Controlling expenses is vital to the health of any dental practice. Yet many dentists are unsure how to go about it. There are certainly areas in which high costs reap great rewards, such as investments in digital technology. But there are other areas where you might not have any idea that not only are cost savings are possible, their implementation would have zero impact on your patients or the way you practice dentistry. Your dental office lease is one of these areas.
Reviewing and negotiating the details of the proposed lease before signing or renewing can reveal ways to save money that could add up to hundreds of thousands of dollars over the life of your tenancy. Here are 3 ways to bring down your dental office lease costs.
Negotiate Annual Base Rent
Annual base rent is relatively easy to understand, as it is comparable to renting a home. You will pay the landlord a certain dollar amount every month for the privilege of using the designated space. At the end of the year, you will have paid the annual base rent. Make sure you are not overpaying by doing your due diligence. Find out how much the landlord is charging for comparable vacant spaces in the building, as well as how much local competitors are paying for similar spaces.
Negotiate the annual base rent amount. This will allow you to remain profitable as your practice grows and evolves. Also try to negotiate a cap on future rent increases to protect you in the future.
Review Operating Costs
Operating costs are a massive gray area that can be quite confusing. They can be defined as the expenses incurred in running the building itself, and it is typical for them to be passed along to the tenants. However, not all expenses are reasonable for the landlord to pass along. Fair and reasonable operating costs include your share (and only your share) of:
- Property taxes
- Common area maintenance (CAM)
- Administration/maintenance fees (no more than 5%)
Make sure your lease gives you explicit written permission to audit the landlord’s records to ensure you are not being overcharged. For example, the landlord, not the tenants, should be responsible for the portion of CAM charges that are related to vacant spaces. Also try to cap your share of operating costs, either through a percentage formula or by setting an annual threshold.
There is also a long list of unreasonable operating costs that some landlords try to pass on to their tenants. Never agree to take responsibility for:
- Property improvements designed to raise property value
- Building repairs or structural replacements
- Real estate broker commissions
- Professional fees that do not directly relate to your space
- Payments or interest on mortgages or debts except your “Tenant Improvement Allowance” (TIA) or your other direct debt
- Marketing association fees except those that drive traffic to your business or the building as a whole
Closely tracking relevant dates can save you significant amounts of money. For example, your lease probably has an “overholding” clause. If you do not renew or move out by the expiration date, this clause will take effect. The overholding clause may allow the landlord to charge you double the monthly rent and to evict you with only 30 days notice.
Likewise, there is probably an “option to renew” provision that sets out the earliest date you can renew your lease. Starting negotiations on the first “option to renew” day gives you time to negotiate a lease that is fairer and more equitable for both parties.
The best way to ensure that your practice is protected is to have an experienced professional review your lease before you sign or renew. He or she can look for certain language that could end up costing you a great deal in the long run, and can help you negotiate more favorable terms.
Ready to Get Started?
If you are interested in learning how to take your dental practice to the next level, please contact Ascent Dental Solutions today at 413-224-2659 to learn how Dr. Coughlin can help.