Articles for Veterinarians

Consent in a Veterinary Office Lease: Why it’s Important

Are you selling your clinic? Installing new signage? Remodeling your veterinary office? Planning to bring in an associate or vet tech?
What do all of these actions have in common? Each of them will likely require your landlord’s consent as a condition in your veterinary office lease agreement.
Standard of Consent in the Veterinary Office Lease
Consent, in and of itself, is fairly common and a very reasonable provision in the typical veterinary office lease agreement. However, what most veterinarians don’t realize is that the standard of consent set forth by the landlord in the lease can be very problematic and restrictive to the clinic. Quite often, the element of consent is contractually defined in the lease, requiring the consent “not to be unreasonably withheld”.

Many commercial office lease agreements include language similar to the following:

“The Tenant shall not _________, without prior consent of the Landlord, such consent not to be unreasonably withheld.”

The question of reasonableness is one of fact, and is determined by the circumstances at hand, including the commercial realities of the marketplace and the economic impact on the party being asked to consent. Reasonableness should not be confused with what may seem fair. It is also not necessary for the opposing party to have to prove that their refusal to consent was justified; only that it was reasonable under the circumstances. The onus will generally be placed on the veterinary tenant to prove that the landlord’s refusal to consent was unreasonable.

To that end, consent language can be quite problematic for a veterinarian who is planning to sell their clinic, bring in associates, or even try to sublease some of their space to another animal health practitioner, and here’s why:

The Importance of Negotiating “Consent” in […]

Customer Case Study: Dr. Raymond N., DVM | Jacksonville, FL

Husband and wife team Dr. Raymond N., DVM, and Mrs. N. were opening their first animal hospital in Jacksonville, FL. With the help of a real estate broker, they had selected two potential sites for their new hospital.
The Problem
A veterinary tenant and their space requirements are quite different than that of a typical retail or office tenant, requiring terms specific to an animal hospital’s needs.

The real estate broker, although helpful in space-finding and incredibly knowledgeable about the commercial real estate market, did not specialize in representing veterinary tenants in lease negotiations. As a result, negotiations with the landlords did not go as planned, and the couple walked away from the prospective locations feeling discouraged, frustrated, and continued on their search.
The Challenge
The couple’s Henry Schein Animal Health (HSAH) supply partner, Joelle Craig, understood the stressful, lengthy, and expensive process of opening a new clinic. She referred them to HSAH’s exclusive real estate and lease negotiation partners at Cirrus Consulting Group to aid in selecting the space and negotiating a healthy lease.

Cirrus worked collaboratively with the broker to find a suitable location that fit the couple’s space requirements, and then focused on reviewing and negotiating the details of the lease agreement.

Dr. N. and Mrs. N. were looking for the new lease to provide them with the following:

The Solution
By incorporating their strategic and proven office lease negotiation process consisting of market research, a practice needs analysis, and a thorough lease review, Cirrus was able to achieve the following key “wins” for the couple in their negotiations:

“Within two months, Cirrus was able to secure the new lease on our hospital with excellent amendments that will ensure my practice runs smoothly and that I will be able to transition […]

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?

Retroactive Billing

It’s not uncommon for a veterinarian to receive notice from their landlord communicating that they were not billed correctly for a certain expense, dating back several years. Without proper preventive language negotiated into your veterinary office, situations like this can result in many […]

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. […]