Articles for Dentists

Personal Guaranty in Your Dental 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 dentist can avoid in the world of commercial office leasing. The majority of our clients who are starting a dental practice, or have been in business for many years and are renewing their dental 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 office lease that obligates an individual responsible for paying back a debt, in the event the tenant is in default. In regards to your dental office, 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 dental practice, landlords often require you to sign a personal guaranty due to the lack of operational experience of owning a practice or renting commercial property. For an established […]

The Dangers of the Redevelopment/Demolition Clause in Your Office Lease

Picture this – after a few years in your new dental office location, you have developed a solid practice culture with staff and patients that you truly enjoy. Your loans are slowly but surely being repaid and you are building up an enviable patient roster in the process. Your home, your children’s school are all within a three-mile radius of your practice. 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 dental 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 “alter” 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 dental 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 dentists, as they invest heavily in leasehold improvements and can’t simply pick up and relocate without considerable expense. Sound familiar? That’s because the average dentist spends $200,000 constructing a dental office. As such, the […]

Customer Case Study: Dr. Gordon S., DVM | Woodstock, GA

Dr. Gordon S. is a late-career veterinarian running a successful animal hospital in Woodstock, GA.

As a busy veterinarian, Dr. S. had not been keeping track of critical dates in his lease agreement such as the lease expiry date, which was vast approaching.

The doctor was invited to attend a CE webinar on the topic of “Negotiating or Renegotiating the Terms and Rent in the Veterinary Office Lease” hosted by Cirrus Consulting Group, the veterinary office lease negotiation experts. At the webinar, the doctor learned about the importance of beginning the lease renewal process 18-24 months in advance of the expiry date in order to bring the landlord to the table with enough leverage and time to secure the best deal. The doctor also learned about many of the inherent risks in lease agreements, and was shocked to learn that many of these pitfalls existed in his current lease.

With the negotiation clock ticking, the doctor retained Cirrus to review his current lease agreement, and negotiate the terms of his renewal.

The doctor communicated to Cirrus that as a late-career veterinarian, he was looking for lease terms that would appeal to future buyers, and enable him to transition profitably and smoothly without being indebted to the practice afterwards. In addition, the doctor believed that the new Property Management company that was hired to manage the shopping center was unfairly charging for rent and Common Area Maintenance (CAM) charges, so this was something he would also want addressed in the negotiations.

Dr. S. was looking for his new lease to provide him with the following:

Cirrus conducted a thorough practice needs analysis and reviewed the lease for critical dates and problematic language. Together they created a lease negotiation strategy and were […]

By | March 15th, 2017 | Case Studies | 0 Comments

Customer Case Study: Dr. Emma M., DDS | Midlothian, VA

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.

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.

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:

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

Dr. M. now has peace-of-mind knowing her lease is set up for a […]

By | March 15th, 2017 | Case Studies | 0 Comments

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

If I were to ask you which part of your dental office lease 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 practice or transfer the lease alongside the sale of your practice.

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 dental tenant incurs. Sometimes the payment of that monthly cheque is the only contact a dentist has with their landlord all year. It is therefore no surprise when a dentist 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 Dental Office Lease Agreement
An Assignment Nightmare

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

Why Dental Tenants Are Gold to Landlords

When it comes to finding the ideal tenant for commercial office space, dental tenants are one of the most desirable businesses to landlords. Yet, dentists often fail to use this to their advantage when negotiating their dental 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 prefer dental tenants, and how you can leverage this in your upcoming negotiation.
Why Landlords Prefer Dental Tenants Over Other Commercial Tenants
Low Default Rates
Dentists are favored tenants in the eyes of a landlord for many reasons. For one, they generally have low default rates in comparison to other types of businesses. In fact, they are known to have one of the highest credit ratings among professionals. Dealing with defaulting tenants can be a cost and organizational nightmare; therefore, landlords tend to favor businesses with generally low default rates.
Long-term Tenancy
Given the amount of work and large financial investment involved in opening a practice, most dentists 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 dental clinic 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
Landlords know very little about the business of dentistry, but what they do know about are lease agreements. The standard dental 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 […]

Importance of Option to Renew or Extend in the Dental Office Lease

When reviewing your dental office 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 dental 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 practice in the next 10 years, relocate, or expand your dental practice or service offering? 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 […]

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

When establishing a dental practice, one of the many decisions you may face is whether to buy or lease your dental 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 dental office space 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 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 a 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.

A dentist who purchases will also acquire a great deal more responsibility, and as a landlord/property manager, increased duties and obligations will take time and concentration away from the core business of dentistry.
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 dental practice as separate business entities so that it’s not “the dental practice” that is buying the real estate. This helps to maximize the value of each, and also separates the applicable responsibilities and liabilities. A properly structured dental office lease agreement should be created between the two businesses to provide further protection. This will be […]

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

Your dental 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 dental 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 dental office lease. Given the importance of the lease to the future of your business, you may want to consider retaining a professional dental 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 dental 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.

Similarly, every term […]

As Your Practice Goals Change, So Should Your Lease Agreement

As a dental professional, you will have to enter into dental office lease negotiations with your landlord at several points throughout your career, including when you are opening a practice, 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 dental clinic.

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

Dental practice 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 out “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 associates. “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 use for your dental practice, without being restrictive.

Exclusivity

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