You’ve worked hard building a practice. You have the right equipment, a great staff, a growing patient base and an office in a great location. One day, you get a letter from your landlord stating that he wishes to renovate the building and your lease will be terminated by the end of the next month. According to your landlord you are required to bring your space back to four walls, removing any trade fixtures before you leave. This could cost you tens-of-thousands of dollars, not to mention the income you will lose while you find and build out a new space. How did this happen? Can this be legal?
Yes, this is a perfectly legal tactic that a landlord can exercise IF it is stated so in the lease documentation — after all, you signed it. Is this fair? No — especially when you find out the landlord did not renovate the building but was only making room for an ‘Old Navy’ store. This sort of thing does happen, but it can be prevented.
The answer to this problem lies within the numerous pages of a commercial lease that come AFTER the business terms. Many tenants are focused solely on the cost of rent per square foot (which is important, but not all encompassing) and ignore the other 40 or more pages of terms and conditions that can dictate the future of their practice. This often results in disaster for many tenants across North America. It’s crucial to level the playing field between landlords and tenants by increasing the level of awareness tenants (particularly health care practitioners) have about the risks contained in their lease. The following are just a few things you should be aware of in your lease.
Tenant Construct
Who (or what) entity is signing the lease? Are you and your family liable for the rent for the entire term of the lease? If something happened to you during the lifetime of the document and you were unable to pay the rent, a landlord could very well attack your personal assets.
Term
Are the term and subsequent options structured properly to reflect the needs of the business? If you plan to retire in five years and renew your lease, are you renewing another 10 year term?
Tenant Improvement Allowances
Is your landlord offering you a tenant improvement allowance? How will the landlord recapture that amount in the years to come? Will you be double billed?
Assignment
Are the assignment provisions written to allow you the ability to retire early without penalty? What happens if you become disabled? Will your lease be terminated if you express your desire to hand over your practice to an associate? Can the landlord terminate your lease if you express the desire to hand the business down to your child?
As you can see, there are many clauses within a lease that can have a significant effect on the success of your practice. Once you understand the lease you can begin to change some of those clauses into fair and reasonable ones.
If you find that your lease does contain many of the risks listed above, you should begin to think about renegotiations right away. Never leave the process until the date that is written in the lease, after all, it was created by the landlord. Begin thinking about how you would prefer these terms to read as soon as possible so that you are prepared when it becomes time to renegotiate. If you are not comfortable with the negotiating process or just need some advice, don’t be afraid to contact a lease consultant who will be able to answer questions and give you valuable advice.
Stefanie Herron is a Business Development assistant for Cirrus Tenant Lease Services, which specializes in tenant lease negotiations for dental practitioners across Canada.
