While finding a good new location is certainly important for a successful dental practice, securing a lease with beneficial and reasonable terms is just as critical. These five tips will help you land the kind of lease that will ensure a thriving practice.
1. Do Your Homework Before You Negotiate
Landlords like their new applicants to think that the lease comes from some faraway office of leases that produces standard forms that can never be altered or negotiated. This is a common myth, and landlords are the ones who benefit from this misconception. In truth, every item on a lease can be open for discussion if you have the stomach to initiate that discussion. (The landlord surely will not.)
A central part of fruitful "discussion" with a landlord is doing your homework before you try to negotiate. This means, for example, knowing how your rent is calculated. (See this breakdown of rent calculation to better educate yourself.)
Once you have a better grasp of how the rent is generally calculated in the real estate industry, don't be afraid to measure the space yourself and pretend you are a landlord coming up with your own calculation. Think like a landlord, in other words, and know the true worth of your space. This will ensure you don't come in flat-footed in your negotiation.
2. Make Sure You Cover the Basics
Outline the topics you want to cover before you initiate any negotiation with your landlord. Here are a few of the essentials:
- You should shoot for a lease term between 5 to 15 years, which would include options to renew. Begin with negotiating your base term, then ask for options to renew. These options should be able to keep you in that location until you retire, at least. Ideally, there should be options that keep the space beyond your retirement. This ensures that whoever ends up buying your practice can continue operating there. It's all about thinking long-term, in other words, and ensuring there are multiple renew options that make sense for your situation.
- Know Your Expenses Under Each Type of Lease: There are different major types of leases, so take care to review how your expenses would differ under each kind.
- Request an Exclusive Use Clause: If you request this clause and the landlord agrees to it, it would prevent the landlord from renting other spaces in your building to your competitors. This protects you from losing revenue if your landlord is ever tempted to turn your building into a hive of dental practices.
- Do Comparison Shopping: Don't go through the process with your head in the sand, in other words. Know the area. What are other dental office landlords asking for?
- Ask the Landlord to Sweeten the Deal: Don't be afraid to ask the landlord to include a provision that the landlord provide upgrades (i.e. "tenant improvements").
- The Benefit of Assigning: Because your lease can actually be an asset, you should ask for the right to assign it during the process of selling your practice, if you ever decide to do that.
3. Begin the Research Process Months in Advance (If Possible)
Don't procrastinate. While that is a simple rule that applies to everything, it especially applies to this process if you want to obtain a good lease. Starting several months in advance, if you can, means you have all the time you need to research, go through (and prepare for) the back-and-forth communications of negotiation once the application process begins, and check out other sites and speak to their landlords. We recommend using experienced commercial brokers that specialize in health care such as CARR Healthcare Realty to assist you in finding an ideal location or negotiating with the landlord.
4. Ask Good Questions About the Landlord
Don't be afraid to dig a little into the history of how they treat their tenants. How often do they increase a tenant's rent each year on average? What is the average percent of increase? If you see the landlord has a habit of raising the rent often and at unreasonably high percentages, you will want to address that in the negotiation or look elsewhere.
When trying to sense what is too high of an increase, think of it long-term. While 4 percent might not seem drastic, if they're increasing it 4 percent every year, that is a 20 percent increase over five years. How will your budget look in five years when the rent is 20 percent higher?
Another good rent question: does the landlord offer a grace period for payments? While you're not planning on being late with any payments, sometimes odd things happen. Checks get misplaced by office workers or lost in the mail. Is there a grace period or does the landlord charge a late fee or terminate the lease? Know what you're getting into when worst case scenarios and something goes awry with a check.
5. The Option to Buy
Another important question to ask: will the landlord give you the option to buy if they decide to sell the property? If so, does the lease establish a predetermined price (or a mechanism to determine the price) if the option to buy is presented? Get a sense of where the landlord is with this so you know how it will affect you if they ever decide to sell.
Bottom-Line: Be Diligent in Research, Bold in Negotiation
While it's impossible to predict how each landlord will respond to negotiation, it's worth the effort to attempt to discuss any and all terms on your lease that you wish to change. Just make sure you're diligent about doing your homework beforehand and that you're not afraid to be polite but bold and tactful but aggressive when you finally sit down with a landlord.