There are a lot of things to consider when you start your own veterinary practice. One of the main decisions you'll make is in the property. Where will it be located? Will you buy or lease property for your practice? If you're leasing your practice space, you'll need a veterinary lease agreement. A commercial lease is drawn up to protect both the property owner and the leaseholder, but you do need to make sure that the terms of the lease are fair for your business concerns. There are things specific to a veterinary lease that need to be considered. You should also realize that terms can be negotiated.
You should familiarize yourself with all of the standard terms of a lease agreement so that you understand them fully before considering your veterinary lease. It's also optimal to have a lawyer who specializes in veterinary or commercial lease agreements go over your lease with you or on your behalf. A legal expert can discuss all the clauses in your veterinary lease with you so that you understand the agreement and to help secure the best terms.
There are some basic things you need to consider before signing a veterinary lease agreement. First, you need to make sure that the premises fit your business model for today and the future. The type of veterinary clinic and number of associates will be a deciding factor in the premises. If you plan to grow the practice in the next decade, it's important that you take that into consideration with spacing.
Most veterinary lease agreements are long term. It's standard to see these leases last 10 or 25 years, though a lease for a new practice may be as short as 5 years. When you're considering your practice needs, you should plan as far in advance as the terms of your lease. If you find a property that meets your needs for the foreseeable future, having a longer lease can be beneficial because it saves you the cost of renegotiating and renewing your lease more frequently.
Lease rates are not always as straight forward as you might think in a veterinary lease agreement. The base rent can be determined in a few ways. In some cases, it might be determined by the percentage of the revenue. This format can be complicated and you need to make sure that the terms are clearly defined to handle any disagreements. More often, the lease rates are based on square footage. However, you need to be especially diligent in a commercial lease agreement because the landlord will often include square footage that the tenant can't use, such as elevator space.
You can expect a typical contract to include annual rent increases. There may also be additional rent added to your agreement to cover property taxes. Most leases also include a deposit which might be anywhere from 1-3 months.
In some veterinary lease agreements, you need to maintain, repair, and replace your own HVAC, electric, and plumbing. For this reason, it's important to be very thorough in your inspection of the property. Not every landlord will give you an honest assessment of these aspects of the building, either because it doesn't benefit them or due to a lack of knowledge. Make sure to have the entire space inspected by a professional so you can budget for known problems. For instance, if you know the HVAC system is well outdated, you can plan to replace it at some point in the future and take it into consideration with your review of the property and lease agreement.
For veterinary practices where the entire building is part of the practice, it's common for the tenant to assume responsibility for the maintenance of these issues. If your practice leases space in a larger building, often the owner is responsible for electrical, heating, air, and plumbing. Make sure you're clear on what your responsibility will be before signing.
The veterinary lease agreement stipulates whether the tenant or landlord is responsible for general maintenance concerns. This might include landscaping, snow removal, cleaning, and general maintenance. For practices located inside a larger building, the landlord usually takes responsibility for the areas outside of the practice's actual office, such as hallways, elevators, stairways, and front foyers.
The lease will stipulate what improvements can be made by the tenant with or without permission from the landlord. This can be important in a veterinary lease agreement because often the practice will remain in the same location for many years. This might mean the need to add new exam rooms or add boarding facilities. In most agreements, the property owner will need to give permission before any remodeling or structural changes can be made. However, the remodeling costs are often paid by the practice. Make sure that you negotiate if you want to be able to remove and keep things that your practice purchased to enhance the space once the lease is over.
A veterinary practice needs to maintain general insurance that covers their equipment and liability insurance which covers them against accidents that might occur within the practice. In cases where the practice uses the entire building, the lease will stipulate that you maintain a policy that covers loss from fire. Some leases have clauses that stipulate that you need to pay for your insurance in advance. The lease may also stipulate that the practice has insurance that covers a set period of time if the business is closed (for instance, one year). These types of provisions protect your business, but they also protect the property owner's investment.
Assignment and subletting clauses are essential to the lease agreement. These might be overlooked in a new practice because the owners are not interested in retiring or making large changes. However, if you ever decide to sell the practice, it's important that these clauses are fair. Many leases include a clause granting the landlord consent rights in the assignment of a lease. This clause should be looked at carefully because granting the landlord too much control of this process can impede your ability to sell the practice or make business decisions surrounding the continuity of the practice.
Some leases include a post-sale clause. This clause would stipulate responsibility to the current tenant, even after they've sold the practice if something should go wrong with the future owners. For instance, if the new owners defaulted on the lease, you might be held legally liable to pay that balance. Another clause you should be concerned about is the consideration clause. This clause states that the landlord has the right to consideration in the final sale. In layman's terms, it means that the landlord is entitled to a certain percent of the sale price, often a high percentage.
The option to renew is important if you want to build a long-term relationship with this landlord and the location. The renewal clause should stipulate the length of time that both parties have to notify the other of their intent to renew or terminate. Pay close attention to this clause because many are written to become null and void if the practice is sold or subleased.
The veterinary lease stipulates how a lease can be terminated and the types of activity which can trigger an eviction notice. You should also note that in a typical agreement, the tenant is still liable for lease payments through the terms of the lease. In most contracts, the tenant is no longer obligated to pay if the premises are re-leased by the landlord.
In the event of a fire or other disaster which makes the practice unusable, the landlord often has a set period of time to fix damages and reopen the building. If the building can't be reopened within the specified period of time, you may be able to terminate the lease.
If you're currently considering a lease agreement for your veterinary practice, Dental & Medical Counsel can help.
We specialize in helping veterinary practices understand and adhere to the legal requirements involved in their business. You need a seasoned legal expert to help you design and negotiate the best lease agreement to provide protection for all parties. Contact us today to schedule a complimentary consultation with attorney Ali Oromchian.
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