Considerations for Your New (or Renewed) Dental/Medical Office Lease
Statistically speaking, your office lease is your second-highest dental or medical practice expense behind payroll. While the local leasing market will usually dictate the rental rates, there are plenty of other lease terms that deserve negotiation and may even result in lower effective rent.
First, it is important to understand the lease dynamics. At the thirty thousand foot level, the landlord and tenant relationship can be considered a quasi-partnership relationship. That is, the landlord provides the desired office space to the tenant, and the tenant provides the desired income stream to the landlord. The result is a mutually beneficial relationship that, like any relationship, requires some give-and-take between the parties to keep everyone content. Any good landlord understands this situation.
Many times (other than the purchase of the office itself), during the purchase of a practice an existing lease is either assigned or a new lease is drafted and presented to the practice buyer. In either instance, negotiation is possible. The lease presented by the landlord is usually drafted by an attorney and is intended to protect the landlord’s interests (not the new tenant’s interests – ignore any contrary advice). In return, the buyer needs an experienced attorney to protect their interests and suggest appropriate lease revisions. There is simply no such thing as a boiler plate lease that is non-negotiable.
It is important to utilize your attorney to start the negotiation process early so that the office space is secured under fair and reasonable terms. The process will start with a term sheet (similar to a letter of intent) and culminate in the lease document itself. Some important lease terms to be negotiated include: base rent and escalators; concessions such as tenant improvement allowance and/or free rent; length of term; option to extend term; restrictive covenant/exclusivity; right of first refusal to purchase the office; assignability; no personal guarantee; etc. Understand that each and every lease is unique and, as a result, each and every term is up for negotiation.
COFO provides dental & medical legal services throughout Northern California.