Dental Leasing Dictionary
The medical/dental office lease agreement is comprised of heavy legal terminology that can sometimes be difficult to understand. We’ve put together a list of some of the most common leasing terms found in a medical or dental office lease to help you better-comprehend what you’re reading. If you have any additional questions about your lease or upcoming negotiation, we welcome you to contact our experts at any time for a complimentary lease consultation, 1.800.459.3413.
- Alterations: Includes alterations, adjustments, changes, repairs, renewals, restorations, renovations, rearrangements, remodeling, rehabilitating, retrofitting, relocations, subtractions, reductions, substitutions, deletions, additions, expansions, reconstructions, removals, replacements, modifications, improvements, betterments, installations and decorations, or any one or more of them to a dental practice.
- Assignment (Dental Practice Assignment): Assigning, or transferring a dental office lease to another individual. Where a dental tenant assigns the lease in whole or in part, or sublets all or any part of the premises, or sharing possession of all or any part of the premises typically to/with another dental practitioner.
- Assignee: The person to whom a dental lease agreement is assigned, and who will therefore become responsible for the obligations contained in the lease.
- Assignor: The person who assigns or transfers the dental lease agreement to another individual. The assignor typically would desire to have any personal liability or ongoing obligations come to end upon effective transfer of the dental lease agreement.
- Build-Out: Describes any construction or physical improvement to the interior of a dental office, inclusive of walls, plumbing, electrical and mechanical services, heating and air conditioning distribution, ceiling, flooring, etc. Dental lease clauses relating to build-out may include: leasehold improvements, trade fixtures, chattel, alterations, landlord and tenant work, tenant allowance or inducements, fixturing period, restoration and surrender.
- Termination or Cancellation Clause: A provision in a dental office lease that addresses a right held by a party named in a lease to terminate their obligations within a lease due to a pre-defined set of circumstances. Events such as those related to default, damage or destruction of the premises as well as the death or disability of the dental tentant are examples of scenarios which may be addressed by such a clause.
- Compliance: The action of complying with the items in an office lease. This clause specifies what the tenant and/or landlord is responsible for within a lease.
- Damage or Destruction: A dental lease provision which outlines a scenario in which the property, building or premises referenced in a lease is impacted by a event which may render all or a portion thereof un-tenantable. Landlord may have the right to terminate the lease if a certain percentage of the property or building is destroyed or if the costs to repair or rebuild or prohibitive. Landlord (and sometimes tenant) may have the right to terminate the lease if, for example, if the premises cannot be repaired within a certain amount of time.
- Death and Disability Clause: A clause providing a disabled doctor or their estate in the case of death, the opportunity to sell their dental practice, and assign the lease to another practitioner, or terminate the lease in advance of the expiration date
- Default: An individual may be considered to be in default of their lease by failing to fulfill or perform certain required obligations as outlined within the dental lease agreement. Ex: The landlord may, among other remedies, have the right to accelerate the payment of rent, assess other financial penalties and/or terminate the lease if the tenant fails to cure any breaches of their lease obligations.
- Eviction: The removal of a tenant from the dental property by law or other force.
- Expropriation (or Eminent Domain): The act of a governmental authority taking ownership or control of all or a portion of a dental property which may have a significant negative impact on a practice.
- Exclusivity Clause: A dental lease clause prohibiting the landlord from leasing the space to a competitive dental tenant that intends to provide the same or similar products or services (ex. general dentistry, orthodontics, endodontics, or other dental specialties as the case may be) in the same building or property.
- Financial Statements: Documents that the dental tenant may be required to supply to the landlord verifying they are in ‘good financial standing’. Such documentation is typically requested during early stages of the “Offer or Lease” negotiations in order satisfy the landlord’s due diligence requirements.In some leases, the landlord may insist on having the right to periodically request revised financial statements throughout the term of the lease agreement, usually in combination with an estoppel certificate, subordination agreement, or request for a dental office lease renewal.
- Fixtures: Items attached to the premises that are typically considered to be a part of the building or dental property immediately upon installation, and therefore fall under the ownership of the landlord. Although the landlord may elect to retain ownership of the fixtures in order to pass on to future tenants to increase the value of the premises, many leases require that the tenant must remove all installed fixtures at the request of the landlord.
- Landlord and Tenant Work: Sets out the scope, timing and responsibility for all renovations, alterations and improvements, including leasehold improvements, which are required in order to ensure that the leased premises are suitable for dental practice requirements.
