Uncover Risks in Your Lease: Don’t Sign Away Your Success

Dental Office Lease Negotiations

Any dentist starting a practice will have to make their way through a dental lease negotiation with their landlord. Nearly 100% of startup dentists are only aware of one thing about their lease; the monthly rental fee. Most dental professionals are totally unaware of the clauses lurking within the 40 or 50 pages of their lease that make it difficult to sell their practice, leave them responsible for paying rent after retirement, or cost them $100,000’s in surprise costs in the event of a relocation. These traps hurt the most when a dentist reaches the critical stage in their career such as retirement and practice sale.

Despite the fact that making mistakes with your dental office lease can turn out to be nothing short of terrifying, everything is negotiable if done at the right time and in the right way. With professional help in a dental lease negotiation, it’s possible to start your practice right, grow your practice, protect your practice, and eventually sell your practice at the highest value possible.

When should you start the negotiation process?

The big mistake that many dentists make is signing the lease too quickly and leaving the negotiations until the last minute. Reviewing your lease thoroughly and starting your negotiation as early as possible gives you enough time to develop a strategy to properly deal with tactics that landlords and their attorneys use to get you to sign a lease that favors them.

A common tactic used by landlords is to encourage dentists to focus on the issue of rent, which is a diversionary tactic intended to prevent you from dealing with hidden risks in the lease like assignment provisions, options to renew or extend, and personal financial obligations for the term of the lease. Allow yourself enough time to negotiate a good deal that guarantees the protection, success and longevity of your practice.

Can your landlord cancel your lease or charge you a penalty fee if you sell your practice?

Assignment provisions are a part of every lease and determine the dentist’s ability to sell their dental practice. In the final months of one’s career, many dentists have been shocked to discover that their request to assign the lease to a prospective buyer triggered an automatic termination of the lease. These situations occur when the lease contains language giving the landlord the right to terminate the agreement with only 30 days’ notice, or threaten the collection of “key money”, which can potentially cost a dentist $100,000’s to settle. Over 50% of leases today include some type of landlord “recapture or termination” right on assignment. Make sure to adjust the assignment clause so it works in your favor and aligns with your career goals before signing your lease.

Will you be forced to pay office rent after retirement?Young female dentist

Another significant issue to consider is the financial responsibility of the dentist to the practice after the sale. When a dentist sells, they will likely remain liable for the new owner’s rental payments because they typically sign their lease personally, or as their professional corporation. As the original tenant stays on the hook as a matter of law, the landlord has to only look to the original tenant and all of their personal assets in the event of a non-payment of rent by the new owner.

Will your landlord have the right to relocate your practice?

Many leases include a “relocation” clause that gives the landlord the right to relocate a practice whenever they want. Perhaps another tenant has offered them more rent for the space, or they are expanding the tenant’s office occupying the space beside you. The devastating part is that in a relocation, there are many factors that can easily put you out of business.

1) You are forced to bear the cost of re-building your entire practice from the ground up, including redoing the design, re-installing equipment, marketing, etc. This can easily cost a dentist upwards of $350,000.

2) During the practice transition, you may be faced with several months of downtime until the move is complete, meaning there is no incoming revenue until business operations are ready to commence. No revenue = no practice!

How to Protect Yourself

You are not powerless to these scenarios; everything is negotiable. Being aware of the clauses and risky language in your dental office lease before you sign is the first step to protecting yourself. Cirrus Consulting Group specializes in educating and assisting dentists in achieving favorable terms and rental rates in their dental office leases. We highlight risks and problem areas within the lease, and develop customized negotiation strategies to help dentists secure a lease that provides flexibility for a smooth retirement and sale of practice, long-term protection, and security. Your lease is one of the most important agreements you will ever sign in your career as a dentist so educate yourself, be proactive, and be prepared.

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