Dr. P, a general dentist located in Woodland Hills, California, thought that he had it easy. In practice for many years in the same building, he figured that he would practice for a few more years and then ultimately transition his practice to a buyer. Unfortunately, best laid plans can sometimes go awry. In a month-to-month commercial lease situation, Dr. P.’s Landlord suddenly approached him with a new lease and advised him that he was required to sign the document as soon as possible, as this was a requirement from the Landlord’s lender.

Dr. P. was given an ultimatum by the Landlord (i.e. “sign this Lease soon or your space is going on the market”). Needless to say, Dr. P. was not in a good position. The new lease contained a number of substantial pitfalls:

  • short-term Lease with no options for Dr. P. or the purchaser of his practice to extend it
  • no protection for Dr. P. or his family in the event of his death or disability
  • an assignment provision that did not provide Dr. P. with any release of liability even after he sold his practice
  • a Landlord right to relocate Dr. P.’s office at a minimal cost to the Landlord
Dr. P. didn’t think he could sign it. The alternative of finding a new space and relocating his practice this late in his career was certainly not a palatable alternative. Caught between a rock and a hard place, Dr. P. made a decision which he felt would best serve his interests, which were to (a) maximize his ability to sell his practice; (b) minimize his risks of signing a problematic lease; and (c) not incur $300,000.00 in relocation expenses. He retained Cirrus Consulting Group to negotiate the Lease on his behalf. Time was of the essence and Dr. P. understood well through his many years of business experience that running a dental practice doesn’t provide one with much free time, and that working with a leasing expert would provide him with his only chance at obtaining a lease that he could live with.

The Dental Lease Negotiation

Upon outsourcing the negotiation, Dr. P. quickly realized that he made the right decision. An expert in his field, he understood that experience is a critical component of obtaining positive results. Cirrus Consulting Group’s lease negotiator was able to engage the Landlord’s representative and provide comfort that the mandate was to secure a fair and reasonable Lease for all parties in a timely manner. The Landlord, with a lender pressuring him to secure a new Lease with Dr. P., was appreciative of the fact that Cirrus was now involved. Cirrus was able to leverage the fact that the Landlord was under pressure to sign a Lease as soon as possible. Focusing on the critical risks within the Lease document, Cirrus was able to remedy many of these risks while ultimately finalizing a Lease with Dr. P.’s Landlord within a matter of weeks. Both parties were very satisfied that the Lease was signed in a timely manner. The doctor’s risks as a month-to-month commercial lease holder were successfully averted.

Dr. P’s Dental Office Lease Term Wins

Many critical wins were achieved for Dr. P., such as:

  • A well-structured Lease Assignment provision – Dr. P.’s Landlord must not unreasonably withhold consent to Dr. P.’s request to assign his Lease or sublease his office. Furthermore, consent now cannot be withheld by the Landlord even if Dr. P.’s prospective purchaser has a lower net worth, which is a likely scenario when an experienced long-term practitioner such as Dr. P. sells the practice. In addition, Dr. P’s liability following an assignment of his lease will now be limited, which is critically important following the sale of a dental practice.
  • The right to engage Associate practitioners – A lease clause providing Dr. P. with the right to engage associates within his office was negotiated into his new lease. The key component of this provision is that Dr. P. does not require the Landlord’s consent for such associate(s) to work within his office.
  • The Landlord’s right to relocate Dr. P.’s office has been removed – The relocation of a dental office in its own right would have been disruptive to Dr. P.’s practice. The fact that the Landlord would only have been obligated to pay for a portion of the substantial relocation cost would have been devastating.
  • Transferable Options to Extend the Term of the Lease were inserted – A short term Lease without any options to extend would have severely limited Dr. P.’s ability to sell his practice. With options terms (that have been made transferable to a buyer) inserted, Dr. P. has substantially enhanced his ability to eventually sell his practice.
  • The ability to terminate the Lease in the event of Dr. P.’s death or disability – Devastating situations can sometimes arise which can leave a dental practitioner or his or her family in a financially difficult situation. A Tenant death and disability Lease termination right (with simply a few months’ notice required to be provided to the Landlord) was negotiated into Dr. P.’s Lease so that he could have peace of mind that he and his family would be protected in the event of a catastrophic event occurring.

From a Month-to-Month Lease to Peace of Mind

Dr. P. now has a Lease in place which will allow him to sleep well at night with the knowledge that he and his practice are much better protected. Formerly a month-to-month lease Tenant, which is a precarious situation that could have resulted in him being forced to find and build out a new office in the late stages of his career, Dr. P. made the proper and timely decision to seek assistance with the negotiation of his Lease. Ultimately, outsourcing the negotiation of his Lease provided Dr. P. with more time to focus his energy on the continued growth of his practice.

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Cirrus Consulting Group has 25 years of experience supporting dentists through practice transitions and negotiating with landlords across North America. Consider hiring seasoned professionals to support you through the preparation stage of a sale, and to help you create and negotiate a properly structured lease agreement that fits your desired long-term business objectives.