Case Study: Eliminated Rental Increases to Save Dr. M. $10K in 5 Years

Dr. Emma M. is a general dentist in the later stages of her career practicing in Midlothian, VA. After being diagnosed with hand tremors, Dr. M. brought in dental associate Dr. Bill S., and has since begun treating patients for Sleep Apnea at the clinic.

The Problem

Dr. M’s 28-year lease was rapidly approaching its renewal deadline. As a late career dentist, she was looking to renew her lease with terms that would support her eventual plans to transition out of dentistry. Naturally she considered Dr. S. as a potential buyer; however, she was unsure the timing was right as he was a fairly new associate.

The Challenge

Being cognizant of her eventual transition plans, she was looking to renew the lease agreement with terms that would spark the interest of potential buyers. She was looking for a shorter term, ideally 5 years, with options to renew to ensure the long-time viability for her successor.

After attending a dental office lease negotiation and commercial real estate seminar hosted by Cirrus Consulting Group, Dr. M. retained Cirrus for help with her upcoming lease renewal.

“I had no idea the ramifications that some of the clauses could have. I signed my old lease 28 years ago but was very young and not very bright when it came to lease agreements. Now that I am older and wiser, I felt it was necessary to hire Cirrus to re-write my lease and negotiate terms that I felt were fair and could live with.”

– Dr. Emma M., DDS, Midlothian, VA

She was looking for the following key wins in her renewed lease:

  • The ability to transfer the lease and exit dentistry smoothly and profitably.
  • Practice protection, security and stability for peace-of-mind.
  • Minimized personal risk.
  • Flexibility and protection for future buyers.

The Solution

Cirrus Consulting Group guided Dr. M. through their strategic lease negotiation process and achieved the
following key wins:

  • Eliminated rental increases, securing the same base rent in the 5-year extension as the previous 5 years. As most renewal rents average a 3-5% increase, Cirrus saved Dr. M. $1,300-$2,000/year, or, $6,150-$10,200 over the course of the 5-year renewal by avoiding rental increases.
  • Negotiated a 5-year lease term.
  • Added 2 x 5-year options to renew the lease, now transferable to a future buyer.
  • Adjusted the assignment clause to release Dr. M. from all financial responsibilities and obligations to the lease upon the expiration of the term. Without this language, should the new tenant default, Dr. M. would be liable for hundreds of thousands of dollars in rent/debt after the lease had been transferred.
  • Negotiated a “Death and Disability” tenant termination clause into the lease, protecting the doctor and her family/estate from incurring hundreds of thousands of dollars in debt. If the doctor suffers death or disability and cannot work, the family/estate is left paying off the practice debt until the lease expires. For example, the family/estate would be left paying over $41,000/year in rent over the remaining 5-year term without this lease termination right. With “Death and Disability” protection, the lease permits the doctor (or family/estate) to terminate the lease agreement, avoiding unnecessary lease liability.
  • Added “associate” language, permitting the doctor to bring in associates without landlord consent.
  • Amended the “surrender” language to state that all trade fixtures, equipment, cabinetry and personal property will remain hers as long as no damage is caused to the property, allowing her to keep or sell the equipment she invested over $500,000 for.

Dr. M. now has peace-of-mind knowing her lease is set up for a smooth and profitable transition into retirement with terms that benefit both her and future buyers.

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