Does Your Dental Office Lease Align with Your Business Goals?

As a dental professional, you will have to enter into office lease negotiations with your landlord at several times throughout your career, including when you open a new practice, at renewal time, and when you approach retirement and are planning for the transition/sale of your practice.

As you advance in your career your business goals are likely to change, therefore, so should the lease agreementThe following are some important lease terms to consider at pivotal stages of your career – when setup properly, your lease should support your business goals and help drive the success of your business.

Lease Terms for Startups

Free-Rent Period and Tenant Improvement Allowances (TIAs): Practice buildouts are expensive and can take up to 6-9 months to complete. It’s often possible to negotiate a rent-free period with your landlord in order to build-out your practice before opening your doors, or a TIA, a sum from your landlord that you may allocate towards the buildout of your space.

Relocation Protection: A well-written “Relocation” clause can prevent your landlord from relocating you to another unit in the building/center, or, limit the number of moves permitted during your lease term. It can also be drafted to put the onus on the landlord to pay for all moving expenses, including the buildout of the new space.

Practice Expansion: As your business grows, you will want the flexibility to expand your services and perhaps bring in associates. “Use” provisions in the lease outline the activities or services that you are permitted to perform in the space – try and have these written with future growth in mind.

Exclusivity: The “Exclusivity” clause can prevent your landlord from moving competing dental professionals into the building/center. Carving this out with specifics could protect you from competition moving in.

Reviewing your lease for the above terms and negotiating them in your favor is important to the success of any new dental practice.

Mid-to-Late Career: Office Lease Renewal Negotiations

Mid-career, you may have the benefit of more clarity in your business plan than when you first started your dental practice. This is a great opportunity to re-evaluate your goals and re-negotiate your office lease. Be sure to think further ahead, and to consider your potential exit strategy.

Personal Guarantees: Your lease may list you personally, or your business as the lessee. Negotiate this language to state that when the lease is transferred to another tenant, the original tenant (you), are no longer financially responsible for the lease.

Death and Disability Protection: Your lease should contain “Death and Disability” protection with lease termination rights so your family/estate is not left paying off your debts in the event you can no longer work.

The Assignment of Lease: 85% of dentists have a lease with language that can prevent them from ever selling their practice. Ensure your landlord is not required to approve your sale plans and will not directly benefit from the proceeds of that sale. Many leases permit the landlord to 50% or more of your sale profits for consideration.

Lease Negotiations When Planning for Your Practice Sale

If you are nearing the end of your career, you are likely going to sell your business and retire soon. The focus during lease negotiations at this point should be on securing lease terms that may impact your ability to retire profitably.

Surrender of Premises: “Surrender” provisions specify how you’re required to leave the space when you exit, often requiring a dentist to convert the space back to its original shell, a $100k+ expenditure. In a buyer’s eyes, purchasing a practice with such provisions means inheriting a large future expense, which in-turn will decrease the current value of the practice and appeal less to future buyers.

Demolition Clause: The “Demolition” clause in the lease can permit your landlord to terminate your lease with 30 days’ notice if they decide to demolish, renovate, or redevelop the building or center – another clause that will affect the value of your practice in the eyes of a future buyer.

More on Dental Office Lease Negotiations

Whether you are a new dentist, mid-career, or are nearing retirement, your lease terms should always support your short term and long term business goals. Since your goals are likely to change, so should your lease agreement. Be sure to carefully evaluate the terms and clauses in your lease agreement to ensure the language aligns with your current and future needs, and provides you with the runway, flexibility and protection you need to be successful.

Alain Sabbah is a principal at Cirrus Consulting Group, a firm devoted to office lease negotiation and review services for dentists. Alain has extensive experience in commercial real estate consulting, focusing on dental tenant representation.