How to Negotiate the Best Dental Office Lease?
Are you planning to start your own dental practice? You will be needing a premise for your clinic. Such a major step requires careful consideration prior to negotiating a dental office lease.
There are a few types of tenancy to consider, imposing different terms and clauses on lessees. The research process should commence months in advance, as you should do your homework before the start of negotiations. Real estate brokers and attorneys can be of assistance in making sure you’re making the right decision.
Real estate dental experts can help dentists find a dental office for lease by representing their interests.
The following tips might facilitate the process.
Consider the type of tenancy
Prior to starting a dental practice, dentists are required to consider the different types of tenancy offered by landlords. For instance, a gross or full-service lease covers virtually all expenses related to the leased space, such as base rent, insurance, maintenance, janitorial services, and taxes. The base rent of gross tenancy is higher but consistent, allowing dentists to plan their budgets. To avoid unexpected expenses, lessees are advised to review the leasehold with an attorney.
Another type of dental office lease to consider is the triple net (NNN) tenancy. It obliges dentists to pay the rent amount monthly, which is lower than the amount required by the gross variant. Besides rent, tenants are expected to pay for their share of building maintenance costs, including parking, elevator, lobby, and storage, along with property taxes and storage.
Moreover, dentists are highly recommended to review the NNN lease with a professional to negotiate caps on the sum on an annual basis and exclude some shared expenses that pass down to the lessee, like common area maintenance costs. The base rent tends to be lower, as the tenant agrees to cover the ongoing expenses, which would otherwise be covered by the landlord. Click here to gain a better understanding of the triple net lease.
Another option for dentists to consider is an assignment of a lease, which isn’t a typical type of tenancy. When dentists retire and sell their practices, they usually assign the new tenant the existing tenancy. In contrast, prospective lessees are interested in negotiating a new leasehold with the lessor. Once the landlord provides approval, a lease assignment can be signed.
Consider the length of tenancy
Another aspect worth considering before the negotiation is the length of tenancy. Prior to discussing terms with potential landlords, dentists are supposed to confirm the term length with their lenders. The largest part of lenders requires tenants to agree to a ten-year term to be approved for a start-up loan.
Furthermore, longer terms benefit lessees by locking in the space’s rental value at the time of taking out the loan. Nevertheless, due to the dips in the real estate market, dentists might end up paying a higher rent for a prolonged period. Therefore, most of them look for an initial term of five years with an option for renewal.
Near the end of the inceptive term, the tenant and the landlord renegotiate the rent amount for the upcoming period, provided the dentist decides to continue leasing the practice. Shorter terms provide dentists with the flexibility to stop leasing the space and relocate. If their intention is to keep leasing the space, they can renegotiate the rent, provided the situation in the market has changed in the meantime.
Pay attention to specific clauses and terms
Prior to entering the real estate market, dentists are supposed to consider several important clauses of commercial lease agreements, such as the option to renew clause, which we just finished discussing. Another essential clause is the assignment clause, enabling the lessee to assign the tenancy to a new tenant in case of a sale. See this link, https://www.thebalance.com/what-is-an-assignor-5200505, for an explanation of the role of an assignor.
In addition, the assignment clause is of great importance to dentists planning to flip practices and those nearing retirement. The personal guarantee is another important term to look for in the agreement. This clause makes the lessee personally responsible for defaulting rent payments under the leasehold. It might be structured in a way to be removed after a certain period, be limited in amount, or be reduced by providing positive financial statements.
There are other important clauses and terms for potential tenants to look for, such as the option to buy the real estate, the hazardous waste clause, the HIPPA clause, the parking space clause, etc. Make sure to consult a real estate broker to negotiate the most crucial points on your behalf. Also, a consultation with an attorney is necessary for the review and editing of the document before finalization.
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