Rent May Not Be the Biggest Part of Your Dental Practice Lease
Special Lease Feature by Lewis Gelmon
Have you ever sat through one of my lectures at the Greater New York Dental Meeting, the Pacific Dental Conference, or one of the dozens of local dental association or society meetings I speak at annually? If so, you’ve heard me say, “Dentists have a much higher degree of risk in their office leases then most other tenant users in the country because of the cost of the physical plant.”
Dentists share the same types of risks as other commercial tenants in offices buildings and shopping centers. However, the cost to move their business elsewhere dramatically amplifies these risks for dentists and sets them apart. Rest assured, that’s something that most landlords are well aware of!
When a dentist opens up negotiations with a property owner, most dentists commonly overlook risk and focus on rent. This is true for both new leases on first-time locations and renewals on existing practices.
Focusing only on rent is a serious oversight. The total cost of renting space should be viewed as a formula:
BR + AR + RC = TCPL
Basic Rent + Additional Rents + Risk Costs = Total Cost of the Premises Lease (over the term)
Dentists often overlook the Risk Cost (RC) component of the formula, which is a significant and often a more costly part of the equation.
Look at it another way. Take a blank piece of paper and draw a line down the middle. At the top of left side of the page write Rents and underline it. At the top of the right side of the page write Risks and underline it. Under the Rents column, add up from top to bottom the annual rents you pay the landlord each year for the term of the lease. On the right side of the page is the Risk column; you’ll likewise have to add up the costs of the risks from top to bottom you’ll end up paying out-of-pocket during the term of your lease or career. To get the total cost of leasing your office space, you will simply add the totals of the left and right columns, right? The problem, however, is that many dentists don’t know what the right column costs consist of. As a result, they don’t factor them in during their negotiations with property owners until it’s too late…
The top Risk Costs (RC) I find in most dental office leases I review include the following:
- Having the lease terminated by the landlord unexpectedly and having to move: $350,000+
- Having to pay the landlord a portion of the sales proceeds of your practice when you sell: $75,000-250,000
- Unexpected or hidden rental cost increases or charges: $50,000-75,000
- Repayment of Tenant Improvement Allowances through base rents: $50,000-75,000
- Cost of realization of personal guarantee after practice sale: $100,000-150,000
- Cost to Estate without a Death and Disability provision: $75,000-150,000
- Having a poorly worded Option to Renew or missing key dates: $50,000
Not all leases will have all the above Risk Costs, but most leases will have several of them hidden within. I will often uncover well over half a million dollars in Risk Cost in most dental office leases I review. The good news here is if the Risk Costs are identified in existing leases before they cost the dentist anything, there are effective ways that dentists can eliminate them and push Risk Costs to very nearly zero. Explaining these strategies will be the topic of my next article.
Looking for more information on the topic? You can reach Lewis Gelmon at (760) 479-9704 or firstname.lastname@example.org. For only $495, he will personally review your lease to determine the Risk Costs. Plus, get a $200 discount until October 31 just for mentioning The Wealthy Dentist. All reviews are guaranteed. If you don’t feel you have received the value, he’ll give you a full refund, no questions asked.
Lewis Gelmon is a former landlord, lease negotiator, and shopping center manager. Now a dental tenant advocate, he regularly lectures for dental groups across North America and the UK. He is the most published author on the subject of dental lease negotiations. His Good Leasing Guidelines for Dentists have been critically acclaimed by numerous dental groups. His mission is to raise awareness among dentists on the risks hidden in their office leases.