6 Reasons to Call in the Dental Office Lease Negotiation Pros

By Cirrus Consulting Group

There’s an old saying that goes, “Leave it to the professionals.” When you need a haircut, go to a barber. When you need your car fixed, see a mechanic. Seems obvious when you put it in these terms, but in today’s do-it-yourself (DIY) culture, business owners are increasingly circumventing professional services to go it alone. In the world of dentistry, negotiating a risk-free dental office lease with fair and reasonable economic terms is an essential component to mitigating risk and running a successful practice — and yet — it’s not always obvious to practitioners why they should consult a professional dental office lease negotiator.

Signing your lease is one of the most important, expensive and significant commitments you’ll ever make as a dentist, and going in blind or ill-prepared can have lasting implications. Here are a few reasons why you should leave your lease negotiations to the pros.

1. The Doomed DIYer
The obvious upside in not hiring a professional dental office leasing negotiator is that you won’t have to pay their fees. Often, this is the single biggest motivator for dentists who view the task as one they can easily tackle themselves. Of course, as with many such tasks, you get what you pay for.

Consider the amateur handyman who decides to build his own furniture; he can save money by building his own bookcase, but what happens one month later when the shelves give out because it was poorly constructed? The bookcase collapses, the objects on the shelves end up broken, it creates a mess and leaves the “handyman” right back where he started — no bookcase, plus one mess and minus several treasured objects. Because poor planning and mismanagement of a dental office lease permeates every aspect of a practice, this is one area where an investment today can save big bucks tomorrow.

If you sidestep the experts, you won’t be getting their professional guidance and advice that exposes you to significant financial repercussions and the unnecessary risks that come with a poorly negotiated lease agreement. Every time you renegotiate or renew your lease, you are committing to another $500,000 to $1 million contract. Spending a fraction of this contract value to ensure that your future is protected just makes good business sense. The value that a professional dental office lease negotiator brings — both economically and in terms of risk reduction — is worth far more than the initial investment of their fee, not to mention the substantial, long-term savings that can be achieved with proper representation.

2. More Time to Dedicate to Your Practice
The most immediate benefit to working with a professional lease negotiator is the amount of time saved. Spending more time chairside is critical to the practice’s success. When you decided to open a dental clinic, you probably didn’t realize you were signing up for all of the administrative burdens required to run a successful practice. Whether you’re just starting out or are growing an established practice, taking chairside time away to review the lease, research market rental rates, negotiate with your landlord and understand tenant rights is a time-consuming nuisance.

Don’t be fooled into thinking that the only step in lease negotiations is the initial review and signing of the contract, or that your landlord has prepared a fair lease that will see you through your career. Lease negotiations are a dynamic and potentially lengthy, ongoing process that require a dedicated time investment — if you’re doing it right. A reactive tenant acts only when prompted, or upon finding themselves up against a deadline. Often, this means it’s too late to get a favorable outcome, i.e., when your lease is about to expire and you’re at the mercy of your landlord. A smart dental tenant is pro-active, and by working with a professional negotiator, you will ensure that you have both the leverage and knowledge to be successful in securing a favorable lease agreement for the practice.

3. Reap the Benefits of Comprehensive Services and Support
Working with a professional dental office lease negotiation firm is an eye-opener for most practitioners because they don’t realize how much more they can be doing to optimize their practice. Professionals will not only identify landlord-set lease traps and negotiate the best deal for you, but also provide a wealth of business acumen and resources to improve your practice. Lease negotiation is a core function, but there is a wide spectrum of services that a lease negotiation firm provides, including insight from market research and data analysts, in-house brokers, attorneys and ex-landlords. Whether designing asset protection terms, or leveraging emerging market trends to help you map out practice goals, your lease negotiator is backed by a team of experts who put all the pieces together, and deliver a results-focused business solution for your peace of mind.

4. Your Future Self Will Thank You for Strategy-Planning Now
Most dentists are naturally eager to build out the practice and open their doors. However, in their haste, they often fail to consider their mid-range and long-term goals. The details in your office lease dictate key aspects of your business, such as the ability to bring in associates or specialists, the conditions under which you sell the practice, obligations and restrictions for remodeling or expanding, etc. — which is why the details within the lease should not be taken lightly. A skilled dental office lease negotiator will outline a comprehensive negotiation strategy that aligns with both your short- and long-term goals, and takes the big picture into account — so your lease doesn’t hinder you as you progress in your career.

