Whether to lease or buy depends on your particular goals and circumstances. Many dentists choose to lease their space, for a variety of reasons, but they require careful considerations before signing a lease agreement. For example, you may need to consider and negotiate:
- Renewal Options. Renewal clauses determine whether you can stay in the space beyond the initial lease term—which can be important to maintaining your client base. There will typically be a window during which you have to exercise the renewal (typically between six and twelve months before the lease expires, but this can vary).
- Tenant Improvement Allowance. In many cases, landlords will offer an allowance to build out an office to make it suit your specific needs. However, in order to get this allowance, you may have to follow certain steps (such as obtaining lien waivers from contractors and permits from the city), which you’ll want to know about up front. Other important topics include whether you’ll be able to use your own contractor or the landlord’s, the timeline for completing the work, and how the allowance will be repaid.
- Signage. Making sure your patients can find you can be key in building a successful practice. You’ll want to make sure that your lease allows you sufficient signage so that new and existing patients can easily locate your office. If the building has monument signage, you should check the lease to make sure you can put your business name on it.
- HVAC. Your lease should outline who is responsible for maintaining and, if need be, replacing the HVAC system. It’s common for landlords to require the tenant to perform regular maintenance on the HVAC system using a licensed contractor. In some instances, landlords may agree to cover some or all of the cost if the system needs to be replaced, or they may be willing to pay the upfront cost of the HVAC system and have you repay it over time as part of the operating expenses.
The type of lease will also be an important factor. For example, whether the lease is a triple net lease or not is significant, as this type of lease allows the landlord to pass the costs of property ownership onto the tenant. Three categories of expenses that often get shifted onto tenants include: (1) property taxes; (2) insurance; and (3) maintenance—such as common area maintenance (CAM) expenses.
Alternatively, in a true gross lease, all of the expenses are included as part of the rental rate. There are also single net leases, and double net leases. Some leases will have “expense stop” provisions where the landlord will pay for expenses up to a certain ceiling. Others will cap the increases in the triple net charges to a certain percent increase, year over year. In some instances, some, but not all, expenses will be capped through so-called “controllable operating expense” provisions.
As you can see, there can be significant differences in leases offered to dentists. As such, it is important to read and understand what you are signing up for, and negotiate changes if it does not meet your expectations.
