They say hindsight is 20/20. While this adage rings true for many life lessons, having good foresight when reviewing the terms of your lease, which is a binding contract, goes a long way to mitigate potential risks and headaches that may arise after you sign.
The value of this foresight applies even more so if down the road you decide to sell your practice, renew your lease, want to limit your personal liability, need to terminate your lease, or must discontinue practicing due to death or disability.
These six tips will add valuable foresight when considering your first dental lease:
- Your term and options to renew. It’s crucial to negotiate your lease to ensure that it aligns with and supports the long-term goals of your practice. For example, if you don’t plan on retiring anytime soon, does a five-year lease term support that objective? Does your five-year term have option periods where the negotiation of rent at fair market value is provided for? Have you been offered enough option periods that a future purchaser of your practice would benefit from?
- Your use provision. Often, a lease may very generally indicate that you are permitted to run a dental office from your space. Period. But consider whether the language in your lease accounts for the expansion of your service menu later on; ensuring utmost flexibility to the development of your practice. Does your lease allow you to practice in specialty areas in the future? Does your lease allow you to develop your business without restrictions or intervention from your landlord?
- Your rights to remain. These are the dreaded “relocation” and “demolition” clauses. They may not seem so bad on paper, but these provisions often indicate that a landlord has the power to either relocate your practice to another location at any time or terminate your lease on short notice without covering moving expenses. Consider the cost of uprooting and relocating a dental practice. It’s important to ensure protection to avoid major logistical and financial headaches!
- Your exclusivity. Have you thought about your competition? Have you protected yourself from other dentists moving into your building or retail plaza? How much competitive protection can you negotiate into your lease? The connection between your lease agreement and business development is truly worth considering.
- Your assignment provision. Does your lease allow you to assign your agreement to a future purchaser of your practice? And more importantly, what kind of landlord-friendly rights are embedded? Can your landlord terminate your lease arbitrarily when you ask for consent to assign your lease? The answer may surprise you. And more importantly, if you decide to sell your practice, is your landlord entitled to the profits of your sale? Usually, assignment provisions constitute rights in favor of your landlord and may significantly affect your practice transition.
- Your death & disability protection. Remember that you have entered into a legally enforceable contract by agreeing to faithfully pay rent during the term mutually agreed upon. But what happens in the event you are unable to continue practicing? A Death & Disability clause offers protection if you or your estate is faced with the decision to terminate your lease. Without these protections, you or your estate run the risk of potentially facing insurmountable debts to your landlord when terminating the contract you freely agreed to.
Foresight in these contexts are valuable not only when negotiating your contract but in consideration of future business development and long-term goals. Cirrus Consulting Group has 25 years of experience negotiating with landlords across North America. Consider hiring professional negotiators to help you create and negotiate a properly structured lease agreement that fits your needs.Download 6 Key Questions
Barbara de Dios works on behalf of clients across North America in connection to the review, drafting, and negotiation of commercial lease agreements as Associate Lawyer at Cirrus Consulting Group. She also works as Corporate Counsel at Canadian Dental Services Corporation. Barbara’s previous experience includes an associate counsel role for capital markets and investment company in Toronto, specializing in corporate governance and general corporate/commercial law, where she also previously completed her articles. She was called to the Ontario bar in September 2016.