What to Look for when Signing a Dental Lease

What to Look for when Signing a Dental Lease

June 17, 2019 - Arminco Inc.

Making the decision to lease or buy a space can be one of the toughest decisions for dentists hoping to open their own practice. Unless a dentist personally owns a property, they will have to sign a lease to be able to work in their desired office. Don’t be a fool by simply believing the landlord when he says the lease is “standard” or “boilerplate” or “not open for discussion.''

In order to turn things to your advantage, find a good lease negotiator or a tenant representative with experience on working with dentists and local ties. However, be careful because tenant representative fees are typically covered by the landlord upon signing the lease. If you are skeptic, take extra care to find a recommended and trusted representative in order to not second-guess their motive. A lawyer will probably not be familiar with the information required to work out a good deal for dentists.

If a significant build-out is being considered, contact a contractor who can help determine if the space can be used as a dental office without any obstacles, such as structural or plumbing issues. Most contractors offer free building studies in order to help you choose your best location.

Lastly, once the business terms are finalized, a lawyer with appropriate leasing and dental industry experience will prove to be indispensable.

Before signing the lease, the landlord and the dentist will devise a nonbinding term sheet or a proposal letter to ensure they are on the same page. While this sheet is nonbinding, a landlord will usually not agree to subsequent concessions not present in the letter.

Usually, the dentist will not be able to work out a new lease and will have to assume an existing lease, but if he intends to stay in the place longer than the seller, he may be able to work out friendlier terms.

Make sure to pay attention to these facts:

  • A tenant will pay for taxes, insurance, and maintenance fees. Sometimes the landlord may agree to pay a base fee for taxes and the tenant will pay for any amount above the base. If the office is a condo, the tenant will also have to pay for pro rata share of common area maintenance (CAM) fees.
  • A 3 or 4 percent increase of rent per year is normal, but be sure to ask for more info.
  • Lenders will require the lease to have a minimum duration. A 5 to 10-year term with a few options to renew should be good enough.
  • The landlord must give the tenant a period to compensate for the missed rent along with a written report before terminating the lease.
  • At times, landlords are willing to grant their tenants the option to purchase the real estate or a right of first refusal.
  • Landlords may agree to an assignment clause that permits the future buyer to become an assignee without the landlord standing in the way. They must agree in advance to release the assigning tenant upon the completion of a sale. Ensure that there will be no excessive payment except reasonable legal fees.
  • The landlord may agree to not rent a space in the vicinity to a competing dental practice.
  • If the space needs to be a build-out, the landlord may agree to grant an allowance for renewal and construction expenses, or to a temporary rent abatement.
  • Ask to see if the landlord allows subletting of the space, for example, to a specialist.
  • If the premises are part of a condominium, ensure that the dental office is a permitted use of the premises.
  • If the office is in a larger building, will the dentist be able to open the office after hours for emergencies or during the weekends? Will heating and ventilation and other options be working during these off times?
  • Who will pay for the air conditioning (HVAC) if it needs to be repaired or replaced? Usually the tenant will be responsible for maintenance costs while the landlord will take care of replacement costs.
  • There may be a clause in the contract that permits the landlord to force the dentist to relocate to a new location within the complex. These clauses should be eliminated or softened in a manner to protect a dentist’s goodwill.
  • Landlords may require personal guarantee from the dentist, such as a spousal guarantee. At times the landlord may agree to terminate these guarantees as long as the tenant makes all rental payments.
  • Consider requesting an automatic lease termination upon the death or disability of the owner.

Negotiating a lease may be a daunting task but with the right knowledge, may be managed in a way to help rather than restrict dentists. Contact us if you have any questions regarding the leasing, designing, and building of your dental office or if you would like to request a building study.

Source: www.dentaleconomics.com