble, and the gloss is exactly what makes a landlord skip diligence. I have learned to weight the boring evidence, bank statements, payment history, payer mix, over the charisma in the room.
One home health operator in the San Gabriel Valley toured beautifully, signed quickly, and was thirty days late by month four when a Medicare audit froze their payments. A different prospect in Glendale looked modest and underwhelming on paper but had fifteen years of clean collections and never missed a beat. The lesson repeats: how a tenant gets paid and how they have paid before tells you more than how they present.
Weight bank statements and payment history over a confident pitch.
A single payer concentration can undo an impressive-looking practice.
Long, boring track records beat new, exciting stories almost every time.
If the diligence and the impression disagree, trust the diligence.
Tailor Your Screening to the Los Angeles Submarket
Screening also shifts with where the building sits. In dense, competitive submarkets like Glendale, Burbank, and Alhambra, I pay close attention to whether a new practice can actually win patients against established competitors nearby, because a tenant who cannot fill their schedule will not fill my rent roll either. Near hospital campuses in Pasadena, I weigh whether the practice has the referral relationships to justify the higher rent those locations command.
In parts of the San Fernando and San Gabriel Valleys with older populations, demand for cardiology, podiatry, dialysis, and primary care is durable, which makes those tenants safer bets if their collections check out. The same practice type can be a strong tenant in one submarket and a stretch in another. Knowing the local patient base is part of screening, not separate from it.
In competitive submarkets, confirm the practice can win patients locally.
Near hospitals, weigh referral relationships against the higher rent.
In aging submarkets, demand-aligned specialties are safer bets.
Match the tenant to the submarket's real patient demand, not just the rent.
My Screening Checklist Before I Sign
Entity in good standing and physician licenses active.
Two years of financials reviewed with rent as a comfortable share of revenue.
Clear, honest reason for leaving the prior space.
Payer mix understood and reimbursement risk priced into the deal.
Personal guaranty and a deposit sized to the build-out and risk.
Operational fit confirmed on parking, plumbing, power, and hours.
None of this guarantees a perfect tenancy. But every problem tenant I have had ignored at least one of these steps. Slowing down for a week of diligence is far cheaper than a year of vacancy and a specialized suite you cannot re-lease.
Frequently Asked Questions
What credit checks should I run on a medical tenant?
Run both a business credit report on the practice entity and personal credit on the guarantors. For medical tenants, pair this with a review of payer mix and reimbursement timing, since a practice can have decent credit and still hit a cash-flow gap when an insurer or Medicare pays slowly.
Should I require a personal guaranty from a physician?
On anything but a strong, well-established entity, yes. A personal guaranty from the owning physicians gives you a real party to pursue if the practice entity fails. You can offer a step-down guaranty that shrinks over time as the tenant builds a clean payment history.
How much security deposit is normal for a medical office lease?
It varies, but I size the deposit to the build-out cost and the tenant's risk profile rather than a flat one month. Specialized improvements and a payer mix heavy in delayed government reimbursement justify a larger deposit to cover the gaps that tend to appear.
What financial documents should I ask a medical tenant for?
Two years of financial statements or tax returns plus recent bank statements. You are looking for the trend in collections, how large rent is relative to revenue, and whether the practice keeps a cushion that can absorb a slow-paying quarter.
Are home health and hospice tenants riskier than other medical tenants?
In the current Los Angeles market, they often carry more risk because their revenue leans heavily on Medicare timing and they have faced reimbursement and regulatory pressure. They can still be good tenants, but I price that risk into the guaranty, deposit, and lease terms.
If you own a medical office building in Los Angeles County and want a second set of eyes on a tenant before you sign, I can help. As both a medical building owner and a commercial broker, I screen prospective medical tenants the way I screen my own. Contact Arman Boyadjian Real Estate at 818-307-0119 or [email protected] for a confidential tenant review or leasing consultation.
