Leasing Office Space

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Leasing Office Space

Leasing Office Space

At this point, you have chosen where to open your dentistry business. Now you are ready to lease office space or buy a building. Since most dentists first starting out in a new practice will lease rather than buy, this chapter focuses on the process of leasing office space in an existing building. And, if     you are joining an existing dental practice, it can be beneficial to you to understand how leases work and how they affect people in the dentistry business in different ways than they affect other types of businesses.

There Is No Such Thing as a “Standard Lease”

If your real estate agent suggests that it is not important to worry too much about what is in the lease – that it is just a boilerplate form – keep in mind that you are agreeing to terms beyond the amount you will pay the landlord each month (or year if it is a yearly lease). If this were not the case, there would be no need to have so many pages and so many words to a lease agreement. Even if the landlord did download a standard lease and just fill in the blanks, you can be sure that if he or she wants you out for any reason, he or she will use those terms you signed to make life hard for you.

You need to know your rights and obligations, and in many cases you cannot count on the real estate agent to tell them to you. After all, most real estate and leasing agents work for the landlord and not for you. Their loyalty is with that person. You need someone on your side to help you understand what you are signing before you sign. Because the lease is such a vital part of your business, it is crucial that you speak to a legal professional before you make that commitment.

Do Not Give Up Your Right to Negotiate

No landlord has the right to tell you how the lease is going to work and force you to accept that. He or she can make an offer. You can accept that offer, reject it completely or request modifications to protect your interests. It is not set in stone. If there is something you do not like in the lease, you can ask for a change in terms. While this may seem obvious to some, many dentists feel they have no choice but to do it the landlord’s way. That kind of thinking can cause you to commit to something that is not in your best interest or even give up a prime location because you do not want to commit.

How do you manage this negotiation? Bargain from a position of strength. Remember that you have something to offer the landlord, just as they have something to offer you. Do not be so attached to getting the property that you give in to any demand just to get it. A discussion with a lawyer can set you on the right track. If the landlord is hesitant to change any terms, a lawyer can sometimes do the negotiation for you if you are willing to pay the price.

Know the Cost

The stated monthly cost of a lease can be deceiving. While you might notice that you can lease one property for one price and another for a different price, you need to know what you are getting in a way that allows you to compare them equally. Find out the cost per square foot, and then consider whether a larger  or smaller space is worth more per square foot to you given your plans for equipping and furnishing the office.

You also need to know what other expenses might be added to the stated price. For example, does the lease say you have to pay taxes, insurance and maintenance costs for the building and common use areas such as parking lots? This type of “triple net lease” can be a surprise to business owners who assume those costs are covered. Also, find out about late fees in case your staff fails to make the payment on time or the landlord fails to credit it on time. Make sure you know how often and how much the rent is set to increase. You might be able to accept a 2% increase, but a 5% increase may be a point you will want to negotiate before you sign the lease.

Know the Duration

The longer you can practice at one good location, the larger your patient base is going to be. People will develop loyalty to your dentistry business, and even the people who are not your patients at first may find you later as you develop a reputation in the area. Do not assume that you can stay in that one location forever. Make sure the lease is for a long enough term. Ideally, it should be a 7 to 10 year lease with options to renew.

Do You Have an Option to Buy?

If the location proves to be very profitable for you, you might want to buy later on once your practice is established there. Or, the landlord may choose to sell the property later on. In that case, you might want first refusal so you can opt to buy the property rather than let the landlord sell it to someone else. If the lease agreement says nothing about option to buy or right of first refusal, this is a point you can negotiate if you choose. Then, if the landlord will not add it to the contract, you will at least be aware of the situation and can make an informed decision about whether you want to take the chance of losing a property after you are established there. For many dentists, this can be a deal-breaker.

Are You Allowed Re-lease Assignment?

Look for a paragraph in the lease that allows you to re-lease the property to another tenant if you choose to sell or move your practice. This can be a valuable safeguard to protect your interests in case you have a need or desire to make a change later on. It is especially helpful if you can make this assignment without the landlord’s prior permission and be released from any obligations to pay the lease after the assignment to the new tenant has been completed.

Are You Protected from Competition at All?

You cannot completely avoid competition in the dentistry business. However, you might be able to negotiate a clause that prohibits the landlord from leasing to other dental practices in the building or complex where you are practicing. This can take strong negotiation skills, but it is well worth the time spent if you can get the landlord to agree to add this to the lease.

Construction Issues

Unless the building is new – and sometimes even if it is – the landlord may choose to remodel or add on to it. Construction can interfere with your dentistry business by making it hard or unsafe for patients to come to your office at times. Find out if such construction is expected. Even if none is now planned, though, it is a good idea to request that the landlord agree up front that you will get some kind of break on monthly payments if construction ever does take place.

Can You Sublease the Property?

As a dental professional, you are going to work with other people in the dentistry business. Perhaps you are a general dentist and work closely with an orthodontist. Sometimes it can be advantageous to have that person close at hand so you can confer with them and make dental visits more convenient to your patients. In such a case, you might want to offer the specialist a place in building or office you are leasing. A sublease clause can allow you to do that so you can keep the businesses financially separate while enjoying a close working relationship.

What Are Your and Your Landlord’s Duties If You Decide to End the Lease?

Most likely, you will be required to make a set number of payments even if you leave the practice before the term of the lease is concluded. However, the lease may include a clause that requires the landlord to attempt to find someone else to take over the lease and then release you from it. If no such clause is written into the contract, you can request that the lawyer add it.

Checklist for Lease Agreements

  • Remember that any lease is up for discussion and negotiation
  • What is the cost per square foot?
  • What are the late fees?
  • Do you have to pay all property taxes, insurance and maintenance fees?
  • How long is the lease for?
  • Do you have the option to renew the lease?
  • Do you have an option to buy?
  • Can you re-lease the property?
  • Can you sublease a portion of the property?
  • Is there any protection from competition?
  • Does the lease cover what will happen in case of construction?
  • What is required from each party at early termination of the lease?