Renewing Your Office Lease

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 […]

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 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 […]

Dentists Are Truly Unique Tenants

Dentists are not your typical commercial tenants. As a niche group with explicit, professional space requirements, an effective dental office lease should always be written with provisions unique to the business, while providing long term protection and runway for the practice’s success. Dentists must be conscious of this fact when negotiating the details of an office lease (before signing a new lease or a renewal). Below are a few reasons why dental office leases differ from the typical commercial lease.
Practice 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 dental office prior to opening the doors. Major construction and renovation is required to build out operatory and waiting rooms, as well as the installation of flooring, dental equipment, furniture and technology. Leasehold improvements such as electrical work, plumbing fixtures, hazardous waste disposal, and more will also be required. This can easily cost upwards of $350,000, taking an average of 3-9 months for build-out time. Language in the dental office lease should support the timeframe necessary for your office build-out.

It’s often possible to negotiate a free rent period into the lease 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 buildout.

At negotiation time, pay close attention to “Surrender Provisions” in your 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 […]

Practice Sale Woes: It’s All in the Dental Office Lease

When signing the dental office lease for your  practice, it is important to think about both the present and the future. Although you may not be considering retirement or selling your dental practice at the moment, things can certainly change during the term of your lease. Details in your lease agreement may directly impact the sale of your practice by preventing a smooth transition or reducing the value of your business. The following are a few important aspects of your lease agreement from a practice sale perspective.
Assignment Provisions in the Lease
Ability to Transfer the Dental Office Lease

When the time comes to sell your practice and you’ve found a buyer, the transfer of the lease can often be a little tricky due to “Assignment” provisions in the lease. It’s not uncommon that this clause permits the landlord to deny your request to transfer the lease; or the proposed transferee. They can often terminate the lease altogether at the mere request for an assignment, leaving you with 30 days’ notice to vacate!

The Right to Dental Practice Sale Proceeds

In the event that your landlord does approve your request to assign the lease, how would you feel about them taking 50% of your practice sale proceeds? Often, the Assignment Clause grants the landlord rights to a percentage of your sale profits, resulting in a less than favorable retirement savings plan.
Personal Guarantees in the Dental Office Lease
Who is listed as the tenant on the lease? Your lease may list your business, or you personally, as the lessee. Personal guarantees can leave you responsible for the lease even after you have transferred it to a new tenant. If the new tenant defaults, the landlord could have the right to pursue you for […]

Importance of Exclusivity and Use Clauses in the Dental Office Lease

There are many provisions in the dental office lease that should be carefully reviewed and negotiated to ensure they align with, and support your short and long term practice plans. Whether you are a startup dentist opening your first practice, renewing your dental office lease, or expanding or relocating your office, there are two particularly important provisions in the lease that can dramatically impact the future of your dental practice: the Exclusivity and Use Clauses.
Exclusivity Protection in the Dental Office Lease
Having a direct competitor in the same building as your practice will certainly impact the success of your business. Although there may be no current tenants in direct competition with you, you will want to protect your business from future changes in the building’s occupancy. An Exclusivity Clause is the best way to do so.

Exclusivity language in the lease is typically written in the landlord’s favor, granting them the flexibility to move anyone into the building without restriction. When written properly, this clause can be extremely helpful in protecting your business by preventing the landlord from renting space within the building/center to other dental professionals.

Negotiating the Exclusivity Clause in the Dental Office Lease

As with any contract, everything is negotiable. When negotiating exclusivity language, it is important to be specific; by doing so, you will leave less room for interpretation and misunderstanding. For example, the Exclusivity Clause can be written to prevent your landlord from moving any other dental professionals into the building, such as those practicing general dentistry, orthodontics, endodontics, oral surgery, etc.
The Impact of the Use Clause in the Dental Office Lease
Use provisions in the lease outline the activities or services that you are permitted to perform in the space. The details of this clause […]

Dental Office Lease Negotiation Tips for Startups

One of the key steps in starting or opening a dental practice is selecting an office location and negotiating the terms in the dental office lease presented by the landlord. Lease terms can have a huge impact on the finances of your dental practice both in the short-term and long-term. It is important to be aware of common pitfalls and to take steps to protect your business. Below are a few dental office lease negotiation tips to keep in mind for startups.
Research Rental Rates

It is not uncommon for landlords to quote higher rental rates for dental practices. Research average rental rates in the area for similar type properties (i.e. retail) and for the particular building. Make sure that you are paying fair rental rates. Further, you should be clear on whether or not your rates are fully inclusive; or if you will be paying your proportionate share of operating expenses.
Protect Against Increases
There are two common provisions related to rent increases: overholding and annual escalations. The overholding clause contains the rental rate charged to you when your office lease expires but you still remain in the space. In some cases, the amount listed can be double the normal rent.

Annual escalation provisions allow for percentage increases in rent each year. Negotiate these amounts in your dental office lease and include a cap to avoid dramatic increases in your rent.
Plan for Future Changes to Your Business
Your dental business will likely change over the years as you grow and/or adapt. You may desire to expand your practice, bring in associates, or collaborate with other dental professionals in a cost sharing environment. It is important that your lease agreement accommodate such changes without stiff financial penalties from your landlord. Check the […]