Can Your Dental Office Lease Prevent You from Selling Your Practice?
The details in the dental office lease are directly related to a practice’s value and the ability to sell or transition out of dentistry. The key to a smooth, risk-free transition lies in the provisions and clauses of the dental office lease agreement.
The harsh reality of the lease:
• 85% of all dentists have a lease that may prevent them from ever selling their practice.
• 20% of dentists lose the ability to sell their practice each year.
• Thousands of dentists have learned that ‘assigning’ their lease to a prospective buyer results in the landlord’s right to terminate the lease.
Ensuring your dental office lease is set up to support your practice sale well in advance of your transition will help you avoid expensive traps, and retire/transition smoothly and safely.
Best practices for transitioning your practice:
Be prepared and plan ahead: Don’t wait until the last minute to begin thinking about your practice sale; negotiating your dental office lease to avoid traps that will impede transition plans takes time and planning. Start preparing for your practice sale at least 5-10 years in advance of your transition to ensure that the details in your lease support your long-term career and practice goals.
Outline your goals and objectives: Mapping out your practice goals will help you define your leasing strategy from the get-go, shaping out your long- and short-term business decisions. For example, often dentists assume that a short-term or a month-to-month tenancy will make the most sense for their plans to sell/retire; however, not having a long-term lease adversely affects the practice’s value, and can limit the ability of the buyer to obtain financing to acquire the practice.
Review and identify risks in the lease: It is important to clearly understand the details in your lease agreement in order to identify potential risks and pitfalls you may face upon transitioning.
The “assignment clause”, for instance, has a direct impact on the ability to sell your dental practice. When ready to retire or transition, many dentists are horrified to learn that the assignment provision in their lease requires them to ask the landlord for “consideration” or permission for the assignment to happen.
Sometimes this provision even gives the landlord permission to deny their request altogether, arguing that the proposed assignee does not have the same “financial standing” the current tenant has. Verbiage in the assignment clause may also allow the landlord to raise rents upon the request to assign the lease, or a right to all of the sale proceeds.
Thoroughly review your lease for these risks and more in order to uncover and negotiate out any terms that may be detrimental to you and your transition plans.
Negotiating a lease takes time, patience, and expertise in commercial real estate and dental leases. If you don’t feel confident negotiating your own lease, or feel you don’t have the skillset necessary to review or negotiate the terms in your own lease, don’t be afraid to seek out professional help.
The details in your lease will outline your financial responsibilities and obligations as a tenant to your landlord for the next ten years or more; there is no room for error. Prepare for your practice sale well in advance to allow yourself enough time to negotiate fair lease terms that will protect your investment, and support a seamless, successful and profitable transition.