Learn more about the Florida Dental Association here.

Beyond the Bite

The Official Blog of the Florida Dental Association

Tag: lease

6 Reasons to Call in the Dental Office Lease Negotiation Pros

by 1 Comment

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.

Renewing Your Lease: 5 Important Things to Know

by Leave a comment

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.

5 Myths Your Landlord Wants You to Believe

by Leave a comment

By Ken Jorgenson, Carr Healthcare Realty

​It can be difficult to discern fact from fiction when dealing with landlords. Misunderstanding these key issues can have serious consequences for your practice. The following information should help dispel some common myths and prevent costly mistakes in your next lease negotiation.

Myth #1: The landlord is on your side.

Many landlords attempt to befriend their tenants, making it difficult for tenants to remember the landlord’s primary goal is financial gain. They are seeking to secure a lease with the tenant paying as much as possible. Even the friendliest landlord wants to make the maximum profit on his space, just like the nicest tenant seeks the lowest possible lease rate so his business can thrive. Financial burdens quickly arise for tenants who place undue trust in their landlord and fail to properly negotiate their lease. By having representation, you can learn how your lease compares to the market and ensure you are getting the best possible terms.

​Myth #2: You are not entitled to representation.

Some landlords employ intimidation, instead of friendliness, to achieve their goal. The intimidation tactics may include telling tenants they are not allowed to have representation. This is not true. Lease negotiations are different than negotiating the price of a car or trying to haggle for a better price at a flea market. They are complex transactions, layered with hidden opportunities for landlords to take advantage of anyone not represented by an expert. Landlords are professionals who are aware of these complexities. If a landlord says you are not allowed to have representation, that is a clear signal they do not respect your desire to be treated fairly.

​Myth #3: You are already getting the best possible rate for your space.

There are many conditions that factor into lease rates for a commercial space. Things such as current building vacancy, length of the lease, amount of tenant improvement allowance, building condition and many other considerations impact the appropriate rate for a particular space. Several of these considerations are specific to spaces for health care tenants, highlighting the need for a real estate professional who has expertise in health care. Health care practices often are told they are getting the best possible rate for their space, yet they can receive a much better offer from the landlord when an expert assesses these mitigating factors.

Myth #4: Your renewal is not negotiable.

Most leases provide an option for the tenant to renew their lease when it expires, and may even detail the exact terms of the renewal. However, it is important to understand that your renewal is negotiable, even if you have renewal terms specified in your current lease. A landlord who says you cannot renegotiate the terms for your renewal is usually doing so because they can get you to pay more by exercising the option to renew instead of negotiating new terms. The only way to be certain you have the best possible terms for your renewal is to compare those terms with current market rates in the area — a vital step often missed by health care professionals who enter this process alone.​

Myth #5: You have no other options; the landlord has many.

This common myth might be the most important to address, because it is fundamental to how landlords operate. The landlord wants you to believe that his property is the only suitable location for your practice. The truth is there are likely several other properties that would fit the needs of your practice, and the landlord should be competing to keep you in his building.

The landlord also wants you to believe he has several potential tenants ready to occupy your space if you don’t take it. This position is used to force a tenant to rush into signing an unfavorable lease, when, in fact, it usually takes months or years to fill a commercial space. Each leasing situation is unique, and a health care real estate professional who knows your strengths as a tenant can help you understand what type of leverage you have.

This information represents a few of the many misconceptions involving landlords in health care real estate transactions. Using a real estate professional with expertise in health care will help protect you from falling victim to these and other common landlord myths.

​

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. For more information, go to carrhr.com.

Real Estate: The Second-highest Expense in Your Practice

by Leave a comment

By Ken Jorgenson, Carr Healthcare Realty

When it comes to managing expenses in your practice, there are dozens of categories to evaluate: equipment, technology, loan costs and interest rates, sundries, marketing, and on and on they go.

Many practice owners are quick to shop-out what they believe are the most obvious expenses, but few understand the impact of one of the largest expenses and how it can be dramatically reduced to increase profitability. The highest expense for most practices is payroll, followed by real estate. Real estate encompasses your monthly rent or mortgage payments, along with the property’s operating expenses, maintenance fees, utilities and janitorial costs.

If you consider these top two expenses, payroll and real estate, only one of them is really negotiable. With payroll, you can either pay people their value or they usually find another job that will. You may decide that you can cut staff, but if you need people, you need to pay them what they deserve or they will eventually leave.

Real estate however, is 100 percent negotiable. You have the choice of leasing or owning, as well as being in an office building, retail center, a stand-alone building or large medical complex with many other providers. You can choose the size of your space, the design and the landlord you want to work with — or to be your own landlord. And if you do own, you can decide whether to buy an existing building, an office condo or to develop your own building from the ground up.

When negotiating the economic terms of a lease, you have a say in the length of lease, the desired concessions, including build-out period, tenant improvement allowance, free rent, lease rates, annual rate increases, and many other provisions.

With this many choices to evaluate and understanding that each one affects the final economic outcome, why is it that so many practices fail to capitalize on their real estate opportunities? The short answer is that most practice owners and administrators simply don’t have the knowledge and expertise in commercial real estate to understand how to make the most of these opportunities. They view real estate as a necessary evil instead of an incredible opportunity to improve profitability, reduce expenses and improve the quality of their patients’ experience. When the correct approach is taken, you may actually look forward to it instead of dreading your real estate negotiation.

Let’s take a look at three key ideas that will help you make the most of your next real estate transaction.

1. Timing
Every type of transaction has an ideal timeframe to start the process. When starting too early or too late, you communicate to the landlord or seller that you don’t really know what you’re doing. When that message is communicated, it hurts your ability to receive the best possible terms. For example, don’t wait for your landlord to approach you on a lease renewal negotiation. Start by consulting with a professional so you can understand the ideal timeframe to start your transaction, come up with a specific game plan for what you want to achieve, and then you be the one to approach your landlord with renewal terms.

2. Representation
Landlords and sellers prey on unrepresented tenants who don’t really know the market or what their options are. If the tenant was a Fortune 500 company, the landlord would approach them with a high level of respect, expecting that they either have a real estate broker hired to represent them or have a team of professionals internally that are well-equipped to handle the transaction.

In contrast, when a landlord or seller starts speaking with a tenant who isn’t represented, and who they don’t believe knows the market as well as they do, that tenant is not going to get the same level of respect through the process. This is because the landlord senses an opportunity to take advantage of a small tenant who is not an expert, doesn’t have a full complement of real estate knowledge and skills, and who doesn’t have adequate representation.

When you understand that commissions are paid in commercial real estate just like they are in residential real estate — they are set aside in advance for two parties, not just one — then you understand there aren’t any savings by not having a broker. And if there aren’t any savings by not having a broker, then showing up without one only further detracts from your credibility.

3. Leverage and Posture
It is nearly impossible to emerge victorious from a negotiation without leverage and posture, which are created by having multiple options in the market. If you limit yourself to one property, you are at the mercy of that owner. Since most landlords and sellers negotiate professionally, it is easy for them to know when you don’t have other viable options.

Simply telling a landlord that you have a proposal from another landlord won’t give you a strong enough posture. Most landlords look at unrepresented tenants and assume they do not know the market, do not understand all their options and are not serious about making the landlord compete for their business. Leverage and posture are created when you have the right timing, professional representation, an understanding of all your available options and a detailed game plan of what you want to accomplish in order to capitalize on the market.

These three key ideas are the first of many factors that allow health care tenants and buyers to reduce their second-highest expense, which dramatically impacts profitability and cash flow.

 

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. For more information, go to carrhr.com.