Maximizing Revenue Potential

A dentist discovers how a lease clause can impact his ability to generate additional revenue

SITUATION

Dr. Jones is a general dentist who offers cosmetic procedures to his patients and has been practicing out of his office for three years. Business has been quite good for Dr. Jones, so he decides to generate some additional revenues by hiring a part-time orthodontist to work out of the extra space in his office.

When Dr. Jones was originally negotiating his lease, he was very proud of the fact that he had persuaded the landlord to agree to the inclusion of a clause which allowed him to bring an associate into the practice without having to first request and receive consent from the landlord. However, Dr. Jones had neglected to address the “Use” provision which, in his contract, stated that the tenant was allowed to use the leased premises “solely for general dentistry and no other use.” In this case, use of the space for the practice of orthodontics did not fall within the definition of ‘general dentistry.’

OUTCOME

The “Use” provision prevented Dr. Jones from taking on the part-time orthodontist he had wanted to hire and thus closed the door on that avenue of revenue generation, while the extra space in his office continued to remain unused.

MISSED OPPORTUNITIES

Although Dr. Jones did a great job in negotiating with his landlord to include the clause for hiring an associate without first having to ask permission, he didn’t realize the negative impact the “Use” clause would have on his business in the future and so neglected to address it. A trusted and capable lease negotiator such as Cirrus Consulting Group could have worked together with Dr. Jones and the landlord to create a lease which would allow the doctor the room for growth his business would eventually need. In this case, even just wording the clause differently (i.e. allowing the use of the leased premises for “oral health and related activities” instead of “solely for general dentistry and no other use”) would have been an easy way to sidestep any potential limitations on Dr. Jones’ future plans.

LESSON

The “Use” clause within your lease, if not addressed properly, can be a detriment when it comes to maximizing revenues. It is therefore crucial that close attention be paid to this clause prior the execution of your lease. When negotiating this clause as a tenant, you must remember that “broader is better,” but even a broad provision needs to accurately capture your current or future intended use of the space.