May 21, 2019
How to Renegotiate Your Dental Practice Lease, Part 2
By now, you’ve already established your role as landlord or tenant in the lease-renegotiation process thanks to part one of this blog post. Now, it’s time to break down the basics of lease renegotiation for your dental practice. Here, we offer a primer to get you started in the right direction.
A lease renegotiation typically takes place at least one to two years prior to the lease expiration date to allow time for the tenant to decide if they wish to extend their lease term or start another property search while also notifying the property manager, leasing agent or landlord of the decision. Starting the process early will provide leverage during the renegotiation process, especially if market conditions have regressed or become stagnate, as well as compare the existing lease to current market rates and terms.
Location and patient base
The lease-renegotiation process is the perfect time to ask yourself if your existing location is right for the future growth of your practice in the next 10 or so years. Is the location centralized to your patient base? Do your patients come from different parts of town? Are the demographics in your area the same as your patient base? Is your existing location in a declining or up-and-coming part of town? Is your existing building deteriorating because the landlord won’t spend money on making necessary upgrades to meet modern building codes? Do you have good visibility from a high-trafficked area? Can new patients find your practice? Is your practice easily accessible?
Parking and building improvements
In addition to assessing whether or not the current state of the building meets your business’s needs, this is also the chance to discuss future capital improvements and make recommendations, including to the lobby, elevator, restrooms, HVAC, landscaping, handicap accessibility, and even the possibility of adding reserved parking spots and additional or covered parking. Make sure to get in writing what capital improvements the landlord plans to make, as well as discuss whether or not the landlord plans to sell the building in the coming years.
Aesthetic updates to the facility are typically an out-of-pocket expense that can be negotiated based on the terms of the new lease. Tenant improvement dollars can include new paint, flooring, lighting, and other small cosmetic improvements. Meeting with an in-house architect or local firm with medical or dental expertise can help the tenant and landlord both gauge how much the proposed improvements will cost.
An often-overlooked marketing investment is the signage for your business, which can speak volumes in terms of branding and advertising. Building, monument, lobby and hallway, windows, and door signage can generate an additional 75% of customer base and referrals. However, city code regulations or covenants may limit the size, placement and style options, and the lease-renegotiation process is an opportune time to discuss these options with the landlord.
Rental rate reduction tends to be the most common goal for a tenant during the lease-renegotiation process. However, other options exist in terms of expanding or decreasing your current square footage, a cap on expenses, rent abatement, exclusivity or reworking the lease assignment language if you plan to sell your dental practice within the new lease term. While a lease renewal tends to be more beneficial for the tenant in a bad economy, it’s important to pick and choose the items you want to negotiate during the renewal process in a thriving economy.
Contact the real estate experts at Professional Transition Strategies to assist you in your upcoming lease renegotiation.