Smart dental office lease negotiations require long-term strategic planning, and a proactive approach.
Like a poker player who analyzes their hand and anticipates the dealer’s cards, dentists who prepare for lease renewals and begin negotiations ahead of time are more likely to come out winners.
If you leave your lease negotiation until the last minute, you will find yourself at the mercy of your landlord, with very little options. Sure, you can bluff and say that you’ll simply relocate your practice if your demands are not met, but landlords know how difficult and costly it is to move a practice — and they count on this when negotiating the terms of your lease. When faced with the pressure of time constraints, there is little room for a tenant to negotiate favorable terms, and landlords often end up holding aces. Here’s what you need to know to get ahead of the game and start planning for your upcoming office lease renewal.
Save the Date
The first thing to do is review your current office lease. Note your lease expiry date and your lease renewal date (often called an “option to extend”), and mark these in your calendar, with several reminders as the dates draw nearer. It is recommended that dentists start preparing for negotiations at least 18 to 24 months before their lease expiry date. This typically provides enough time to assess your short and long-term practice goals, prepare a negotiation strategy, and bring the landlord to the table.
Read the Fine Print
Next, review and analyze the language in your office lease to identify any clauses that may impact your flexibility for a renewal or, hinder your long-term plans. Often, risky language in the lease is buried under dense legal jargon that may take some digging to find.
Important Leasing Considerations:
Option to Renew: Does the lease provide sufficient options to renew the lease? When the time comes to transition/sell the practice, will these options be transferable to a future tenant? Without flexibility in a lease, your practice value goes down immensely in the eyes of a future buyer.
Surprise Relocations: Can your landlord relocate your practice multiple times throughout your tenancy, at your expense?
Death and Disability Protection: In the event of death or an accident that prevents you from working, are you and your family protected? Can you terminate the lease, or will your landlord continue to charge you rent until the end of your lease term?
Assignment Language: Can your landlord deny your request to sell the practice and retire? Can they terminate your lease and kick you out of the premises just for inquiring?
When it comes to deciphering the complex language in your office lease and understanding how to structure your new one, it is recommended that you engage the help of dental office leasing professionals, as there is little room for making mistakes.
Know the Stakes
So, now that you are fully aware of the risks buried in your lease, and its expiration and renewal deadlines, what’s next? Track them! When you pass your office lease expiry date, you turn into a month-to-month or “overholding” tenant, which means that you are no longer protected by the security of your lease.
This is a risky arrangement because your landlord now has the right to terminate your lease with 30 days’ written notice, giving you very little time to find a new location and relocate your practice. As you can imagine, a rushed relocation can cost a dentist hundreds of thousands of dollars in demolition/renovation expenses for the old space, moving expenses, re-building your new office from scratch, reprinting marketing and business stationary, not to mention business downtime during the move.
Do the Math
As a month-to-month tenant, you not only have to worry about the risk of a short notice relocation, but you can also face an unexpected increase in your rental fees — a substantial increase. Depending on the “overholding” terms in your lease agreement, your landlord may be able to charge you double your monthly rent once you pass your lease expiry date. Yes, that means two rental payments per month in addition to all of your overhead costs, which equals a big price to pay for missing your lease renewal date.
Make Your Move
In the long run, a dentist who sits back and does nothing about their lease renewal deadline will spend a lot of time, effort and money repairing unnecessary damage. A dentist who prepares early avoids the financial pitfalls and inconvenience brought on by poor planning. All it takes is a careful review of your dental office lease agreement, anticipating – and not simply waiting for – the expiry of your current lease, and knowing what terms to negotiate so your business is protected.
When it comes to planning for an office lease renewal, a dentist should approach their lease negotiation with a full understanding of what it is they want to achieve for their practice in the long-run. Don’t be a passive tenant, and don’t allow your landlord to command the terms of your tenancy.
Educate yourself and take action, so that when it’s time to negotiate the terms of your new lease, you’re the one coming out on top with a winning hand.
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