Reimagining SNF Leases: Aligning Interests for Better Outcomes

The skilled nursing facility (SNF) sector is at a crossroads. For decades, the traditional triple-net (NNN) lease model has defined the relationship between landlords and operators, yet it has increasingly become a source of financial instability, operational strain, and declining care quality. The fundamental flaw? A misalignment of interests. Landlords prioritize rental income, often through fixed escalators, while operators struggle to maintain high standards of care under rigid financial obligations. Neither party is incentivized to invest meaningfully in the facility, leading to deteriorating conditions that ultimately harm residents and staff.

It’s time for a new approach—one that fosters collaboration rather than conflict, sustainability rather than short-term gain, and shared responsibility rather than transactional detachment.

The Problem with Traditional SNF Leases

The separation of real estate and operations has long been a double-edged sword. While it allows operators to focus on running facilities without the burden of property ownership, it also creates a fundamental disconnect:

Fixed Rent Escalators vs. Uncertain Reimbursement: Many NNN leases include automatic rent increases, regardless of operational performance or reimbursement trends. This can force operators to make financial cuts elsewhere—often in staffing, resident programs, or facility maintenance—to meet escalating rent obligations.

Deferred Maintenance & Capital Starvation: Operators, who do not own the buildings, have little incentive to make long-term capital investments, while landlords, who see facilities as financial assets, are reluctant to spend on improvements that do not immediately enhance profitability. The result? Aging, undermaintained buildings that become liabilities over time.

Misaligned Incentives Lead to Facility Failures: When rent obligations outpace operational revenues, facilities risk financial distress, which can result in bankruptcies, closures, and disruptions in care. The rigidity of traditional leases offers little room for adaptability when census fluctuates or regulatory burdens shift.

This misalignment ultimately undermines the very purpose of SNFs: providing high-quality, stable, and compassionate care to residents.

A Call for Innovation: Rethinking the SNF Lease Model

Rather than maintaining a landlord-tenant dynamic that pits financial interests against operational realities, a new model should create a partnership where both parties benefit from—and invest in—the success of the facility. Here’s just one an alternative approach that prioritizes sustainability and care quality:

1. Performance-Based Rent Adjustments

Instead of rigid rent escalations, lease payments could fluctuate based on operational performance. If census drops significantly due to external factors (e.g., reimbursement changes, market shifts), rent obligations could adjust accordingly. Conversely, as operations thrive, the landlord benefits through increased rental income.

2. Mandatory Reinvestment in Facilities

A portion of revenue growth could be earmarked for capital improvements, ensuring that as a facility becomes more successful, residents and staff experience tangible benefits. This prevents the cycle of neglect and deferred maintenance that plagues many older SNFs.

3. Stability Mechanisms to Prioritize Care

Rent structures could explicitly protect against financial pressures that could lead to staff reductions, service cutbacks, or deteriorating conditions. No lease should prioritize real estate returns over resident well-being.

4. Transparency & Shared Oversight

Operators and landlords could have a collaborative oversight mechanism, where financial and operational metrics are shared openly to ensure that both parties are aligned in their goals and expectations.

A Better Path Forward

This is not about eliminating leases or disrupting investment in the SNF sector—it’s about evolving beyond outdated models that no longer serve the best interests of operators, landlords, residents, or policymakers. An aligned-interest lease structure recognizes that financial sustainability and quality care are not mutually exclusive. It ensures that investments flow into the facility rather than being extracted from it, and that operators have the flexibility to navigate industry challenges without compromising on their mission.

While this model is one possible solution, the larger point is that innovation in SNF lease structures is long overdue. Policymakers, operators, and landlords should work together to develop aligned models that promote long-term success rather than short-term financial engineering.

The time for new ideas is now. Let’s build a system where both landlords and operators share in the risks, rewards, and responsibilities of delivering exceptional care.