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Dental Office Lease Negotiations

Behar

In this video, Jeremy Behar explains the difference between commercial and dental leases, the financial impact of lease reviews, and much more about dental lease negotiations.

 

Video Transcript

Interviewer:  What is the difference between a dental office lease negotiator and a commercial real estate broker?

Jeremy Behar: Commercial real estate brokers spend a lot of time with dentists across the country and helping guide them through the process of identifying locations to set up a new practice in them. Lease negotiations really have two parts to them. Part A and part B. The first part of the negotiation is the economics: rental rates, length of term, those types of items on a lease agreement. The second part of the lease is the actual documentation itself.

So a lease agreement can be 50-60-70 pages long and page 1 is the economics. The other 60 pages behind it are all kinds of terms that need to be set up properly for the dentist. Real estate brokers typically only focus on the first part of the process, the economic terms, so finding the location, negotiating the term, negotiating rental rates, rental rate increases, etc. Once that’s done real estate brokers typically are out of the equation and then they give everything back to the doctor to then go and negotiate the other 60 pages on their own. Lease negotiator full service typically will take the doctor from one end of the process through the other without giving them back the keys to the car, having them kind of do part of the process on their own.

Interviewer: What kind of financial impact do lease review services have on practices?

Jeremy Behar: We work with very different types of doctors and different scenarios. So for example we work with start-up doctors, call it in their thirties, looking to set up a practice for the first time. Part of setting up a practice is not only finding a location but also negotiating their first lease. Negotiating the first lease for a start-up practice for the very first time means that the economics are critical.

So for example, making sure they have the right rental rates negotiated and they are not paying too much. Number two, we all know that it takes several months, if not up to a year, depending on where in the country, to get a dental office built and set up. We need to make sure that there are proper rent free provisions in the lease to enable the doctor to build the practice without having to pay rent during the period of building it out. So that would be one part of the financial benefit or impact to a start-up doctor.

45 years old general dentist, 6 months left in their lease renewal. What’s important to them now that they’re moving into their second half of their career is ensuring that the practice that they have, that they’re running, that’s built, that’s providing them and their patients with the things that they need is going to be protected for the next 10 or 15 years. And so you really want to focus on very different things and ensure that the practice is protected with a proper lease.

60-65 years old enough or as a dentist gets into the sort of period of their life where they’re planning a transition, the things that we want to really focus on, are ensuring that the practice has enough term and options left to sell the practice to a buying dentist. Number two, that the practice is transferable, we need to make sure that through the sale process that the lease can be sold or transferred from the current doctor to the new doctor coming in. And so again, key things that could make or break the stage of a doctor’s career depending on where they’re at.

Interviewer:  When it’s appropriate to start the process of lease negotiation?

Jeremy Behar: So we work with two types of customers in terms of start times. Start-up doctors, their sort of biggest focus – their key is “I want to open up my own practice. I want to get myself on the map. I want to start selling dentistry as soon as I can.” And so for them we would start the process of working with them to help identify locations across the country depending on where they are. As well as the letter of intent or offer to lease process to get that whole process going. Again, the focus for them is “I want to be in as quickly as I possibly can.” So our goal is to get in and remove as much time from the process and getting them the keys on day one as possible without compromising any of the quality of the foundation of the future of their office which is the lease.

For those doctors in the country who have an existing lease – we spend a lot of time across the country teaching doctors that the very best time to start thinking about your lease agreement is 24 months prior to the expire date of the lease, 2 years. And we teach that to a lot of surprised dentists across the country who say “I was just thought that with 2 or 3 months left to the end of my lease I go to see my landlord and we renew and away we go.” And then when we start to ask those doctors about the rent increases of they’ve gotten and some of the unfair provisions that they’ve signed, we take them and lead them back to the fact that they didn’t give themselves enough time to do the process properly. And so on average, we say 2 years before the end of the lease.

Interviewer: Does the law protect the tenant in any way from the landlord increasing rates, evicting or leveraging the tenant?

Jeremy Behar: Very common question that we get from doctors across the country who hear about horror stories that their colleges have been through, sometimes that they’ve been through as it relates to their dental offices and specifically their lease. And a common question that we get is, how can a landlord do this? How can a landlord terminate my lease on 30 days notice with 7 years left of what I thought was on term? How can my landlord come to me one day and say “Hi doctor, by the way in 30 days from now you’ve got to move your office from Suite 101 to Suite 106”? How can that happen?

Well, it happens because doctors are signing lease agreements that are very much buyer beware. There is no law, no legislation, no body governmentally that is out there looking after or protecting the interests of commercial tenants. So in the same way, McDonald’s, Walmart, Home Depot, when they sign leases with landlords have to ensure that they’re leveling out that playing field in terms of the relationship between them and their landlord in a contract, dentists have to do the very same thing. It’s a contract that is always coming from the landlord which means it’s almost always completely one-sided or engineered to be in their favor. And yet very few dentists across the country over the last couple of decades have really spent the time and the energy trying to balance out that playing field to ensure that everything that they’re invested into building, growing, protecting and eventually selling is done in a way that is protective of them and that the landlord doesn’t have rights to overextend and cause the doctors a lot of problems, potentially their practices, definitely their retirements, etc.

Speaker: Jeremy D. Behar