Dental and Medical Counsel Blog

Timing Is Everything: When to Start Planning Your Dental Lease Renewal

November 21, 2020
Renegotiate Rent

We've talked at length about negotiating a dental lease but for those of you already in a lease, have you thought about the renewal process yet? 

As you know, your lease is an important aspect of your practice. It's a large portion of your overhead and one of the largest liabilities you’ll have in your practice. Your lease also locks you in to your location. This can't be understated at all since the cost of moving and rebuilding an office is expensive. From the number of patients that you can comfortably accommodate to your access to patients in that neighborhood; all of these factors dictate how much you can grow your practice and scale up to include new dentists and services.

If you've had a successful run in your location and are happy with the rental space, it makes sense to want to renew. However, if your practice hasn't been as successful as you had hoped or you've seen a decline in patients, moving to a new location might be a better idea. These are decisions you should make well in advance. As we indicated when we talked about negotiating a lease, you'll want time to research.

When you already have an existing lease, you need to make sure that you understand all of the clauses for renewal. You need to weigh what the benefits might be for moving your practice and what the benefits of staying in your current location are. You'll also want to have a clear budget in mind for your lease renewal if you're interested in staying.

Remember, this is a negotiation. Often in lease agreements, tenants believe it's a take it or leave it situation. That's not necessarily true. There should always be some room for negotiation. If you're a good tenant, it's in the landlord's best interest to keep you committed to their property. Having a dependable tenant saves them the cost and time of finding a new tenant. You're also a known risk. There's always the chance a new business may not survive in the same location.

When to Start Planning Your Lease Renewal

In general, you need to start planning your renewal early. A good guideline is 18 - 24 months prior to the end of your lease. Most leases are five to ten years. This can be easy to lose track of in that lengthy time frame. You should look at your lease and set a firm date on the calendar that reminds you to start your research process. There can be many things to consider in a renewal.

If your current landlord doesn't provide you with favorable enough terms to make renewal a good idea for your practice, you'll need time to make alternate plans. If you do decide to move, you may need to secure a new rental space, opt to purchase, or build a practice. All of these projects take time. You'll also need to deal with the administrative tasks of moving.

You should carefully assess your practice and review your business plan before finalizing this decision. Consider how you want to scale the practice in the next decade. Does the current location allow for the growth you envision?

You may also want to look further than your own rental space in that particular location. If there are adjacent storefronts or rental spaces, you might consider adding a clause to allow you the first option to lease those spaces if they become vacant. 

Another thing you need to consider is the possibility of selling the practice within the time frame of your next lease. This may not be a consideration if you're early in your career. The lease may be for a term of ten or fifteen years, in which case, you'll want to look forward to that possibility. You may not even be considering retiring. What if you want to move? Do you have the right to assign or sublet the lease in your current agreement? If not, it should be something you consider in the renewal.

Clauses You Should Consider in Your Renewal

If staying in your current location is the best decision for your practice, you want to consider the terms that will make this agreement most beneficial for you. You should also be aware that your landlord might consider changing the terms for renewal. If the landlord believes your practice is very successful, they may well want to increase your rent. This is fairly common because the landlord knows that a successful practice won't want to move. Moving may cost you patients and it may not be easy to find a new space that will accommodate all of your needs.

This is something you should consider carefully. There will also be room for negotiation on these things and you should have your fair price range in mind. You can also talk to other tenants who have renewed recently to see how the process went for them. Many tenants don't realize that they can ask for incentives in their renewal. Landlords generally want to keep good tenants that pay on time and keep up the property. You may be able to negotiate a rental reduction, especially if other tenants are paying a lower rental amount or the market has changed.

Here are some clauses you should carefully consider for your renewal contract:

  • Right of First Refusal. This clause means that the landlord can't sell the building to another party without first offering the tenant the option to purchase. This can be an excellent clause if you intend to stay in the location long-term.
  • Time Frame. The length of the lease is something to carefully consider on renewal. Depending on your plans for the future, you may want a shorter lease to accommodate your retirement goals.
  • Exclusivity Clauses. For a dental practice or any business, an exclusivity clause can help protect your business from competition. This clause states that the building owner can't rent to other dentists in that location. 
  • Death and Disability. If you operate a solo practice, you might want to add a death and disability clause, so that your family is not liable for rent through the term of the lease if something were to happen that prevents you from continuing to work. This should be considered carefully as it not always to your benefit to have one of these clauses. For further reading on this clause, read our blog.

Are You Planning Your Dental Lease Renewal?

If you're currently considering your dental lease renewal, it's important to consult with an attorney who specializes in leasing and business considerations for those in the dental field. At Dental & Medical Counsel, Ali Oromchian and our team of dental attorneys have a wealth of experience in helping practices just like yours negotiate the best lease agreements to help their practices thrive.

Contact Dental & Medical Counsel to discuss your dental lease renewal. 

If you'd like more information about leasing clauses or any other scenarios that negatively impact your commercial lease, download our whitepaper, The Top 10 Pitfalls to Avoid with Your Dental Lease


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