Death and disability clauses are sometimes added to commercial lease agreements, but careful consideration should be paid as to whether they are a good idea in your situation. On the face of it, these clauses provide protection to the tenant as detailed below and could be beneficial in careers where there is a high risk of injury from disability or otherwise. But these clauses are not perfect for every situation and so we are going to take a look at the pros and cons of these clauses to help you better understand your options about whether to push for these in your leases.
What Is a Death and Disability Clause?
Before discussing the pros and cons, defining the term is important. A death and disability clause allows a tenant to step away from their commercial lease, even if the lease's terms are not up, if the main practitioner dies or becomes disabled and cannot work. This is a common clause considered for medical and dental practices that have one lead provider.
Pros of a Death and Disability Clause
Some of the pros of a death and disability clause include:
- They provide important protection for a sole provider practice. Many small practices have just one or two doctors on staff. If that provider cannot see or treat patients, the practice cannot make money. The death and disability clause protects the practice from costly rent in this scenario.
- The protective language in a death and disability clause is essential in a business where a practitioner is the main source of income. Without this, should the critical person no longer be able to work, the practice remains bound by the terms of the lease, including, the demand that they continue to pay rent. Those terms remain in effect as long as the practice remains a legal entity, even if it is not operating and earning income. The landlord can legally strip the practice of important assets, even while the practice is trying to figure out how to move forward after their loss.
- Death and disability clauses give the doctor or the doctor's estate a way out of a commercial lease. These clauses are unique to each lease, but they tend to follow one of two options. They may allow a disabled doctor or the estate of a doctor who has died the chance to sell the practice and assign the lease agreement to the buyer. This protects the landlord while also providing the doctor a way out. They may allow the practice or doctor to simply walk away without being found guilty of a breach of contract. This is riskier for the landlord.
Cons of Death and Disability Clauses
Like most terms in a lease agreement, a death and disability clause is not perfect. Some of the cons include:
- They are not popular with landlords. Landlords are less likely to benefit from these clauses if the tenant needs to use the terms in them, so they are less likely to agree to them. Furthermore, pushing for death and disability clauses may hurt the landlord/tenant relationship or antagonize the landlord during negotiations. Having a good relationship with a commercial landlord is helpful to a business. Because landlords do not like these clauses, when a practice pushes for one, it can hurt the relationship between the landlord and the tenant. During negotiations, it can make the landlord less willing to concede in other areas.
- These clauses require a large buyout. If the tenant is successful in negotiating a death and disability clause, the landlord is likely to still require a significant buyout of months or even a year or more worth of rent. This will amount to many thousands of dollars of expense payable in a lump sum at the time of cancellation of the lease.
- They decrease a practice's value. A practice's value will diminish if the lease is terminated with one of these clauses. The better approach would be to sell the practice and have the lease transfer to the buyer. This also avoids any liability issues with the patients of the practice.
Commercial leases are complex and legally binding documents. Negotiating the proper terms requires negotiating skill and knowledge of the lease terms. A practice must weigh the pros and cons of all options, including death and disability clauses, to negotiate well and receive fair terms. Working with a skilled professional can help your practice get fair terms and proper protections. Contact the leasing experts at Dental & Medical Counsel if you have questions about your lease or need assistance with reviewing or negotiating lease terms.