- Leasehold Improvements: Outlines what alternations, installations, improvements or additions to a dental office are made by, or on behalf of the dental tenant, but will likely be surrendered to the landlord at the end of the lease term. Most dental office leases provide that leasehold improvements following build out, and become the property of the landlord immediately upon affixation (i.e. cabinetry).
- Lease: A contract or agreement in which a landlord gives a tenant (dentist/doctor) the right to occupy a defined space for a fixed period of time, at a specific price. Included are any amendments, modifications, additions, schedules, appendices, riders and other documents attached to the lease or intended to form part of the lease.
- Lessee: The individual to whom a property is rented out under a lease, also known as “tenant”. A lessee may include any person(s) mentioned as tenant in the lease including its directors, officers, servants, employees, contractors, agents, invitees and licensees or those for whom tenant may be legally responsible for under the office lease.
- Lessor: The individual renting out a property to a tenant under a lease, also known as the “landlord”. The landlord may also include authorized representatives and agents including directors, officers, servants and employees or agents.
Letter of Intent (LOI): A document used prior to the dental office lease, outlining terms such as the location of the leased premises, rental rates, lease start date, length of the term, options to renew, tenant improvement allowances, financial deposits, etc. The LOI may be prepared as a binding or non-binding instrument.
- Fair Market Value: The expected rental rates for a property in a defined real estate market that would reasonably be obtained by a willing landlord for similar premises from a willing tenant.
Option to Renew or Extend: Provisions within a dental office lease outlining the tenant’s right to renew or extend their lease for a previously agreed upon time period. If the landlord is prepared to provide the tenant with an option to renew/extend than the tenant should insist the extended/renewed terms be on the same terms and conditions. If rental rates are to vary, the process of determining said rents should be mutually agreed upon, failing which, such determination should be subject to mediation, appraisal and/or arbitration.
- Operating Costs: Dental property operating costs such as property maintenance, utility rates, insurance premiums, building security costs, building renovations, refurbishments, etc.Operating cost provisions in a dental lease typically outline what expenses incurred in the operation of the building/property/complex will be passed on, in some form, to the tenant. Typically the tenant is responsible for paying a proportionate share based on the total square footage of the premises, divided by the total square footage of the building/property/complex.
- Overholding: Overholding occurs when a dental tenant remains in possession of the premises after the expiry date of their dental office lease, without the consent of the landlord. Consequences to an overholding tenant vary, but may include being charged double the monthly rent by the landlord, or being presented with a letter of eviction with 30 days to vacate.
- Personal Guarantees or Indemnification: An agreement that makes one liable for one’s own, or third party’s debts or obligations.
- Relocation Clause: A clause giving the landlord the right to relocate a dental tenant to another location within the building or elsewhere on a property, usually to accommodate the entry of a new tenant requiring a larger quantity of space, or for the expansion of an existing tenant.
- Reconciliation Statement: An annual statement provided to a tenant containing an account of its proportionate share of operating costs, taxes, etc., ideally including a breakdown of these costs. This is typically provided at the landlord’s year-end to identify costs paid by tenant over the year, as well as any outstanding credits or debits to be issued.Tenant is then responsible to pay the remaining balance. If the tenant has overpaid, the landlord may reimburse them or use the overpayment towards the next year’s operating costs.
- Subordination: A provision in a dental office lease stating that the rights of a tenant will be subject to, or superseded by, the rights of any lender who most typically would be providing a mortgage or financing to the landlord.
- Subletting: Leasing the dental premises, or part of the premises, by one tenant to another tenant. The original tenant, sometimes referred to as a “sub-landlord”, likely still retains some interest and obligation under the office lease.
- Surrender of the Premises Clause (or Restoration Clause): Upon the termination of the lease, the tenant gives vacant possession of the premises back to the landlord, typically subject to specific conditions which may include the removal of furnishings, equipment and personal property, but may also include requirements to repair, restore or demolish leasehold improvements to the dental office.
- Termination Rights: A reference to a right, which may be exercised by the landlord and/or tenant, to prematurely conclude the lifespan of the office lease due to certain conditions that are detailed in the lease.Termination rights are most often referenced under the “default provisions” of the lease, but may also appear in clauses related to scenarios in which substantial damage impacts the premises or property. Termination privileges may also be included in a lease to address a situation in which the dentist becomes disabled, dies or elects to retire from their trade.