5. Relax! Someone Else Will Fight Your Battles
Lease negotiations with a current or prospective landlord sometimes means playing hardball, and some individuals are simply not comfortable with, or capable of, getting tough and asking for what they want and deserve. But it’s not just about being assertive; you also have to know what the stakes are, and how to best achieve the desired results. A lease negotiator acts as your own personal advocate to represent your best interests, and ensures that your leasing needs are being met. For example, as a dental tenant, you may not immediately appreciate the importance of addressing “relocation language” that prevents your landlord from moving your clinic, or the amendment of the “assignment” clause, preventing your landlord from taking 50 percent or more of your practice sale proceeds at transition time. Your negotiator, however, knows that strategic tactics today will certainly pay off later, and that every word in your lease agreement can have major implications down the road.

Keep in mind that your landlord will draft a lease that benefits them, not you. In their hands, the lease is a tool towards achieving financial flexibility and power. Your lease negotiator can convert a bad lease into armor to protect your assets, family and estate, and optimize the lease in your favor. They will negotiate the best terms and rental rates possible so that you, not your landlord, are in control of your financial future.

6. Do you speak “Legalese?” We do!
Dental office lease agreements can be complex and lengthy, full of technical legal jargon and contain terms that aren’t tenant-friendly for the average business owner. Navigating the tricky and complex language is just one challenge. The bigger obstacle is identifying expensive traps and risks, and understanding what must be done to reduce or eliminate them. Most leases leave the tenant vulnerable to expensive penalties and inconvenient pitfalls that can have devastating effects on their career or practice. Before signing, it’s your responsibility to review the proposed terms. But how will you know what to look for? A seemingly innocuous statement may harm you down the road, and similarly, the absence of a key clause can leave you, your assets, your family and your practice exposed.

For example, did you know that you can be held financially responsible for the practice even after a sale or transfer of the lease? Or that you could be forced to bear the financial burden of a forced relocation? Dental office leasing professionals will review your lease and identify risky terms that have been intentionally buried or obscured by your landlord. The negotiator will use their skills to revise the lease to work in your favor — something that an untrained professional simply cannot do. This is one of the key differences between a professional dental office lease negotiator and a general commercial lawyer/attorney. While lawyers can be experts in contract management and negotiation, they often lack dental industry and real estate experience to produce a lease agreement that both protects and enhances the value of a dental practice. If you’ve retained an attorney, ask them how many dental office leases they’ve negotiated. Dental lease negotiators have specialized expertise in contract negotiation, dental tenant rights, practice optimization — and, they understand the industry inside and out.

Would you go to a mechanic to get your haircut, or a barber to fix your car? If the answer is “no” to both, why would you, as a dentist, handle your own lease negotiation? Gambling with the fate of your entire practice hardly seems worthwhile when you have a team of specialists just a phone call away. Some things are just better left to the experts! For more information, go to www.cirrusconsultinggroup.com.

What is “Plan B?” The New Normal in a Post-Irma World

By a Fellow FDA Member

Call it intuition, but I had the feeling we —and the entire east coast of Florida — dodged a bullet last year with Hurricane Matthew. It just seemed like a matter of time before our 13-year dry spell was going to end.

I desperately wanted to be wrong, as I watched CNN every evening for the latest update on Hurricane Irma, and the National Hurricane Center for the more elaborate interpretation.

The memories of spending another post-Labor Day weekend away from home (Hurricane Frances, 2004) sadly is still too vivid in our memories. I worked as a dentist a total of four days that month, and two of those were without air conditioning — which is a testament to the determination of my staff and my patients to create a sense of “normalcy” in the aftermath, despite the obvious disruption to our personal lives.

Doctors, it is time for “Plan B.”

Depending on where you are in your practice career, it may not make economic sense to “build over” before or after your insurance adjuster has given you the final assessment. For dentists with more than 25 years of practice, the return on investment may not be in your favor at such a late period, as the current tax laws for business owners after 50 provide decent “catch-up” provisions in a defined benefit (like a government pension) and defined contribution (401K-type) plans that would be more beneficial.

For a mid-career solo practitioner, you have been faced with rising overhead costs since 2007, and along with diminished income (ADA Health Policy Institute has the data), the time is ripe for a multi-doctor practice formation, which should always be created with expert legal and financial advice.

Look “around the neighborhood” and reach out to other dentists who may share the same dilemma you do. If you have damage to your office, and someone nearby does not, now would be the time to construct a well-defined contract that outlines the term and time limit for this new arrangement. And if the relationship works on a limited basis, you may find the new arrangement something you want to solidify.

Likewise, if your office came out unscathed, reach out to your colleagues in this period and strategize. This is not a DIY project, so retain the professional advice you need to make this happen. Involve your bankers and financial advisors for expert advice.

