The largest expense for a dental practice, besides employees and staffing, is routinely the cost associated with the office real estate. That's true whether you lease or own the office space. This series focuses on the common traps and negotiating points in offices leases that most dental practices fail to consider when negotiating their lease. In this column, Matt LaMaster discusses the term and renewal of a lease.
Matt LaMaster, Esq., is the founder and principal attorney of the LaMaster Law Firm.The "term" of a lease is the duration or time span of the lease. It is generally a required element of a lease in order for it to be enforceable. What most tenants don't concentrate on is when the lease starts, when their obligation for rent begins, and when and how the lease is terminated. For most commercial leases, the term of a lease is anywhere between five to 10 years.
What can be a source of contention is determining the date that the tenant starts paying rent and when its other obligations start. This is known as the "commencement date."
The commencement date is often not the date that the parties sign the lease. This is because there may be time needed for a build-out, or the tenant is finishing a lease in another location. Some landlords will try to push the commencement date as early as possible so that they can start collecting rent. However, dental practices should try to move the commencement date back to at least the day that they open for business. This can be incredibly helpful when you're just starting your practice.
Now, just because the commencement date starts, that doesn't necessarily mean that the tenant begins paying rent just yet. Many commercial real estate brokers that represent tenants are able to negotiate "free" months of rent to allow for the practice to become established before paying rent. Those free months of rent are after the commencement date. As an example, the parties could sign the lease on March 1, 2016, the commencement date could be agreed to be the date the practice opens for business or five months (whichever is sooner), and then the rent payments don't begin until five months after the commencement date. In that scenario, the tenant may not pay rent until 10 months after the lease is actually signed.
Renewal provision
Another major issue that is generally not thought as negotiable is the termination. However, one major area that should be negotiated for dentists is death or disability clauses, which allow the lease to be terminated in the event the owner-dentist dies or becomes disabled. The ability to add this to a lease depends heavily on the landlord's sophistication and the language used in the lease.
Another great idea for tenants, and one that is loved by landlords, is to have a renewal provision in the original lease. Dental practices grow based on their goodwill, and location can be an important factor in the goodwill.
For a dental practice to negotiate an option to renew ahead of time gives the practice the ability to plan in advance of the termination of the original lease. The most important part of a renewal provision is to ensure that the rent calculation for the renewal period is clearly defined and that you mark your calendar to notify the landlord of your option to renew.
Matt LaMaster, Esq., is the founder and principal attorney of the LaMaster Law Firm, which is committed to delivering legal services to dental professionals and their practices. For more information about dental-specific legal services, please visit www.lamasterlaw.com.
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