Dr. Gordon S. is a late-career veterinarian running a successful animal hospital in Woodstock, GA.
As a busy veterinarian, Dr. S. had not been keeping track of critical dates in his lease agreement such as the lease expiry date, which was vast approaching.
The doctor was invited to attend a CE webinar on the topic of “Negotiating or Renegotiating the Terms and Rent in the Veterinary Office Lease” hosted by Cirrus Consulting Group, the veterinary office lease negotiation experts. At the webinar, the doctor learned about the importance of beginning the lease renewal process 18-24 months in advance of the expiry date in order to bring the landlord to the table with enough leverage and time to secure the best deal. The doctor also learned about many of the inherent risks in lease agreements, and was shocked to learn that many of these pitfalls existed in his current lease.
With the negotiation clock ticking, the doctor retained Cirrus to review his current lease agreement, and negotiate the terms of his renewal.
The doctor communicated to Cirrus that as a late-career veterinarian, he was looking for lease terms that would appeal to future buyers, and enable him to transition profitably and smoothly without being indebted to the practice afterwards. In addition, the doctor believed that the new Property Management company that was hired to manage the shopping center was unfairly charging for rent and Common Area Maintenance (CAM) charges, so this was something he would also want addressed in the negotiations.
Dr. S. was looking for his new lease to provide him with the following:
- Fair and affordable rental rates.
- The flexibility for a smooth eventual practice sale and exit from animal health.
- Practice protection and security, stability and peace-of-mind.
- “Options to renew” for future buyers.
Cirrus conducted a thorough practice needs analysis and reviewed the lease for critical dates and problematic language. Together they created a lease negotiation strategy and were able to achieve the following key wins:
- Negotiated rental rates for the 3,200 sq. ft. unit $3/ft. lower than market and what other tenants in the shopping center are paying. This attributed to a rental savings of $800/month, a total annual savings in year-1 of $9,600, and a grand total of $125,000 in savings throughout the 10 year term.
- Negotiated annual rental escalations down from 3% to 2.5% for years 1-5, and down to 2% for years 6-10. These reductions will save the practice an additional $12,000 over the term of the lease.
- Ensured that Dr. S. may assign the lease to a future buyer, and that the doctor keeps 100% of his practice sale proceeds. In many cases, the landlord is entitled 50% or more of the proceeds of a practice sale. For example, if the practice is sold for $350,000, the landlord would be entitled to $175,000 (50%) of the sale price for consideration.
- Removed the landlord’s right to obtain yearly financial statements, including balance sheets, profit and loss statements, and any other report normally generated as part of the doctor’s financial statements from Dr. S.
- Amended the “surrender” language to state that Dr. S. will not need to revert his space back to its original vanilla shell upon exit, and that all trade fixtures, veterinary equipment, and personal property will remain his at the end of his tenancy, allowing him to keep or sell the equipment he invested over $500,000 in.
“I am grateful to Cirrus Consulting Group for guiding me through the maze of negotiating my veterinary office lease. I learned that there were very few advantages for me in my contract, and I am glad l hired Cirrus for their expert advice and guidance.”
– Dr. Gordon S., DVM | Woodstock, GA
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