Articles for Veterinarians

Are You Overpaying for Your Clinic’s Operating Costs?

Visibility and Audit Rights

Before you sign your veterinary office lease, it’s important to ensure that you have the “right to review and/or audit statements and invoices for all operating costs” negotiated into the agreement. This will ensure that you have the ability to take prudent steps to protect your clinic from unreasonable or hidden charges set forth by the landlord. If you have the right to see exactly what is being charged, it is less likely that you will be billed for something completely unreasonable.

In a Net lease, operating costs are expenses associated with the landlord’s day-to-day maintenance and operation of the property. Your landlord should keep track of all operating costs, and at the end of the fiscal year, provide you with a detailed statement of the actual expenses. As a tenant of a commercial property, you should insist on having the reasonable right to verify, audit, and where applicable, contest any charges that have been passed on by your landlord. Veterinarians who have not secured such provisions in their office lease may find that they are vulnerable and exposed to unscrupulous landlords.

Exclusions

It is customary for a tenant to cover their proportionate share of charges relating to the maintenance of the building, common areas, insurance, and various taxes; however, some landlords take advantage of their tenant’s lack of knowledge as to what are reasonable pass through costs.

What charges are unreasonable for the landlord to pass along to a veterinary tenant?

Structural building repairs or capital improvements
Real estate broker commissions
Professional or legal fees not relating to your premises
Interest on debt costs
Landlord’s personal income taxes
Marketing association fees that are not driving traffic to the building or helping your veterinary business

Retroactive […]

Are You Overpaying for Your Clinic’s Operating Costs?

It’s important to understand whether you as the tenant, or your landlord, is responsible for paying for various veterinary clinic operating costs when it comes to the maintenance of the property. Your veterinary office lease plays a key role in dictating the obligations of both parties, and clarifying common grey areas.

What Are Operating Costs?

Operating costs are the expenses related to the operation of a commercial property. Some landlords have been known to take certain liberties in the operation of their buildings. They do so by charging expenses to their tenants, who may only be tenuously linked to the management and maintenance of the property in question. These particular landlords may pass these costs on to their tenants by including them in the “additional rent” or operating cost provisions of their standard form lease with little, if any, explanation.

What operating costs are included in your clinic’s rent, and what is being charged separately? 

There are a number of factors regarding the landlord’s maintenance responsibilities and costs, they can vary depending on whether you’re presented with a Net Lease, Gross Lease, or Modified Gross Lease.

Type of Leases

Net Veterinary Office Lease

In addition to base rent, a Net Lease requires a tenant to pay for its proportionate share of all property expenses such as insurance, maintenance, utilities, repairs, and taxes. Typically, the landlord is not responsible for any expenses (with some exclusions) under the lease.

Fully Gross Veterinary Office Lease

This type of lease is similar to many residential rentals. In a Fully Gross lease, the tenant is only required to pay a flat rental rate, while the landlord covers all additional property expenses.

Modified Gross Veterinary Office Lease

During the first year (base year), a Modified Gross Lease requires the tenant to pay a flat rental rate. However, […]

Personal Guaranty in Your Veterinary Office Lease: Let’s Not Make It Personal

There’s an old business adage that states one should always keep business and personal matters separate. While the intent of this saying is certainly sage business advice, it is often not something that a veterinarian can avoid in the world of commercial office leasing. The majority of our clients who are starting a veterinary clinic, or have been in business for many years and are renewing their veterinary office lease often tell us that their landlords are demanding. Why? They often make them sign a “personal guaranty” or “indemnity agreement”, or else the deal is off!

This article is going to help you understand what a “personal guaranty/indemnity agreement” is as it pertains to your lease, and explain how as a small business owner, you can attempt to limit or avoid it altogether.

What is a “personal guaranty” in the lease, and why does your landlord care?

A personal guaranty, in its basic form, is a contractual agreement in your clinic lease that obligates an individual responsible for paying back a debt, in the event the tenant is in default. In regards to your veterinary clinic, it is a safety net that many landlords demand a tenant sign in order to ensure the financial performance of the lease continues, regardless of what happens with the tenant’s corporation, i.e. bankruptcy or business closure. It is important to note that a “guarantor” is often required to guarantee the obligations of not only the initial lease term, but also any “options to renew” or future extensions of the term.

For a startup veterinarian, landlords often require you to sign a personal guaranty due to the lack of operational experience of owning a clinic or renting commercial property. For an established clinic/hospital […]

The Dangers of the Demolition Clause in Your Veterinary Office Lease

Picture this – after a few years in your new veterinary clinic/hospital location, you have developed a solid culture with staff and patients that you truly enjoy. Your loans are slowly but surely being repaid and you are building up an enviable client roster in the process. Your home and your children’s school are all within a three-mile radius of your clinic. Life is good, and improving. Then, out of the blue, you receive a notice that your lease is being terminated due to a redevelopment of the property. Can the landlord do this? What happens now?
What is a “redevelopment” or “demolition” clause?