In closing, I want you to know that I understand what you have gone through, and I look at 2004 as a defining year in my professional career. The decisions I made after these disasters guided me to where I am today, and my family is better for it.

Make the right choice for your loved ones and your staff members, and don’t be afraid to execute “Plan B!”

 

 

Renewing Your Lease: 5 Important Things to Know

By Ken Jorgenson, Carr Healthcare Realty

Leases and lease renewals typically are not conducted on a level playing field. After all, the landlord is in the real estate business and most doctors are not. By planning ahead and having professional representation, it is possible to negotiate a lower lease rate and receive a substantial tenant improvement allowance and free rent.

1. How does the lease renewal process work?
An important clause found in a standard lease is the renewal option. This allows you to extend your lease for a predetermined amount of time (often three, five or 10 years) by giving your landlord advance written notice. Renewal options include terms for specific lease rates, concessions such as free rent and tenant improvement allowance, and whether a new base year for operating expenses will be granted. Whether or not a renewal clause exists in the original lease, all of these terms are negotiable and play a large role in the financial structure of a lease renewal.

Renewal negotiations are most effective when conducted in the proper timeframe, by having multiple viable relocation options, and creating a strong posture to maintain the upper hand.

2. When should the process begin?
As a rule of thumb, you should begin to consider the renewal process 12–18 months in advance of your lease’s expiration. This is recommended so that you can compare all relocation options in the market before your current lease options expire. Tenants who miss their lease options incur more risk. Landlords view this as an opportunity to push rents higher as the window of opportunity to relocate closes. If tenants holdover (stay in the space after the lease expires), they often see penalties of 150–200 percent of their last month’s rent and also can incur damages if they holdover without permission. The bottom line is if there is not ample time to relocate if necessary, the landlord has a strong upper hand.

3. What type of cost savings can be achieved through a successful renewal?
If properly negotiated, you can achieve significant rent savings, a build-out allowance, free rent and other concessions. It’s common to start a lease renewal term at a lower lease rate than what you are currently paying. In many markets, landlords are offering aggressive concessions and more attractive lease terms to good tenants to keep their buildings leased and avoid vacancies. The amount of overall savings will depend on the availability of competitive vacancies, the efficiencies of the buildings, and your market knowledge and ability to negotiate business points.

4. What are some common mistakes practices make during the process?
One of the most common mistakes practices make is negotiating without the help of a commercial real estate professional, specifically one who specializes in representing health care providers. Some believe they can save money by not using an agent; but to benefit in real estate, leverage is the key to posture. Landlords are in the real estate business and negotiate with professional guidance. Selecting an expert to represent you provides the leverage needed to receive the best possible lease terms. Further, landlords typically are responsible for paying commissions, so professional representation is available to you at no out-of-pocket cost.

Another mistake practices make when entering a lease renewal negotiation is not being familiar with their current lease terms and risk exposure. Prior to contacting the landlord about a lease renewal, you should be well aware of your current lease terms — including every option and deadline. Most leases contain options that must be exercised within a specific time period, typically six to 12 months prior to the lease’s expiration. If you allow this period to pass, you risk losing all rights outlined in the option, which can cause the negotiations to begin at a disadvantage.

5. How do I calculate what I am currently paying per square foot?
Knowing what you are already paying per square foot is especially important if you are thinking about renewing your lease. What you are paying now versus what buildings are leasing for in your immediate area can be vastly different, especially if your lease has had automatic escalations in the rate over the term of the lease. The way to calculate your price per square foot is to multiply your monthly rent by 12 months and divide it by your square footage. Keep in mind that NNN or CAM charges (operating expenses for the property) also are calculated in the same manner.

Summary
Successfully negotiating a lease renewal is more than bartering, bluffing or asking for a good deal. Landlords and their professional representatives are in the full-time business of maximizing their profits — even if it means taking advantage of uninformed tenants. You can level the playing field by engaging your own professional representation, gaining competitive market knowledge and by having multiple options for your office space. When done properly, a well-negotiated lease renewal can have a dramatic impact on your practice’s profitability.

 

Carr Healthcare Realty is the nation’s leading provider of commercial real estate services for health care tenants and buyers. Every year, hundreds of medical, dental, veterinary and other health care practices trust Carr Healthcare Realty to help them achieve the most favorable terms on their lease and purchase negotiations. By not representing landlords or sellers, Carr Healthcare Realty is able to strongly advocate for health care providers and avoid conflicts of interest while saving their clients hundreds of thousands of dollars. Carr Healthcare Realty’s team of experts can assist with all types of real estate transactions, including lease renewals, expansions, relocations, startup offices, purchases and practice transitions.

