Just as the dental office lease agreement is critical to a dental practice as a tenant, the lease agreement will be equally critical to your accounts when they own the building they practice in.
A properly structured dental office lease agreement between the practice and building is critical to maximizing the value of their practice and the property, and will offer the protection necessary to support the future growth of their business, and yours.
Why does the lease matter if they own the building?
Because building acquisition is expensive with certain liabilities that come with owning commercial real estate, your dental accounts will likely be advised to acquire the property through a different company than their dental practice. In other words, it’s not the dental practice that’s buying the building, therefore, there will be two separate companies: “Company A” (the building/landlord), and “Company B” (the practice/ tenant).
The dental office lease agreement will help separate the relationship and obligations between these two entities, and establish important details such as how much rent they should pay each month, and who will be responsible for paying for costly building repairs (operating costs) when they arise.
Selling the Dental Practice
For general dentists who own the building, the appraised value of the practice is still determined by three main components:
- The equipment,
- The goodwill (patients),
- The dental office lease agreement.
Without a lease in place with fair terms, your doctors will face challenges when the time comes to sell the dental practice. It’s important that the future buyer feel confident that the practice they’re acquiring has a healthy, long-term lease already in place fair and affordable terms that will support their success and provide them with the flexibility to run the practice and grow.
Leasing Items to Consider for Your Practice Sale
- Term & Options: The lease should provide sufficient term and “options to renew” that are available to both your doctor and future buyers. Often language in the lease is written to prevent future tenants from exercising their options after the lease is transferred from one tenant to another.
- Practice Assignment: The assignment language should support a smooth practice transition while providing protection to future buyers for their practice assignment.
- “Use” Provisions: Customize the “use” and “associate” language to provide the flexibility for tenants to bring in associate dentists and practice alternative forms of dentistry in the space, enabling them to maximize their business and compete in the marketplace.
Creating the Lease
Help your accounts secure both the future of their property and their dental practice by recommending Cirrus’ Arm’s Length Lease service. Our leasing experts create a custom lease for your doctors based on their goals and practice needs that will protect their assets, maximize practice value, and provide enough term and options for a smooth practice sale down the line.
We’ve also developed a “Guide to the Lease for a Smooth Dental Practice Acquisition”. This tool is designed to help your accounts safely transition into the new role of “owner dentist”. Get the guide, now.