After staffing, the highest expense in a healthcare professional's practice is usually the costs associated with their tenant lease. Property owners and managers strive to increase their properties’ value by increasing rent over time and enforcing lease agreements at the tenant’s expense. Failing to obtain a fair lease agreement with your landlord could result in an unexpected eviction or other costly events, yet many physicians and dentists are unaware of the risks in their lease agreement until it is too late. The following steps will help you better prepare for your next lease negotiation or renewal.

Step 1: Begin Preparing For Negotiations Well In Advance

Whether it is a new lease or renewal you need a good deal of time to properly prepare for any negotiation. Cirrus recommends starting the process 12-18 months prior to your lease’s expiry date depending upon your square footage. Often, option-to-renew deadlines occur six months or more prior to expiry and you will need to be prepared well in advance of that date.

Step 2: Identify the Risks in Your Current Lease

Both you and your staff's professional service far exceeded my expectations. You managed to secure very favourable lease terms, in a timely fashion with careful attention to detail. Furthermore, you always kept me informed of my options and the status of my lease.

Thomas C. Delaney, DMD - Wentzville, MO

Identifying the risks of your current lease entails thoroughly reviewing your lease document well in advance of the expiry and formulating a list of those terms and conditions that are unreasonable and require amendment. Most leases are worded in favor of the landlord. A common example of unfair language might be termination provisions on behalf of the landlord. Such provisions are often hidden within the 60 pages of “legalese”, and grant the landlord the right to terminate the lease before the agreed upon expiry for various reasons. For example, a landlord may have a Demolition Clause, which could give them the right to terminate the lease if he or she wishes to significantly remodel the building. The landlord may not actually begin renovations; however he may still terminate your lease. Another example of a landlord unfairly terminating your lease could occur when you wish to sell or assign your practice. If your Assignment Provision is not worded correctly, the landlord may terminate the lease once you communicate your intention to hand over your space. Landlords put these clauses into leases to afford them the flexibility of signing a new tenant for more rent during the existing tenant’s term.

Some other provisions that may prove a risk may include:

• Tenant Construct
  Have you signed the lease in your personal name thereby giving the landlord the unfettered right to pursue your personal assets in the event of a default?
• Relocation Clause
  Can your landlord force you to relocate your practice at your expense?
• Cure Periods
  Do you have the right to remedy any defaults that may occur?
• Option to Renew
  Is your option to renew unduly tied to your performance under the lease?

Step 3: Determine Short and Long Term Professional Goals

Determine your goals and understand how they relate to your tenancy. For example, a 45 year-old dentist expects that he/she will be practicing for 15-20 more years. Therefore it may be beneficial to negotiate a 20 year lease cycle comprised of a combination of terms and options to extend. This gives you the peace of mind knowing that you have a fair lease document that clearly states rents, rental increases and provisions taking you well into the future. If you choose to relocate your practice you have the option not to renew once the then current term expires.

By contrast, a 60 year old physician who will not be assigning his/her practice and will retire shortly, should set up a much shorter combination best suited to addressing retirement needs. By dealing with the terms in the document properly now, it will not be necessary to bother with them again. If the 60-year-old physician plans to transfer or sell a practice, a carefully crafted lease agreement that balances the needs of the retiring physician with the incoming tenant needs to be constructed. The outgoing tenant will want minimal strings attached or risk after departure. The incoming tenant will want longevity on the lease for security. These requirements must be carefully balanced to benefit both parties.

Step 4: Commence Discussions with Your Landlord

Negotiating is not an exact science. There is no sure and fast way to come to a deal to which both parties will agree. However, by knowing which risks require amending first according to your goals, and by starting well in advance you will be two steps closer toward leveling the playing field. Your landlord now holds less leverage over you than if you did not take the time to review the document and decide what terms you need and were forced to make decisions at the last minute.