Dental and Medical Counsel Blog

Tips for Negotiating an Optometry Lease

March 24, 2021
Optometry Leases

As an optometrist, your lease may be the largest investment that you incur for your practice. Unlike residential leases, commercial leases often span several years. That means that signing one document can force you into committing to its terms for a very long time, sometimes ten years or more. As a result, you must take the time to negotiate favorable terms and fully understand the provisions in your lease.

An experienced optometry attorney will help you draft and negotiate the terms, as they will have a good idea of general terms you should include. But your attorney cannot know what is essential to your unique practice. Instead, you need to spend some time deciding which terms are important to you and your business's long-term health.

You can use the following tips and information to start thinking about which aspects of your lease are critical for you. The negotiation process is sometimes informal to start with, so you can use these pointers to help you get the conversation started.

Starting Your Practice: Negotiating Concessions in Your Optometry Lease

A lease concession is a reduction in the rental price or some other benefit. It is commonly requested when you are just starting a practice in that location or when you want to remodel or make other improvements. There are a few concessions that you may want to consider adding to your optometry lease.

Free Rent for Move-ins and Remodeling

As you build out your practice, it can take several months to get patients in the door. It can take even longer to process payments from those patients and get some real dollars in your bank account. As a result, you may want to consider a lease concession that allows you to delay starting lease payments for a few months after you actually take possession of the property.

It is important to note that the customary practice for optometry practices is that the landlord will provide a free rental period as a way to reduce overhead expenditures while making improvements on the space. This timeframe is generally around six-to-nine months in most circumstances. Another four-to-six-month period of free rent while you open is common, too.

Buildout Allowances

If you know that you will be updating the space, you may want to consider requesting a "buildout allowance", also known as a tenant improvement allowance from your landlord. This type of concession allows you to submit certain improvements for reimbursement or enables you to offset any amount due for monthly rent up to a specific limit. One concession to negotiate includes payment by the landlord for a portion or all improvements which tend to be quoted as a fixed dollar amount per square foot.

"Step-Up" Lease

As you start out, you may not make the same kind of money you would a few years from now. As a result, it might also make sense to create a "step-up" lease, which involves an increase in the rental rate as time goes on. For some businesses, that rate increase could occur in just a few months. For other practices, it might make sense to increase the rate further down the road.

The benefit of this type of lease is that you can get a lower rate upfront than the landlord might be willing to use at the outset of the lease. However, the ending amount of the lease might also be higher than you want as well, so careful negotiation is necessary to incorporate this type of provision in your optometry lease.

Negotiating Hot-Button Terms and Renewal

Some of the most contentious issues deal with the following terms. Therefore, you should pay careful attention to these terms, understand the proposal, and propose counter terms if necessary.

  • Automatic increases. Some leases include an automatic increase in the rental amount due each year. These are often expressed as a percentage, but not always. Review these as you would a step-up lease. For example, does a 3% increase over time make sense for your business model?
  • Assigning or subletting. In some situations, you may want to rent out part of the location or lease the location and rent it to someone else when you are ready to leave. Many leases will set out that you cannot assign or sublet, or, if you do, you must get permission and certain terms will apply. Consider the long-term here—could there be reasons where you might need to assign or sublet? Having flexibility in your lease at the outset will be helpful in the future.
  • Maintenance provisions. Be sure you are clear on who does what in terms of maintenance and upkeep of the building. Many commercial leases involve the tenant providing the maintenance, but not always. Read these terms carefully and make arrangements to comply.
  • Warning before evictions. Sometimes you may not realize that you have violated the lease terms until an eviction process starts. Adding in some kind of warning requirement or notification of default to your lease will help you address problems before they turn into litigation in many situations.
  • Leasehold improvements. If you want to be able to make improvements at the property, you need to build in provisions to address that possibility. Even if you do not want to make improvements right away, having the ability to at least talk with the landlord about the possibility can go a long way.

Negotiate to Win

Although you may have a good relationship with your landlord, it is important to remember that the landlord has their best interests in mind—not yours. Most landlords are not looking for a "win-win" lease, and you should not have that goal either. You might be able to make certain concessions on what you want, but those concessions should be in exchange for something else. Do not count on the landlord to give you what your practice deserves.

Keep in mind that landlords set the rent amount based on what they need to pay the mortgage and manage the property. They add a little on top of that so they can make a profit in most circumstances. That means that the rental price they suggest is without regard to what the property is really worth as a rental or how much income you make in your practice.

Don't Make Your Intentions Obvious or Give Signals

Keep in mind that negotiating a contract is a business transaction. Do not let your emotions get in the way of what you are trying to accomplish. Showing frustration, anger, and excitement about terms or prices can completely change the dynamic of the negotiation. Even something as simple as indicating that you intend to renew the lease can shift how the conversation unfolds.

You also should avoid showing all of your cards when it comes to setting out exactly what you want from the lease. For example, telling your new landlord what you were paying at your old location can signal what you are willing to pay, even if you were trying to get a lower price at this location.

Negotiate All Lease Terms at Once

Some commercial tenants make the mistake of negotiating the "main" points at a different time compared to all of the more minor details. For example, you may have the price per square feet nailed down, but you have not discussed a build-out concession yet. By negotiating piece-meal, you lock yourself into a lease term that does not consider the rest of the terms.

For example, perhaps you would have asked for a lower rental price if you had known that the landlord was not going to provide landscaping as you assumed.

Keep in mind that all of the terms in your lease are connected. They all depend on one another, and any one of them can make or break a negotiation.

Consider Protecting Yourself by Incorporating

If you have not already incorporated or created another business structure for your optometry practice, you should take steps to do that before entering a lease agreement. By incorporating, you limit liability for the business to just the business assets, rather than risking your personal assets.

If you put your name on the lease, you become legally responsible for continuing to pay the rent even if your business fails. By placing your business entity on the lease, you essentially stop the liability when your business runs out of assets.

Getting Help with Your Optometry Lease

If you would like help negotiating your optometry lease or you need assistance incorporating your practice, Dental Medical Counsel can help. Contact us today for more information or to set up a complimentary consultation with attorney Ali Oromchian.

Need Help with Your Lease? Contact Us Today for a Complimentary Consultation!


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