Dentists Don’t Sell Their Practices, They Sell Their Leases…

dental lease advocate Lewis GelmonThe Hidden Costs of Bad Dental Practice Leases
Special Lease Feature by Lewis Gelmon

Dentists are shocked when I tell them that you don’t really sell your practice; you sell your lease. This simple but disturbing reality has become evident to me from the thousands of leases I have reviewed for dentists since 1994.

Dentists spend decades building good will and providing excellent dental care. They spend hundreds of thousands of dollars on marketing, state-of-the-art equipment, and creating a comforting environment for patients and staff. Unfortunately, all the money, time and effort spent does not necessarily translate into a high sale price.

How can a dentist avoid that unfortunate fate? With a proper office lease agreement that has been carefully crafted for a dentist planning to sell his or her practice.

Over the years, I have been invited to speak at dental conferences (like the Greater New York Dental Meeting, the Pacific Dental Conference and countless local dental societies and association meetings) on this subject. However, my mission is still far from complete.

It seems that more and more dentists are finding themselves caught in a classic landlord trap. I receive one or more phone calls each week from dentists across the country who are in the process of selling their practice but have run into problems with their landlords. These calls all tend to sound the same.

The dentist sounds stressed on the phone. He explains that he has tentatively sold his practice. When he approached the landlord to assign the lease to the new owner, the landlord asked for a letter formally requesting the transfer of the lease to the new dentist. A few days after sending the letter, the landlord called. After reviewing the lease agreement, the landlord has determined that he now has the right to terminate the lease and remove the original dentist from the premises.

The landlord goes on to explain the dentist’s choices. He can give the space back and vacate the premises as promised in accordance with the lease. Alternatively, he can pay the landlord a fee for agreeing to waive the right to exercise their option to terminate, allowing the dentist to remain on the premises and sell the practice. Depending on location and the value of the sale, this fee is usually somewhere between $75,000 and $250,000.

Take a moment to process that: It can cost a dentist up to a quarter of a million dollars to transfer their lease. I’ll bet you didn’t know that, huh?

Property owners often understand the business of dentistry better than dentists themselves. In fact, many landlords pride themselves on such business practices as a way to share in the sale proceeds of their most valuable professional tenants. Buried deep in the lease agreement is an “Assignment Provision” that governs the details of how to transfer the lease (change of control) when selling the practice. These provisions are often extensive and hard to understand. Most allow the landlord overwhelming control over who you can sell, as well as the opportunity to prevent the sale or terminate the lease. In my opinion, the purpose of these onerous sections is simply to provide property owners with the opportunity to share in the sale proceeds of your practice when you sell.

But do you really want your landlord to make a hefty profit from the sale of your dental practice?

The solution is simple. I like the over-used but very true axiom, “An ounce of prevention is worth a pound of cure.” If you ever plan to sell your practice, you need to make sure you can first sell your lease. This requires knowing where the risks are before putting your practice up for sale. Given that there are other potential problems, the best thing you can do is to have your lease properly reviewed to ensure it’s structured correctly for sale and follows good leasing guidelines for dental offices.

Looking for more information on the topic? You can reach Lewis Gelmon at (760) 479-9704 or lewis@lewisgelmon.com. For only $495, he will personally review your lease. 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.

Dentist Boasts Patients Travel 4 Hours for His Dental Treatments (video)

dental patient travel distanceAn implantologist boasts that many of his dental patients travel up to four hours by car for their dental treatments at his practice. However, as surprising as it might seem, it is not unusual for dental patients to travel hundreds of miles to see their favorite dentist.

The Wealthy Dentist conducted a survey that asked dentists how far some of their dental patients travel for an appointment at their practice.

Dentists responded that many of their patients travel five to ten miles, but others continue to see them after moving hundreds, or even thousands of miles away.

Click on Play to hear what dentists had to say about patients who travel for their dental appointments –

Not surprisingly, rural patients travel farther to see a dentist than do urban residents.

“Some patients will travel 30+ miles,” wrote a rural dentist, “and then there is the fellow who comes twice a year from the Netherlands…”

Do You Really Need a Dental Practice Design Firm to Design Your Dental Practice?

Construction Gets Sticky When Design Company Closes Its Doors

Regular readers already know the tale of Machias Dental and have been following the progress of the building in my weekly updates:

Designing a new dental facility is no small architectural task. The Sparagas contracted with T.H.e. Design, one of the largest dental practice design firms in the US. They worked closely with the Sparagas to develop complete plans for the new building.

Machias Dental blueprints
Plans for the new Machias Dental
[click to enlarge]

And then the trouble started! Dr. Sparaga received noticed that T.H.e. Design was closing its doors. (Ouch!)

Luckily, the final plans had been completed months before. Project records were in the hands of various former employees of the deign company. Fortunately, all were willing to continue working with the Sparagas on an individual basis.