The “redevelopment” or “demolition” clause is an increasingly common feature of veterinary office lease agreements, particularly in high-density, metropolitan real estate markets. This clause gives your landlord the right to terminate your lease if they decide to demolish, renovate, or redevelop the building or center you are practicing in. Often the definitions of “redevelop”, “demolish”, or “renovate” in the lease are highly ambiguous.

The particulars of this redevelopment or demolition – the who, what, when, why and where – will invariably differ from lease to lease and from landlord to landlord.

For example, a given veterinary office lease might allow the landlord to terminate your tenancy if they decide to build a condominium building on the land. Another lease might permit the landlord to permanently relocate you to another part of the property, or to another property altogether, if renovations are to be carried out.

The struggle is particularly relevant to veterinarians, who invest heavily in leasehold improvements and can’t simply pick up and relocate without considerable expense. Sound familiar? That’s because the average veterinarian spends hundreds of thousands of dollars constructing an animal hospital/clinic. […]

It’s Not JUST About the Rent: Shifting Veterinary Office Lease Negotiations

If I were to ask you which part of your veterinary office lease agreement is the most important, what comes to mind?

I doubt you would consider the assignment clause – the clause which governs your ability to purchase a clinic or transfer the lease alongside the sale of your veterinary clinic/hospital. You probably wouldn’t think about the surrender clause – the clause which outlines how you are meant to leave your space when your lease term ends. Almost certainly you wouldn’t think about the relocation or redevelopment/demolition clauses, which, if exercised by the landlord, could unexpectedly force you out of your space! No, I’m willing to bet you immediately thought the most important part of your lease is the rent. Well, I hate to be the bearer of bad news, but….it’s not just about the rent!

While rent is certainly one of the key components of any lease, I’m here to teach you that it should not be your number one concern.
It’s Not Just About the Rent
Who could blame you for believing otherwise? Rent is the most obvious cost that a veterinary tenant incurs. Sometimes the payment of that monthly cheque is the only contact a veterinarian has with their landlord all year. It is therefore no surprise when a veterinarian focuses entirely on achieving the lowest rental rates possible at negotiation time, completely ignoring the rest of the lease agreement. However, to be perfectly frank, this approach is just plain wrong. Rent may be an “obvious cost”, but there are numerous hidden yet important costs that you should be more concerned about.
Hidden Costs vs. Obvious Costs in Your Veterinary Office Lease Agreement
An Assignment Nightmare

One such hidden cost is often found lurking in the assignment […]

Why Veterinary Tenants Are Gold to Landlords

When it comes to finding the ideal tenant for commercial office space, veterinary tenants are desirable businesses to landlords. Yet, veterinarians often fail to use this to their advantage when negotiating their veterinary office lease agreement. Before you enter into a new lease or renewal negotiation, here are a few things you should consider to understand why landlords favor veterinary tenants, and how you can leverage this in your upcoming negotiation.
Why Landlords Prefer Veterinary Tenants Over Other Commercial Tenants
Long-term Tenancy
Given the amount of work and large financial investment involved in opening a clinic/animal hospital, most veterinarians choose a location with the intent of staying 10-20 years or more. This means a long-term lease and options to renew/extend, translating into a promising and steady revenue stream for landlords.

Increased Foot Traffic
There’s no doubt that a veterinary clinic/hospital draws foot traffic to a building/center, which in turn is helpful for other businesses in the vicinity, adding value to the building and resulting in a win for the landlord.
How Landlords Use the Lease Agreement to Their Advantage
Landlords know very little about the business of animal care, but what they do know about are lease agreements. The standard veterinary office lease is typically 30–50 pages long, outlining the tenant and landlord’s obligations to one another for the duration of the lease term. The lease is engineered by landlords for their financial benefit, used to increase the value of their properties and maximize control.
Common Landlord-Favored Lease Terms
Unless your lease terms are thoroughly reviewed and negotiated properly, landlords generally have the upper hand. It is important to review and understand the provisions in your veterinary office lease agreement and amend them to your advantage before you sign. Here are a few […]

Importance of Options to Renew or Extend in the Veterinary Office Lease

When reviewing your lease agreement, there are many different clauses to evaluate. Two of the most important are the “Option to Renew” or “Extend” clauses.
Looking at Your Options

Options to Renew or Extend the lease are typically written for the purpose of benefiting the landlord; therefore, it is your responsibility to negotiate this clause to tip the scales in your favor.

Landlords often craft “Options” language to minimize their value to tenants by applying limitations such as who may exercise these options, when, how, and what must occur at the time.

