Renewing Your Office Lease

Consent and Reasonableness in the Dental Office Lease: Why it’s Important

Are you selling your practice? Installing new signage? Remodeling your dental office? Planning to bring in an associate?
What do all of these actions have in common? Each of them will likely require your landlord’s consent as a condition in your dental office lease agreement.
Standard of Consent in the Dental Office Lease
Consent, in and of itself, is fairly common and a very reasonable provision in the typical dental office lease agreement. However, what most dentists 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 practice. 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 dental tenant to prove that the landlord’s refusal to consent was unreasonable.

To that end, consent language can be quite problematic for a doctor planning to sell their practice, bring in associates, or even try to sublease some of their space to another dental practitioner, and here’s why:

The Importance of Negotiating “Consent” in Your Dental Office Lease
Whenever landlord consent […]

Are You Overpaying for Your Practice’s Operating Costs?

Visibility and Audit Rights

Before you sign your dental 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 practice 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. Dentists 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 dental tenant?

Retroactive Billing

It’s not uncommon for a dentist 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 dental office, situations like this can result in many unforeseeable future […]

Are You Overpaying for Your Practice’s Operating Costs?

It’s important to understand whether you as the tenant, or your landlord, is responsible for paying for various dental office operating costs when it comes to the maintenance of the property. Your dental 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 dental practice’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 Dental 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 Dental 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 Dental Office Lease

During the first year (base year), a Modified Gross Lease requires the tenant […]

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 […]