Selling Your Practice

A plan to sell a practice and retire is stymied by limiting lease terms

SITUATION

After practicing general dentistry for twenty five years, Dr. Smith was planning to retire at the end of 2004 and sell his well-established practice. He had five years remaining in his current lease term, which also contained a five year Option to Extend. Dr. Smith found a potential buyer whose only condition was that the lease be successfully assigned to him after purchase and that his attorney approve it.

Unfortunately, not everything in the lease was set up properly. Because of Dr. Smith’s request to assign the lease, the landlord could now terminate it, reasoning that market rents were now much higher compared to those agreed to in the lease.

Not only was Dr. Smith unable to assign the lease to his potential buyer, but the attorney’s review determined that the Option to Extend was only applicable to the original tenant, Dr. Smith, meaning that the buyer was at risk of being relocated in five years. 

OUTCOME

Unfortunately, because the potential buyer’s two conditions were not met, the deal fell through and Dr. Smith is still without a buyer today, despite having had to drop the sales price of his practice significantly. 

MISSED OPPORTUNITIES

If Dr. Smith had contacted Cirrus Consulting Group the last time his lease was up for renewal, he could have avoided his current predicament of being trapped by the “Option to Extend” and “Assignment” clauses. Cirrus Consulting Group would have handled the negotiation process from start to finish, taking care of all interactions with the landlord and acting to eliminate the clauses which now put Dr. Smith at a severe disadvantage as he starts to think about selling his practice.    

LESSON

Make sure that the “Assignment” and “Option to Extend” clauses are structured correctly within the lease. This allows you to assign your lease to a buyer without having to seek your landlord’s consent, and also disallows him the right to terminate the lease for that reason.  The value of your practice can be realized much more easily and quickly in a sale if the lease has been set up to support this transition.