If you are buying a dental practice in the St. Louis area or elsewhere, you will have to obtain a lease from the building owner AKA “the landlord.” Like any other group of people, some landlords will be nice and pleasant to work with – others will be stubborn and inefficient.
In our experience, the latter group has dominated.
So, what about the lease you will need? Here are several points to remember:
- Almost everything in the lease benefits the landlord
- Almost nothing in the lease will be negotiable
- There will be exceptions, especially if you are dealing with a seller/building owner or leasing a space from a local owner who has only a few properties. These landlords may be open to more negotiations than those with large properties and more tenants.
So, with respect to those landlords, what are some important aspects of most leases?
Term of Lease
In most cases, this may be negotiable. You will need to have a lease term that will satisfy your banker and, since it is very expensive to move a dental office, you will probably want long-term security in terms of the basic lease and options to renew.
Increases in Rent
How the rent will increase is important to you. There should be some formula that governs how and when the rent increases. Normally, it will be based on increases in the cost of living or some other objective index. Have your accountant or attorney review it for reasonableness.
Is the Lease NET or NET, NET or NET, NET, NET?
Will you be charged additional rent for taxes or taxes and insurance or taxes, insurance and maintenance? You need to know how much that is and when you will be asked to pay your portion.
Are any Utilities or Maintenance Included?
Some leases include water or other utilities paid by the building owner. You should know which ones.
What about the air conditioner/furnace? If you have a separate air conditioner and/or furnace in your unit, you will usually be required to maintain it, repair it and replace it when needed.
How Much Insurance do You Need to Maintain?
You will usually be required to maintain a certain amount of liability insurance on the premises. You need to know how much.
How Can You Terminate the Lease in the Event of Death or Disability?
Most leases will not include such a provision, but it is worth trying to get a clause that lets you out of the lease in those instances with the payment of some termination penalty.
Can You Assign the Lease if You Sell the Practice?
The lease should allow you to assign the lease with the approval of the landlord and such approval cannot be unreasonably withheld. This is very important and not always included, especially the italicized portion.
What Happens if the Building is Destroyed?
If the building is destroyed or damaged by fire or some other calamity, how long does the landlord have to rebuild it? This is not a common occurrence, but we’ve had it happen to a handful of clients over the years.
The problem is the lease often gives the landlord a relatively long time to decide to rebuild/repair the building – often 6 months. What are you supposed to do during that time-period? You can’t open a temporary office across the street like the insurance agent or attorney can. You need as short a decision period as possible and need to get business interruption insurance to protect you.
The point is that you should know what is in your lease before you sign it, and you should try to get some language or changes to the lease that will protect you.
We’ve been providing guidance on these issues for more than 40 years. Get ahold of us and let us help you buy or sell your dental practice.