But the doctor knew he’d need more help than that, so he pursued local design firms to help finish the inside of the building. It fell to Kathy Sparaga, a local architect, and the couple’s general contractor to work through the myriad of problems inherent in a project of this scope. Fortunately, they have managed to keep the project on schedule.

Building Machias Dental
Step 8: Work continues…
[click to enlarge]

Though it’s the dead of winter in northern New England, hammers continue to fly on the new dental facility. The exterior of the building is close to complete, and the interior rooms are taking shape. By this spring, Dr. Sparaga hopes to have an associate, a completed building, and an ever-expanding patient list.

Stay tuned next week to take a look inside the brand-new building!

Dental Practice Design Is Harder Than It Looks

Machias Dental Continues Construction of New Facility

We’ve been covering the story of Dr James Sparaga, a dentist in the middle of building a spacious new facility for his practice.

Building Machias Dental
The team checks out their new home
[click to enlarge]

Here are the steps the doctor has already taken:

The work focus is shifting from the exterior of the building to the interior (the fun part of the building!). The Sparagas had found a millwork subcontractor to build the desk, cabinets and shelving. Unfortunately, he backed out just as the job was about to start. Small-town rumors flew about the reasons why, but all that Jim and Kathy Sparaga cared about was getting their woodwork done. They ended up ordering cabinetry from both Adec and a kitchen cabinet company, hiring a shelving company, and finding a carpenter to handle the reception desk and fine finish.

Building Machias Dental
The interior takes shape
[click to enlarge]

They didn’t want to skimp on the interior design, but the nearest designer was some 90 miles away. They decided to go with T.H.e. Design, thinking that a dental design company would be best equipped to verify and order wall covering, carpet, tile flooring and furniture, etc. But then, as previously mentioned, T.H.e. went out of business.

So now the search was on for an interior designer. It just so happened that the Sparagas were looking to make some adjustments to their home, so they called a residential design firm. Impressed with their service and out of sheer desperation, they asked if the design firm might be interested in a dental office project.

And what do you know? It was the design company’s slow season, and they were more than happy to take on the dental project. They have turned out to be the answer to the Sparagas’ dreams. They are re-sourcing all the needed items and improving upon the original selections.

Next it was time to select the dental equipment for the new facility. Like so many dentists, Dr. Sparaga was understandably enthusiastic about getting new toys.

But of course nothing is ever as easy as it seems… Check back next week to see what sort of snafus the doctor encounters in his search for dental equipment!

Dental Dilemmas in Real Estate

When Buying Commercial Property, Dentists Should Think Ahead

dental lease advocate Lewis GelmonSpecial Lease Feature by Lewis Gelmon

Should you lease or buy? This debate often arises from the same question that motivates people to buy a residence: “Why am I paying rent and not paying down a mortgage instead?”

The realities that drive residential property values are very different from those that create or eliminate the value of owning commercial property. Consider this: banks (being risk-averse organizations) typically won’t lend money for the purchase of commercial real estate with less than a 40% down payment. Compare that to as little as 5% for residential purchases.

The main difference is that commercial property, unlike residential property, is valued primarily on a capitalization rate of its rent-producing tenants. Despite a strong revenue stream from a building’s tenancy, there are other social, geographic, and infrastructure issues that can greatly affect a commercial property. These include:

  • construction of new roadways,
  • changes in traffic patterns,
  • opening of new commercial developments that shift retail markets,
  • access restrictions or reduced visibility to the property, and
  • changes in purchasing demographics.

There are three typical property ownership scenarios that dentists seem to purchase. They are:

  • buying into the ownership group occupying space in the same building,
  • purchasing an office condominium, or
  • purchasing a free-standing building and converting it into a dental office.

Buying into the ownership group of an office building can be problematic. Due to the split ownership, you probably won’t be able to control your investment. As a result, it will be more difficult for you to liquidate your ownership or even borrow against it.

Ownership groups of medical buildings can also be fraught with politics of the tenants. As an example, consider the dentist who became a minority owner of the building he was in. This dentist was denied dividends (and even the right to sell) because the other majority owners, who happen to be orthodontists, felt that they did not receive enough referrals from the dentist over the years.

Purchasing a dental or medical office condominium is the most risky because it is unlikely you will be able to sell the property to anyone other than a dentist or other doctor. When you are ready to sell, the volume of your potential successors is lower compared to tenants looking to lease. The outcome is that your property could be at risk of devaluation.

Purchasing a free-standing building and converting into a health care practice is the least risky route. If you buy the building in the right location, you’ll be more able to sell it to others unrelated to medicine or dentistry. Stand-alone buildings also have much greater appeal to retailers and other businesses due to visibility and parking.

If you’re truly interested in purchasing revenue-generating property, you will probably do much better owning a residential apartment, duplex, triples etc. where you receive simultaneous benefit from revenue generation and property appreciation.

Looking for more information on the topic? You can reach Lewis Gelmon at (760) 479-9704 or lewis@lewisgelmon.com. For only $495, he will personally review your lease. 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.

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