There will likely come a time when you feel cramped in your current office space. You may need to add staff, equipment, and space so you can accommodate your increasing patient load. You learned the space next door will soon be vacant.
This sounds perfect. You imagine adding operatories, so you can hire an associate or two. Maybe adding a conference room and/or a lunchroom is on your wish list. Perhaps expand for more dental hygienists. You may even want to add a dentist with a specialty practice.
You do not want to relocate to another geographical location, whether that is across the country or across town, so you explore the possibilities of expanding your dental practice to the office next door. Before you move to lease that space and begin construction, there are some things you need to think about and plan for.
Do you have good reasons for wanting to expand into the adjacent space or is it just an itch you have? According to Sharon K. Ward, a Pennsylvania economic development consultant writing for Entrepreneur, there are five main reasons businesses consider moving or expanding:
All these goals can be met by expanding into the adjacent office space. Even a better quality of life can be found without moving geographically. If you expand your space, you can hire more staff, including associate dentists.
Expanding will give you the space and staff to handle an increased patient load, which will decrease your costs and increase your cash flow, which can give you a better quality of life.
By expanding, you can decrease your costs and increase your cash flow by training your staff on how to be more productive. You can upgrade old equipment so that it is more efficient.
Business interruption. Whether you expand your practice or relocate, there will be a business interruption. Relocating is associated with a reduction in productivity for weeks. Although there will still be some interruption even if you expand into the adjacent space, it should be minimal. You should still be able to maintain your dental practice but on a lower scale.
Patients know where to find you. Your current patients will likely all stay with you and be enthusiastic about your expansion. They may not follow you to your new location even if it is nearby.
Expanding is less expensive than moving. Your rent using the expanded space will increase since you will now be leasing more square footage. This is still generally less expensive than moving the practice to a new, larger location.
No guarantees in relocation. You know the advantages and disadvantages of your current location. You know the demographics and potential for growth. A new location can be risky and not provide the benefits you are hoping for, sending you into regret over having moved. One expert has noted that some dentists move to find a more qualified workforce, only to find out that it is worse in the new location.
Upgrading equipment, training staff to be more efficient, and staying in the same building where you have established your practice may have far better benefits than moving to a new practice location.
Now that you have made the decision that expanding into the adjacent space is better for you than moving your office, one of the first things to do is to check your current lease contract to see if you have an expansion clause. There are several types of clauses that may apply. The most common ones are:
The Right of First Offer (ROFO). If a specific space in the building becomes available, usually the space next door to you, the floor above you, or the floor below you, becomes available, the owner must offer the space to you before putting it on the market or accepting any other offers to lease the space.
The owner is not required to rent the space to you, only make it available to you before putting it on the market. You still must negotiate lease terms and come to a new agreement. It is possible the landlord will ask for an above-market rent or a long lease that you do not want to sign. The landlord is legally entitled to do this.
Landlords generally will offer this adjacent space to a tenant even if there is no clause in the contract. Without the clause, landlords are not required to offer it to you. So, it is good protection for you to have such a clause in your original contract.
The Right of First Refusal (ROFR). This is similar to a ROFO, but it allows the landlord to market the specified space to other potential renters. When the landlord gets an offer, the landlord must then give you the chance to either match the offer or refuse to match it. If you refuse, of course, that means you have lost the space and will not be able to expand your office.
A “Must Take” clause. This is included when you know you want the adjacent space down the road but you are not quite ready to use it at the time you negotiate your original lease and do not want to pay the full square footage rate. The clause will likely have a minimum amount you pay at the time you agree on the Must Take clause, with a date certain for when you will begin paying rent on the entire space.
You may have been eyeballing the space for some time. Now that it is available, and you are serious about the expansion, here are some tips to make sure the expansion turns out to be all you are hoping for.
Get an accurate description of the space. There is more to renting space than just looking around and saying, “Okay fine. I’ll take it.” You need the landlord to provide you with an accurate legal description of the property. Included in that description should be any limitations the owner has placed on remodeling the space. You do not want to agree to lease a space only to find out you are not allowed to implement your design requirements.
Do your own measurements. Have your own architect or contractor measure the space to confirm the square footage. Since you are charged rent according to the square footage of the space, you want to be sure it is an accurate measurement.
Involve your designer. Before you sign the lease papers for the expansion, have your designer take measurements of the space to be sure it can be configured to meet the needs of your expansion. Consider the same design elements you did when you designed the space where your practice currently exists. Does it work for you? Are there changes that need to be made, or will you follow the original design and just make the necessary changes, like expanding the waiting room, adding additional space for staff, or adding operatories so you can hire associate dentists?
Prepare your staff. The expansion construction can be stressful for everyone. You will likely need to set up temporary workspaces and perhaps change the configuration of the current reception area. If your staff is prepared, and feel like they are a part of the plan and the process, the expansion process will go more smoothly.
Prepare yourself emotionally and financially for a decrease in income. No matter how efficiently the expansion is conducted, there will be some business interruption which translates into a decreased number of daily patients, which translates into reduced income. It is common to make up for the lost income in the few weeks after the completion of the expansion due to increased patient load and more efficient staff.
Prepare for the construction and remodel to go overtime and over budget. If neither of these things happens, you will be pleased. Be prepared for these contingencies just in case.
Hazardous materials indemnity clause. Confirm with the owner that there is no danger of hazardous materials contamination. You want assurance that the space has not been contaminated by a previous tenant. Landlords may be unaware that a previous tenant had hazardous materials there.
Just like you did with your original lease, you want an indemnification clause that will protect you if someone files a lawsuit based on the previous tenant’s contamination of the property.
You want the clause to say something like, “Tenant is not responsible for any pre-existing conditions or issues involving hazardous substances that were caused by others or previous tenants.” You need this clause to be as narrowly tailored as possible to provide you with the greatest protection.
ADA compliance requirements. It is likely the space next door is compliant with the Americans with Disabilities Act (ADA) if it had been leased by another business prior to it being vacated. You may think you know all there is to know about ADA compliance since you already have a compliant dental office and will just add features in the expanded space consistent with features you currently have.
You may even think you can just look around and decide for yourself whether the space is compliant. No matter how skilled you are in dentistry, do not take the risk. If you miss adding even one important feature, adding it later is always more expensive than it would have been to include it in the original plans.
Our professionals at Dental & Medical Counsel can assist you with all aspects of your expansion. We can introduce you to architects, contractors, designers, ADA compliance specialists, all of whom will help make certain that your design and specifications are all in place and that the space into which you want to expand will accommodate all your needs.
You will find Dental and Medical Counsel to be an excellent resource as you work through the building and planning process. Set up an appointment with our team today by calling: 925-999-8200 or clicking below. We offer a complimentary consultation with dental attorney Ali Oromchian.
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