Timing Your Next Real Estate Transaction

By Ken Jorgenson, Carr Healthcare Realty

Every commercial real estate transaction has an ideal time frame to begin the process. Most dental professionals understand that starting a new office or relocating an office doesn’t happen overnight, but many are not aware of the ideal time frames for each type of transaction. Different types of problems arise when starting a transaction too early or too late, and both need to be avoided.

Too Early

If you start the process too early, it creates a scenario where you spend your valuable time looking at properties and evaluating options, working with lenders and other members of your team, only to find out the landlords or sellers won’t negotiate with you yet. Many landlords and sellers won’t take their spaces off the market for extended periods of time while waiting for the tenant or buyer to be ready to transact because there is too much time before the transaction will take place.

Or, if they do negotiate, they won’t be willing to offer you even close to their best terms since they are going to lose income on holding a space vacant for an extended period. On the other hand, if they will put forth reasonable terms, it is predicated upon you moving forward immediately, which can leave you stuck paying for a space you can’t occupy for a period of time or paying unnecessary rent on your former space if you leave early.

Too Late

When starting a transaction too late, an entirely new set of problems arise. To start, most people underestimate how long a commercial lease or purchase transaction takes. They imagine it is similar to buying a home or leasing an apartment, which unfortunately is not the same as a commercial transaction timeline.

Simply identifying the top options and then negotiating a mutually agreeable deal can take several months. The legal process of reviewing contracts and finalizing details with lenders, architects, contractors, and equipment and technology providers comes next; this portion also can take months.

This is followed by the build-out process if renovations are required. While you can build-out a new space in six to 10 weeks depending on the size and scope of the project, you first have to design the space, then get construction documents and engineered plans created, then submit for and receive permits to start the build-out. After construction, you need to leave time for installing furniture, fixtures, equipment and technology, final permitting and approvals, while also leaving room for uncontrollable delays and change orders.

If you are relocating from a previous office and you don’t vacate your former space prior to the lease expiring, you’ll likely pay between 125 to 200 percent of your last month’s rent based on a provision found in most leases called a “holdover.” This allows the landlord to charge you a higher month-to-month lease rate as a penalty for not vacating or signing a new lease.

Just Right

If you only had two choices, starting too early is definitely better than starting too late, but it is by no means your top option. Fortunately, there is an ideal time frame to start each type of transaction and you don’t have to choose between the lesser of two mistakes. You can set yourself up for success by understanding the requirements of each type of transaction and how long each process takes.

Although there are many additional details needed to ensure each type of transaction is handled properly, let’s start with the correct timing for the primary types of transactions that health care professionals will engage in:

  • startup or new office: 10-12 months in advance
  • relocation: 10-12 months in advance
  • purchasing an existing building or condo: 10-12 months in advance
  • buying land to develop a new building: 18-24 months in advance
  • buying a practice and getting a new lease or purchasing the building: 60-90 days in advance

Every type of transaction starts with a specific approach and detailed game plan that is aimed at maximizing the opportunity. Getting the best possible deal and terms is extremely important, but so is making sure you don’t waste valuable time that could have been spent in your practice. If you lose the equivalent of 20-30 hours of your time — which is what an average commercial real estate transaction requires to be handled properly — how much money would that cost you in lost production?

Equally as important as saving time and money is avoiding costly mistakes that people make all too often when they don’t understand the nuances of health care real estate. The old adage, “If I knew then what I know now …” can easily be avoided by hiring licensed professionals who specialize in real estate for health care practices. The reason patients come to see you is because you are trained in a specific skillset that offers skill and expertise that they require and that few people have. The same is true for real estate professionals who can help you identify your top options, negotiate the most favorable terms, save you a substantial amount of time and avoid common pitfalls.

The first step to maximizing any commercial real estate transaction: Start the process at the right time.

 

Carr Healthcare Realty is the nation’s leading provider of commercial real estate services for health care tenants and buyers. Every year, hundreds of medical, dental, veterinary and other health care practices trust Carr Healthcare Realty to help them achieve the most favorable terms on their lease and purchase negotiations. By not representing landlords or sellers, Carr Healthcare Realty can strongly advocate for health care providers and avoid conflicts of interest while saving their clients hundreds of thousands of dollars. Carr Healthcare Realty’s team of experts can assist with all types of real estate transactions, including lease renewals, expansions, relocations, startup offices, purchases and practice transitions.