Lewis Gelmon Archives - The Wealthy Dentist

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.

Economic Downturn? Renegotiate Your Dental Lease!

A One-time Gift from the Gods!

Welcome to the New Year, but I digress… as I write this the Dow is at 9,034. The Santa Claus Rally I predicted for the stock market came in right on schedule.

The next market rally will likely come when an estimated four million pilgrims stimulate Washington, D.C. on January 20 to watch the canonization of the Family Obama. Though both of these rallies are based on “Irrational Exuberance,” the psychology of hope is about all we have to move the economy forward right now.

Now for the real news – and what it means for your dental practice. The next big economic shock to hit the economy is the coming due of over $510 billion in commercial real estate debt over the next three years. About $180 billion is due this year.

These are the same cheap-money mortgages that financed the home loan debacle – only now we’re talking about strip malls, office buildings, shopping centers, and just about any type of commercial building. Now, to put a real spike through the heart of the problem, it is expected that over 500,000 retail outlets (clothing, restaurants, gift shops, etc.) will close their doors in this year’s recession.

Empty storefronts lower commercial real estate values, which need to be refinanced to stay open. The math doesn’t work. There is not enough money. Do we really need all the Starbucks, Gap and Old Navy outlets?

Look for the collapse and abandonment of low-end and middle-level commercial complexes… including those that may be housing your dental practice! Think about what happens when your neighboring shops and offices go empty and normal sidewalk and drive-by traffic slows to a crawl.

These facilities will have extreme difficulty in securing refinancing. Many will go bankrupt! At best, they will defer needed maintenance, and empty storefronts will be leased month-to-month to massage spas (think “parlors”) and other low-life businesses. Don’t laugh; I have seen real life examples of this!

Believe it or not, there is an opportunity here… for all of you renting your facilities. Pick up the phone and call Lewis Gelmon at (760) 479-9704. Lewis is the number one specialist in dental office lease negotiations.

Now is the time to renegotiate your lease… Don’t worry if it may not be due for renewal for another two or even three years. It will be another 20 years before you are in such an advantageous position relative to your landlord.

This economic moment is a one-time gift from the gods to dramatically lower your operating overhead and secure your long-term financial future. Get a professional to sit between you and your landlord… call Lewis at (760) 479-9704.

More next week…
Jim

Most Dentists Forget the Risk Costs When Leasing Office Space

Rent May Not Be the Biggest Part of Your Dental Practice Lease

dental lease advocate Lewis GelmonSpecial 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.

Post your comments

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 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.

Disclaimer

© 2017, The Wealthy Dentist - Dental Marketing - All Rights Reserved - Dental Website Marketing Site Map

The Wealthy Dentist® - Contact by email - Privacy Policy

P.O. Box 1220, Tiburon, CA 94920

The material on this website is offered in conjunction with MasterPlan Alliance.

Copyright 2017 Du Molin & Du Molin, Inc. All rights reserved. If you would like to use material from this site, our reports, articles, training programs
or tutorials for use in any printed or electronic media, please ask permission first by email.