Leasing the right space for your dental practice is essential in building your ideal practice. Here are key elements of your dental lease you shouldn’t ignore. The right to sublease is an important part of a lease that is often forgotten. The ability to sublease might be a useful tool in the event you need to adjust your real estate strategy unexpectedly.
Renters often confuse two popular ways to get more flexibility in your lease; Sublet and Assignment. Although they are similar, these terms are two different ways to shift the responsibilities of your lease.
When you sublet the space, you rent to someone else. You retain primary liability for the lease payments and are still directly responsible for any missed payments by the sublessee. When you assign your lease to someone else you become a guarantor of the lease and release primary responsibility to the new tenant. Even though you release primary responsibility to the new tenant, your guarantor position still holds you liable in the event that the tenant defaults on any lease terms.
Tenant Improvements & ADA Compliance
Tenant improvements are a common part of lease negotiation used for additions the tenant may make to the space during the lease term. One of the biggest mistakes one can make regarding tenant improvements is failing to ask for a cash allowance upfront instead of reimbursements.
Even if you don’t plan to make any additions to the space, sometimes unprecedented additions will need to be made. For instance, both you and the landlord are responsible for making sure the space is ADA (Americans with Disabilities Act) compliant and should work together to bring the space up-to-date if it is not already. Making a property ADA-compliant can be costly and should be a part of the tenant improvement allowance. You should always ensure that you negotiate tenant improvements and remove any tenant improvement removal provisions. This will save you money on the backend.
Option to Renew
The option to renew and a relocation clause are two of the most important sections of a lease agreement for a practice owner. Once you’ve built your presence and patient base in your ideal location, you’ll want to ensure you can stay as long as possible.
An option to renew is critical to ensure this. Relocation clauses grant landlords the ability to relocate your practice as long as the new space is reasonably similar to your current space.
A location change like this one can negatively impact your relationship with your current patients. While you negotiate your ability to secure your location you should also include an exclusivity clause.
This is important because without it there is nothing you can do about competition in the same building as you. You should aim to avoid any direct competition as best you can, especially competition in the same building or complex.
There are certain pitfalls that all business owners encounter repeatedly when negotiating the lease or purchase of commercial real estate—tenant improvements, the Americans with Disabilities Act, taxes, renewal options, exclusivity, tenant relocation, property recapture, hazardous substances, and HVAC issues.
An experienced attorney can help you avoid these potential pitfalls before you sign your lease. Negotiating a commercial lease without the help of an attorney can put your practice at risk unnecessarily. The best way to protect your practice is to allow an experienced attorney to help you negotiate your commercial lease.
Frequently Asked Questions
Q: What is the difference between subletting and assigning a lease?
A: Subletting and assigning a lease are two different ways to shift the responsibilities of your lease. When you sublet the space, you rent it to someone else while retaining primary liability for lease payments. In contrast, assigning the lease means transferring primary responsibility to a new tenant, though you may still be liable if the new tenant defaults on lease terms.
Q: Why is negotiating tenant improvements important?
A: Tenant improvements allow you to make additions to the leased space. It's crucial to negotiate tenant improvements upfront, ensuring you ask for a cash allowance instead of reimbursements. This way, unexpected additions, such as making the space ADA compliant, can be accounted for in the tenant improvement allowance, saving you money in the long run.
Q: Why should I consider the option to renew in my lease agreement?
A: The option to renew is vital for practice owners who have established their presence and patient base in an ideal location. It allows you to extend your lease term and maintain your practice's continuity. Without an option to renew, the landlord may have the power to relocate your practice, potentially disrupting your patient relationships.
Q: Is legal representation necessary when negotiating a commercial lease?
A4: Yes, seeking legal representation is highly recommended when negotiating a commercial lease. An experienced attorney can help you navigate potential pitfalls, such as tenant improvements, ADA compliance, renewal options, exclusivity clauses, and other legal aspects. Their expertise can protect your practice from unnecessary risks and ensure your lease agreement is in your best interest.
Q: How can I avoid direct competition in the same building or complex?
A: Including an exclusivity clause in your lease agreement is important to avoid direct competition. An exclusivity clause prevents the landlord from leasing space to another dental practice or a business that directly competes with your services, helping you maintain a competitive advantage and protect your patient base.
Please note that the answers provided above are for general informational purposes and may vary depending on specific lease agreements and legal jurisdictions. It is advisable to consult with a qualified attorney for personalized advice related to your unique circumstances.
At Dental & Medical Counsel, PC, we understand navigating the legal process can be tricky. We believe every doctor deserves the best advice and service so doctors can do what they do best, treat their patients. We make their lives easier by providing expert guidance, so they can focus on their personal and professional aspirations.
About Ali Oromchian, Esq.
In addition to practicing law for almost 20 years, Ali is also a renowned speaker, throughout North America, on topics such as practice transitions, employment law, negotiation strategies, estate planning, and more! Ali has helped hundreds of optometrists realize their professional goals and looks forward to aiding you in navigating the legal landscape.
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