Landlords may also add further provisions that allow them to revisit the lease at renewal time and insert restrictive language such as “Demolition” rights, a “Relocation Clause” or “Assignment” language that works for their benefit at sale time. Despite what some landlords might argue, all lease terms are negotiable and it’s important to do so to protect your rights.
Leveraging Your Options
In the event that a less-than-favorable lease was signed at startup time, renewal options provide you with the opportunity to bring the landlord back to the table to perhaps renegotiate some of the original terms in your veterinary office lease. In addition, as you mature in your career, you may not have the same goals you once did when you originally signed your lease agreement. Maybe you are looking to sell your veterinary clinic in the next 10 years, relocate, or expand your veterinary clinic or service offerings? Options to Renew/Extend can provide you with the flexibility to secure a more favorable lease agreement in your current location that is more reflective of your present and future practice goals.
Lease Performance Provisions
It’s important to be aware that Options to Renew/Extend often include performance provisions. For example, your lease may […]

The Pros and Cons of Buying vs. Leasing Veterinary Office Space

When establishing a veterinary clinic, one of the many decisions you may face is whether to buy or lease your veterinary office space. There are advantages and disadvantages to each. Making the best decision for your business depends on a variety of factors. Here are a few pros and cons of buying vs. leasing space for your veterinary clinic that you should keep in mind when reviewing these options.
Buying Commercial Space
Property Ownership Pros and Cons

Buying a building or other commercial space for your clinic provides flexibility over how to use the space, and the freedom to control the property, as you are, in essence, your own landlord. You also have the opportunity to build real estate equity. These are the primary benefits of buying.

On the other hand, buying commercial real estate comes with its own disadvantages and risks. First and foremost, buying real estate for your practice requires a large up-front financial investment. You will be taking on quite a lot of debt in the form of a mortgage, and of course there are risks associated with any real estate investment.

An owner veterinarian will also acquire a great deal more responsibility and as a landlord/property manager, with increased duties and obligations such as responsibility for numerous building and tenant issues which can take time and concentration away from core business of animal health and patient care.

Protecting Company “A” and Company “B”

Acquiring a commercial property is expensive and comes with certain liabilities. It is recommended to keep your real estate investment and veterinary practice as separate business entities so that it’s not “the veterinary practice” that is buying the real estate. This helps to maximize the value of each, and also separates the applicable responsibilities and liabilities. […]

The Do’s and Don’ts of Veterinary Office Lease Negotiations

Your veterinary office lease is critical to the success of your business. A well-written lease agreement will protect your interests and allow your business to thrive and flourish. A poorly written one can limit business opportunities, burden you financially, or in some cases put you out of business. Avoid common lease pitfalls with these do’s and don’ts when entering into veterinary office lease negotiations.

DO Follow These Best Practices for Your Dental Office Lease Negotiation 

You should always have a strategy in place when commencing lease negotiations with your landlord. Entering into a negotiation knowing what you would like to accomplish and how you may do so will be to your advantage. Review the lease agreement very carefully, taking into account your current business plans, future goals, and potential changes that may occur along the way. Use clauses, exclusivity clauses, and renewal options are just a few of the many important aspects of your veterinary office lease. Given the importance of the lease to the future of your business, you may want to consider retaining a professional veterinary office lease negotiator for help.

DON’T Make These Common Dental Office Lease Negotiation Mistakes

Every term in the lease plays a role in shaping the success or failure of your practice. Don’t make the mistake of overlooking or accepting unfavorable terms. Make sure that you fully understand the intricate details of your veterinary office lease and its impact on your current and future operations before you sign it.

Think of lease negotiations like a game of Scrabble. Although you may cover the same sections of the board every time you play, the combinations of letters and how they work with one another will vary based on your strategy and end goal. […]

As Your Veterinary Clinic Goals Change, So Should Your Lease Agreement

As a veterinary professional, you will have to enter into office lease negotiations with your landlord at several points throughout your career including when you are opening a clinic, mid-to-late career when you are renewing your office lease agreement, and when you are planning for transition or for the sale of your veterinary clinic.

Since your practice goals are likely to change, so should your lease agreement. At each stage of your career as a veterinarian, your priorities and needs will be different. Therefore, your approach towards veterinary office lease negotiations should vary as well. Below are some important lease terms to consider at the different stages of your career.
Veterinary Office Lease Terms for Startups
Free-Rent Period and Tenant Improvement Allowances

Veterinary clinic 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 for business. In addition, landlords will often provide you with a Tenant Improvement Allowance (TIA), a sum to allocate towards the built-out of your space.

Relocation Protection

A well written “Relocation” clause in your lease agreement can prevent your landlord from relocating you to another unit throughout your tenancy, or, limit the number of moves permitted during your term.

Practice Expansion

As your business grows, you will want the flexibility to expand your services and perhaps bring in specialists. “Use” provisions in the lease outline the activities or services that you are permitted to perform in the space. Flexible wording in this clause is effective because it captures current and future uses for your veterinary clinic, without being restrictive.

Exclusivity

Having a direct competitor in the same building as your practice can negatively impact the success of […]