Are you selling your practice? Installing new signage? Remodeling your dental office? Planning to bring in an associate?
What do all of these actions have in common? Each of them will likely require your landlord’s consent as a condition in your dental office lease agreement.
Standard of Consent in the Dental Office Lease
Consent, in and of itself, is fairly common and a very reasonable provision in the typical dental office lease agreement. However, what most dentists don’t realize is that the standard of consent set forth by the landlord in the lease can be very problematic and restrictive to the practice. Quite often, the element of consent is contractually defined in the lease, requiring the consent “not to be unreasonably withheld”.
Many commercial office lease agreements include language similar to the following:
“The Tenant shall not _________, without prior consent of the Landlord, such consent not to be unreasonably withheld.”
The question of reasonableness is one of fact, and is determined by the circumstances at hand, including the commercial realities of the marketplace and the economic impact on the party being asked to consent. Reasonableness should not be confused with what may seem fair. It is also not necessary for the opposing party to have to prove that their refusal to consent was justified; only that it was reasonable under the circumstances. The onus will generally be placed on the dental tenant to prove that the landlord’s refusal to consent was unreasonable.
To that end, consent language can be quite problematic for a doctor planning to sell their practice, bring in associates, or even try to sublease some of their space to another dental practitioner, and here’s why:
- Loss of a Potential Buyer: What if the landlord excessively delays their consent of the assignment of your lease and the purchaser of your practice walks away?
- Rental Increases: What if the landlord requests a 30% increase in rent as a condition to grant their consent to assigning the lease?
- Request Denied: What if the landlord’s consent can be exercised in their “sole, absolute, and unfettered discretion”, and they simply deny your request for any reason, or no reason at all?
The Importance of Negotiating “Consent” in Your Dental Office Lease
Whenever landlord consent is required, it is sensible to ensure that their consent cannot be unreasonably withheld, conditioned, or delayed. This ensures that the landlord will act reasonably, while protecting you from excessive delays (delay beyond a reasonable time), or any other unreasonable conditions.
The standard of consent, similar to most other terms in an office lease agreement, is subject to negotiation. If the lease is silent as to the standard of consent being applied, in most jurisdictions, the common law standard will often apply which is that “such consent will not be unreasonably withheld”.
What Constitutes as “Reasonable”?
Let’s look at an example relevant to the practice of dentistry – the assignment of your dental office lease. When you contact your landlord to request an assignment, they will (usually) be held to a commercial-reasonableness standard. The factors to be considered include the following:
- The financial responsibility of the proposed new tenant;
- Whether the new tenant’s “use” (of the space) requires an alteration of the premises;
- The legality of the proposed “use”;
- The nature of the occupancy and the compatibility of the tenant’s “use” with the uses of other tenants in the center/building.
It’s important to note that a landlord’s personal taste, sensibility, or mere convenience are not sufficient reasons for withholding consent to an assignment or sublease.
Minimizing Landlord Interference: Lease Negotiation Best-Practices
To minimize the risk of landlord interference, here are a few best-practices to follow:
- Consider concerns regarding landlord consent at the outset of lease negotiations Thoroughly review your lease and negotiate the proper standard of consent for events which are important to your dental practice. It would also be smart to outline certain criteria which would be considered reasonable or unreasonable to grant or withhold consent, in an effort to minimize any disputes where landlord consent is required.
- When requesting consent, ensure that all communication with the landlord is in writing and that you have provided all the information available to make an informed decision. In the absence of such information, the landlord will be justified in withholding.
- Consider what remedies you, as the tenant, will have if you successfully challenge the refusal of landlord consent. Are you entitled to damages, or does the lease limit the remedies to merely reversing the landlord’s refusal? For example, if the landlord unreasonably refuses their consent to assign the lease to a potential buyer, and the buyer walks away, are you able to collect damages for lost profits?
Everything is Negotiable
As a dental tenant, your greatest bargaining power occurs when negotiating the first lease agreement for your new practice location. Every effort should be made to negotiate proper standards of consent into your lease agreement.
If you’re already in your desired clinic location you can attempt to negotiate these terms at lease renewal time. This will give you the opportunity to tackle these and other issues buried in the details of your lease, preparing you for future activities such as an office re-model, expansion or the eventual sale of my practice.
It is recommended to engage the services of professional dental office lease negotiators to ensure that your lease is thoroughly reviewed for risks, and to develop a lease negotiation strategy that will protect you and your practice in the future.
Author: Adam Porcelli, J.D., Lawyer and Lease Negotiator, Cirrus Consulting Group
Adam Porcelli, J.D., is an Associate Lawyer and Lease Negotiator at Cirrus Consulting Group, working on behalf of healthcare tenants across North America to review, draft, and negotiate the terms of their commercial lease agreements. Prior to joining Cirrus Consulting Group, Adam worked at a Toronto-based cross-border litigation law firm, and at Canada’s largest Intellectual Property law firm. Adam graduated from York University with an honours degree in Economics, and earned his legal degree in New York.