The largest expense for a dental practice, besides employees and staffing, is routinely the cost associated with the office real estate. That's true whether you lease or own the office space. This series focuses on the common traps and negotiating points in offices leases that most dental practices fail to consider when negotiating their lease. Some of these traps have even cost dentists hundreds of thousands of dollars and put dentists in danger of losing their practice. In this column, Matt LaMaster introduces the series and discusses location and relocation.
Signing a commercial real estate lease is an important decision for any business, especially a dental practice. Whether you're moving into your first space, expanding your practice, or renewing your lease, an office lease is a significant investment.
Even if your practice doesn't require a huge space, the costs can be substantial. For example, a 2,500-sq-ft practice with a 10-year lease at $3,125 per month ($15 per sq ft) means that you are committed to paying at least $375,000. And, in many instances, you may have personally guaranteed that payment and many other obligations (covered later in the series).
With such a substantial commitment on the line, it's important for you to understand your lease and properly negotiate the terms. While this series discusses seven common pitfalls, it is important to remember that no lease is created equally. Leases are negotiated documents that represent the written culmination of a negotiated transaction. There is no "standard form" lease that is appropriate for all situations. Having a representative who is familiar with the leasing process, lease documents, and their hidden traps is the best way to ensure that your transaction will go as smoothly as possible and that the lease accurately represents your understanding and expectations while protecting your interests.
Everyone has heard the saying "location, location, location" is the most important part of any real estate decision. While you may understand this concept, many tenants fail to really see what makes the location desirable. For dental practices, visibility, easy access, and the inviting nature of the space are of critical importance.
Being located in an old building down in the basement may be an OK place for dental lab, but it's not a place for a dental practice. You want to have visibility of the practice when you drive by and, at the very least, visibility of a sign.
What if you had good visibility and a nice, well-kept complex when you first signed your lease, but now it's hidden by a tree, or the sign is not lit any longer? Those types of issues come up often and can easily be handled in the lease with provisions that require certain maintenance obligations by the landlord. However, the landlord seldom places any true obligations on themselves in their draft of the lease, which we'll discuss in a later column.
In addition to visibility, easy access is crucial. Depending on the type of practice, proximity to referring providers also can be convenient and desirable. However, there are times when complexes contain direct competitors. To prevent this, it's important for you to request an exclusivity clause for the type of services that you provide to limit unwanted competition.
Generally, this is not something that the landlord discusses with you upfront. You will need to ask for this provision and ensure that it is broad enough to protect you if your practice starts to add specialties.
Once the location of a practice has been determined, you may be surprised to find that in your lease the landlord reserved the right to relocate you to a different space in the building.
Although it is preferable to delete this provision, if this is not possible, you can address it in other ways. If you are willing to live with relocation, there are several issues to address, including the following:
- When may you be relocated
- How much notice is required before relocation
- Where may you be relocated
- Whether you have the right to terminate the lease instead of relocating
- Who pays the costs associated with the relocation and how much
Remember, leases are negotiated documents that represent the written culmination of a negotiated transaction.
Future columns in the series will discuss issues such as rent obligation, terms and renewals, improvement allowance, and more.
Matt LaMaster, Esq., is the founder and principal attorney of the LaMaster Law Firm, which is committed to delivering legal services to dental professionals and their practices. For more information about dental-specific legal services, visit www.lamasterlaw.com.
This article includes information about legal issues. Such materials are for informational purposes only and may not reflect the law in your jurisdiction. These informational materials are not intended and should not be taken as legal advice on any particular set of facts or circumstances. You should contact an attorney for advice on specific legal problems.
The comments and observations expressed herein do not necessarily reflect the opinions of DrBicuspid.com, nor should they be construed as an endorsement or admonishment of any particular idea, vendor, or organization.