Securing a favorable commercial lease is a critical step for any dentist that does not own the real estate where they practice. Whether you’re starting a new venture, expanding your existing operations, or negotiating your lease renewal, getting fair terms for your lease agreement can significantly impact your long-term success and financial stability. Rent is a fixed cost and typically the second highest expense for a dental practice, which is why it is so important to get it right. Hiring a licensed dental practice broker, like WOMEL, can help you navigate commercial lease negotiations effectively. Here are a few tips to make it through your next dental lease negotiation.
Understand Your Needs and Priorities: Before entering into lease negotiations, it’s essential to have a clear understanding of your specific practice needs and priorities. Consider factors such as location, space requirements, lease duration, and budget constraints. Identifying your non-negotiables and areas where you are willing to be flexible will help guide your negotiation strategy.
Engage the Services of a Professional: Consider seeking the assistance of a commercial real estate agent specializing in lease negotiations, particularly one who is specialized in dentistry. These professionals possess expert knowledge of the market and common lease terms as they can vary in length from ten to fifty pages. Commercial leases are designed to protect the landlord as opposed to renting in the residential world where the tenant is more protected in the agreement.
Conduct Thorough Market Research: Before entering negotiations, conduct thorough market research to gain insight into prevailing lease rates and terms in your desired location. Understanding the market conditions and comparable leases will empower you to negotiate from an informed position. Analyze factors such as rental rates, lease structures, concessions, and tenant improvements offered in the area. Common lease structures you may see are triple net (NNN), modified gross, and full service. It is vital to understand how each works when comparing options and market data.
Evaluate Lease Terms and Provisions: Carefully review all lease terms and provisions, paying close attention to critical areas such as rent escalations, lease renewal options, lease duration, permitted use, maintenance responsibilities, and assignment/subletting provisions. Consider how each provision aligns with your practice needs and negotiate for favorable terms that protect your interests. Lease assignment options are very important to have if you ever want to sell your dental practice.
Negotiate Rent and Expenses: Rent and associated expenses are crucial components of a commercial lease. Negotiate the base rent, rent increases, and any additional expenses such as common area maintenance (CAM) fees, property taxes, or utilities. Seek clarity on how expenses are calculated, understand your responsibility, and negotiate caps or limitations to prevent unexpected financial burdens.
Seek Favorable Tenant Improvements: Consider your space requirements and negotiate tenant improvements that align with your practice needs. Request improvements such as build-out allowances, signage, parking spaces, or modifications necessary for your operations. Ensure the lease clearly defines who is responsible for the cost, timing, and quality of the improvements.
Review Lease Termination and Renewal Options: Lease termination and renewal options are crucial for your long-term business planning. Understand the conditions, notice periods, and associated costs for terminating or renewing the lease. Negotiate favorable terms that provide flexibility or protection against rent increases during the renewal process.
Seek Legal Advice and Review: Before signing any lease agreement, seek legal advice and have the document thoroughly reviewed by your attorney. They will ensure the lease accurately reflects the negotiated terms and that no unfavorable provisions or ambiguities are present. It’s crucial to fully understand your obligations and rights as outlined in the lease.
Maintain Open Communication: Throughout the negotiation process, maintain open and respectful communication with the landlord or property management. Clearly articulate your needs, concerns, and desired terms, and be prepared to compromise where appropriate. Building a positive and collaborative relationship sets the foundation for a successful lease agreement.
At the end of the day, navigating commercial leases in the dental real estate world requires careful consideration, market research, and a strategic approach. By understanding your practice needs, engaging professionals, conducting market research, evaluating lease terms, negotiating rent and expenses, seeking favorable tenant improvements, reviewing termination and renewal options, and maintaining open communication, you can secure a lease agreement that aligns with your goals and protects your interests. If you want help finding a space or negotiating your current lease, reach out to a dental practice broker, like WOMEL.