Commercial office leases are often drafted using a “one-size fits all” approach, and with some minor modifications, generally the same lease will govern all tenants in an office building, shopping mall, or strip plaza.
While it may work for the typical office or retail tenant, this approach doesn’t work for veterinary tenants who have specific needs which are unique to their business. For this reason, an extensive analysis into your practice goals should be conducted to ensure that your veterinary office lease works for you, not against you.
With over 20 years of experience in tenant representation, having negotiated over 10,000 healthcare office leases, we understand exactly what veterinary professionals require out of an office lease agreement; terms which the standard form commercial lease simply cannot provide.
Here are some key areas that the startup or renewing veterinarian should pay critical attention to when evaluating and negotiating the details of a commercial office lease:
The Use Clause: Dictating What You Can Practice in the Space
Landlords typically use the “Use Clause” to restrict tenants to using the space for a specific purpose only, thereby giving themselves the flexibility to lease other space in the building to a variety of tenants without restriction. While it is less significant to the typical office tenant, the “Use Clause” is essential to the veterinary tenant, and should be drafted broadly to encompass a range of services. For example, specialties of veterinary care such as dental or radiology may not be covered by using the term “veterinary medicine” in the “Use Clause.”
Do You Have Exclusivity Rights?
Exclusivity is a must for new veterinary clinic owners. The nature of a veterinarian’s business allows them to serve customers and their pets located within a specific geographical area; another competing vet clinic moving into the center could be extremely detrimental to new customer flow.
It is worth carving out an exclusivity provision to protect your business by prohibiting the landlord from leasing space to other veterinarians in your center throughout the duration of your tenancy. The more specific you are in the exclusivity clause, the more protection you will have over competitors moving in.
Will the Trade Fixtures Remain Yours When You Exit the Practice?
One of the most important elements of a veterinary practice are the “trade fixtures” which are comprised of expensive pieces of veterinary equipment such as x-ray machines, exam tables and cabinetry. This equipment, unique to a veterinary clinic, often far exceeds the value of the fixtures a retail or office tenant will require. Therefore, it is crucial to maintain “ownership of these fixtures” throughout your tenancy, and that you are able to remove them when the time comes to exit.
If your landlord has rights to claim ownership over these fixtures through the lease, you will lose thousands of dollars you have invested into this equipment. It’s important to carefully define in the lease what will remain your trade fixtures versus the landlord’s, and what is classified as “leasehold improvements” vs. “tenant trade fixtures.”
Is the Lease Set Up for a Smooth and Profitable Practice Sale?
The sale of your veterinary clinic is a critical element of your retirement plan, and one that is usually predicated upon the ability to assign the lease to a future buyer. If the assignment of lease cannot happen, the value of your sale greatly diminishes. This key point is one which distinguishes a veterinary tenant from an office or retail tenant; they don’t need to assign their leases as regularly or as frequently as veterinarians.
In the standard form lease, the “Assignment” clause is generally structured to place great restrictions upon the ability to transfer the lease, often requiring new assignees to meet strict standards set out by the landlord. It’s important to negotiate this clause to facilitate a smooth, safe, and profitable practice sale, while also setting up the assignment of the lease to satisfy both your needs and those of a future buyer.
Death and Disability Protection
If something were to happen to you during your lease term that prevented you from working, it would be your family or estate who is left with the burden of paying off your clinic’s debt, including rent for the duration of the term. It is strongly encouraged to have the security of a “Death and Disability” clause negotiated into the lease to cap exposure and limit the time frame that your loved ones will remain accountable for your debts.
Structuring the Office Lease to Protect Your Veterinary Practice
These are but a few important clauses to be aware of in the office lease that are unique to a veterinary clinic and its success. Having a better understanding of your long term growth and career plans prior to negotiations with your landlord will help you secure a lease agreement that allows your practice to meet these goals and thrive.
If you are starting a practice or renewing your veterinary office lease in the next two years or less, you are encouraged to engage the help of professional office lease negotiators to review the details of your lease to ensure it is properly structured and free of risks. Make your office lease work for you.
Article written by Cameron Bryant, J.D., Lawyer and Lease Negotiator with Cirrus Consulting Group.
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