Veterinarians are Not Your Typical Commercial Tenants

As a niche group with explicit, professional space requirements, an effective veterinary office lease should always be written with provisions unique to the business, while providing long term protection and runway for the clinic’s success. Veterinary doctors must be conscious of this fact when negotiating the details of their office lease (before signing a new lease or at renewal time). Below are a few reasons why veterinary tenants differ from the typical commerical tenant.

Clinic Buildouts Are Extensive

Unlike your typical retail tenant, there is an extensive amount of work that needs to be completed to convert an empty shell into a functioning veterinary clinic prior to opening your doors. Major construction and renovation is required to build-out operatory and exam rooms. The purchase and installation of veterinary tables, furniture, ultrasounds, X-RAY imaging equipment, and other veterinary technology is costly and extensive. This can easily cost a veterinarian upwards of $250,000, and can take an average of 3-9 months to build-out. Language in the veterinary office lease should support the timeframe necessary for the office build-out.

It’s often possible to negotiate a free-rent period into the lease agreement to ensure you’re not paying for the space until your doors are open. It’s also often possible to negotiate a tenant improvement allowance (TIA) to help subsidize the costs for your clinic build-out.

At negotiation time, pay close attention to “Surrender Provisions” in the lease, a clause that formally outlines how the space must be returned to the landlord when exiting. It is to your advantage to negotiate the wording of this clause to release you from the liability of having to restore the space back to its original shell, which can add up to $150,000 or more in unexpected costs when you’re ready to transition.

Unexpected Veterinary Clinic Relocations

Landlords often include relocation language in the standard form lease agreement that allows them to relocate a tenant to another unit within the building. This clause is typically only beneficial to the landlord because it gives them the flexibility to move a tenant to make room for renovations, or free up the space for a higher paying tenant.

For a typical retail tenant, a relocation may not be a bank-breaker, or detrimental to their business at all due to fixtures being generally easy to move. In comparison, on top of the already inconvenient process of moving such as hiring movers, packing and unpacking, marketing, updating signage and stationary materials, veterinary tenants are often required to demolish their existing space (as per Surrender provisions in the lease), build out the new space, and remove/re-install veterinary equipment, making the process and the expense of relocating astronomical in comparison to a typical retail tenant. If the relocation clause in the lease puts the onus on the doctor to pay for moving expenses, the financial impact to the clinic could put a veterinarian out of business. Veterinary tenants must therefore be extremely cautious of any relocation provisions within the veterinary office lease, and ensure that this language is negotiated in their favor.

Exclusivity is Critical for Veterinarians

Exclusivity to practice veterinary medicine in a building/center is particularly critical for vets because consumers typically only have one veterinarian. Another competing veterinary clinic will directly impact customer flow and overall business growth. Drafting the exclusivity clause in the veterinary office lease specific to your needs will offer the best protection against competitors moving in, including other veterinary hospitals, groomers or pet stores.

Expansion Potential is Necessary

The veterinary office lease, as with any commercial lease, should be flexible enough to accommodate future business growth. Often the standard form lease prohibits alterations to the space beyond initial build-out plans, or requires landlord approval for minor changes to the space, or services being offered within it. A strong veterinary office lease should provide the flexibility to install new technology and equipment, the expansion of the space and service offerings, and the ability to bring in specialists and other associates if necessary.

Why Vets are Not Your Typical Tenants

The above are just a few important examples for why veterinarians are not your typical commercial tenants. Additionally, every veterinary hospital is unique based on their service offerings, business plan and long and short term goals. The veterinary office lease should be reviewed and negotiated by professionals to fulfill your unique business needs.

If you’re a startup veterinarian, plan on relocating your clinic, buying an existing clinic, or are renewing your office lease in the next 24 months, it is important to understand the impact of certain generic lease terms, and have them reviewed and negotiated to work in your favor. Standard form office leases may work for the average commercial tenant, but not for veterinary tenants. Special language will be needed to protect your best interests.