Understanding Your Dental Practice Office Lease
THE NEXT DDS
As a new dentist entering the workforce, you may soon find
yourself in the market to purchase a dental practice. If so, your practice will
likely come with a dental office lease agreement. While some of you may have
signed leases in the past (for a home, condo, car, or the like), this might be
the first lease that many of you will ever see. Your practice office lease may turn
out to be one of the most important document you will ever sign in your professional
career as a dentist, outlining the obligations to your landlord as a tenant.
Dental offices are expensive and difficult-to-relocate businesses by nature.
Your lease contains language that can act as a tool to either, a) protect you
and your investment, or b) work against you, presenting expensive hidden risks.
It is therefore of critical importance that you review the lease extensively,
and fully understand the agreement and all provisions before you sign.
What Should Your
Lease do for You
Prior to completing your purchase, it’s important to conduct
a needs assessment, putting serious thought into your current situation,
long-term career goals, and practice needs. This exercise will help you
identify what your lease should do for you, and how it should be structured to
give you maximum protection and flexibility. Even though you are a recent
graduate, it will be important to consider these long-term plans before
settling on a location.
Reviewing Your Dental
Lease for Risks
Once you’ve completed a needs assessment, it’s time to
review the terms in your lease. Without a thorough lease review, you may be
signing off on language that gives your landlord the right to relocate your
practice, reap the proceeds of your eventual dental practice sale, or even
terminate the lease upon your request for an assignment. These hidden risks can
cost a dentist hundreds of thousands of dollars if left alone. Unfortunately,
many dentists sign the lease without reviewing it, and end up paying a fortune
for these mistakes.
Important Language to
Be Aware of in Your Lease
Term & Options:
Will your lease provide you with enough term and options to renew after you
purchase the practice? Is there language that ensures the “options to renew”
are available to you, the new tenant? Sometimes terms in a dental lease can
prevent the new tenant from exercising the options after the lease is
transferred from one tenant to another.
Improvements: Does the lease allow you to renovate or upgrade the
space? If you do choose to make alternations, is there a “surrender” provision
that could force you to remove all of the upgrades, bringing the office back to
its original shell when you’re ready to retire? Who pays for this, you or the
landlord? Reconstruction and demolition costs can easily add up to $100,000 or
Practice Relocation: Does
the lease give your landlord the right to relocate your practice? If so, will
they pay for the move, or will you? Do they have the right to relocate you more
than once during your term? Will the new space be larger or smaller than your
current office? Moving expenses can easily cost a dentist upwards of
$250,000, not to mention any business down time you might face during the
transition period from one dental office to another.
Protection & Security: Does
the lease provide protection for you, the new tenant, and your family and
estate in the event of an emergency, and you are unable to work? It’s important
to ensure that a “death and disability” clause is present in the lease so
you’re prepared for the unexpected, protecting your family from incurring
hundreds of thousands of dollars in rental obligations to your landlord.
How Do I Protect
Be proactive, and have your lease professionally reviewed
before entering into a lease negotiation with your landlord. There are many
items to consider within the office lease that should be reviewed prior to
purchasing your dental practice.
There are a variety of dental office lease negotiation
experts to be found online to review important dates, identify potential
problem areas and risks, and develop a lease improvement negotiation strategy
to help achieve fair and equitable leasing terms that not only protect your
financial investment, but prevent landlords from gaining an unfair advantage.
While you may not be looking to purchase a practice directly
out of dental school, there is a good chance that you will need to sign an
office lease at some point during your career. Signing an office lease is as
important as taking out a business loan for your practice, and equal caution
and attention to detail must be paid to the lease before you sign. Your lease
can go a long way toward determining the success of your practice, your
business, and your career.