Your dental or medical office lease is one of the most important business agreements you will negotiate during your career. Poorly negotiated leases can make it difficult for you to sell your practice, ding you for hundreds of thousands in “key money” if you move, and leave you responsible for paying office rent after you retire.

This probably applies to you. Well over 90 per cent of health care professionals rent office space and nearly 100 per cent of those who rent are fully aware of only one thing about their lease — the monthly rental fee.

The good news is that everything is negotiable. With professional help in negotiations, you can reduce and even eliminate the problems and pitfalls in your office lease, keeping your options open for your own professional future. But don’t wait until the last minute; start your negotiations two or three years before your current lease expires.

In those negotiations, you need a strategy to deal with the tactics that landlords and their attorneys customarily use to get you to sign a lease that favors them. Their goal is usually to get you to sign a lease that has moderate monthly rewards for them for a few years along with a jackpot they will collect if you decide to move or retire.

There is no such thing as a tooth fairy or a "standard" lease

Part of a landlord’s strategy can involve lulling you into believing that you are signing a “standard” lease. In fact, many leases have the words “STANDARD LEASE” at the top of the first page as an invitation for you to believe that some higher authority has already reviewed and vetted the lease for fairness.

Do not believe it. There is nothing “standard” about lease documents. Even tenants in the same building and on the same floor are likely committed to different lease documents.

Landlords present you with lengthy and difficult-to-interpret leases for a good reason. And it’s not because they like spending money on their attorneys. For landlords, lease documents are the equivalent of your dental chairs – it’s where they make ALL their money.

Another common tactic used by landlords is delaying re-negotiation of leases. With time running out, they encourage medical and dental tenants to focus on the issue of rent. It is not really a negotiation. About 85 per cent of the time, landlords can predict what the rent will be before they start negotiating. Focusing on rents is a diversionary tactic. It is intended to prevent you from dealing with other key issues hidden in the lease.

Starting 15 months in advance of our lease expiration was a key to an acceptable outcome and we were magnificently coached along the process to attive at an excellent outcome.

Pacific Pain Treatment Center — San Francisco, CA

Those key issues include assignment provisions, options to renew or extend, and the assumption of undefined personal financial obligations for the term of the lease.

Are you free to hand your lease over to a health care specialist who has bought your practice?

You want to be free to assign your tenant lease to a dentist or doctor who has bought your practice. Assignment provisions are a part of every lease. For all intents and purposes, this is the component of your lease that will determine your ability to sell your practice.

In the final months of their careers, many professionals have been shocked to discover, when they ask their landlord to assign the lease to a prospective buyer, that the request has triggered an automatic termination of the lease.

In other words, just for requesting permission to transfer the business, and the lease, to a new medical or dental specialist, the landlord has the right and ability to terminate the agreement on 30 days notice!

Stop and think about it. You have sold your practice subject to a transfer of the lease, you advise the landlord of your intent to sell and boom! The bomb goes off.

Your landlord has threatened termination unless you pay him what in landlord’s circles is commonly known as “key money.” It can potentially cost you hundreds of thousands of dollars to settle. If you choose not to pay out of principle, you could impede your ability to sell your practice and might have to relocate your business in your final working days.

Wondering if your lease might have a troublesome clause like that? Over 50 per cent of dental and medical leases signed today include some type of landlord “recapture or termination” right on Assignment.

Can your landlord cancel your lease if you mention retirement?

Another important component of your tenant lease that will affect your ability to sell your practice is the Option to Renew or Extend provision. Renewal and extension provisions are valuable. They give you the ability to extend your lease and your tenancy for specified periods of time, at your sole discretion, without any interference from the landlord. So long as you are not in default, you would have extended rights to the premises whether the landlord is in favor or not.

This is a provision you want to be able to pass on to the dentist who takes over your practice if you sell or retire. Most prospective purchasers look for long term stability in the practices they are looking to buy so that they have the right to continue to operate the business in that same premises well into the future. Prospective purchasers do not want to have to relocate and rebuild the business after they buy.

While many leases have term extension provisions, they are commonly only exercisable by the original tenant. The new owner (after assignment) will not be able to extend the lease. Without any automatic right to extend at their sole discretion new owners of your practice will quickly find themselves dealing with the landlord. This tends to lower the overall value of the business. For most risk adverse purchasers, this will be too much to bear and they will simply move on to look at other less uncertain acquisitions.

Will you have to pay office rent after retirement?

Another significant issue you need to consider on the sale of your practice is that you will most likely remain liable for the payment of rent by the new owner. Most dentists and doctors tend to sign their leases either personally or in their professional corporations.

As the original tenant stays on the hook as a matter of law, the landlord has to only look to you, the original tenant and all your personal assets in the event of a non-payment of rent by the new owner.

This is a sizable burden. It includes all the monthly rent that a new lease owner could default on for the remainder of the lease. If you are also agreeing to pay the landlord’s legal costs in disputes, you can add those costs to your total financial exposure.

What can you do about this?

You are not powerless in this situation. When it comes to leases, everything is negotiable. Health care specialists who recognize that hidden bombs with long fuses that are often tucked away in the details of a lease can take steps to protect themselves.

There are consultants specializing in negotiating leases for dentists and doctors. They will evaluate your lease and identify the parts of the lease that might impede your ability to sell your practice or go smoothly into retirement, and negotiate a new lease that is more advantageous to you.

Timing is crucial. Health care tenants with leases expiring within two to three years should be developing a negotiating strategy designed to get a lease renewal that leaves them free to make career choices without paying penalties to the landlord.

Your lease document is one of the most important agreements you will ever enter into during your career. If your lease contains hidden bombs that will go off when you retire or sell your practice, it’s to your advantage to stamp out the slowly burning fuses well ahead of time.