Should You Lease or Own Your Dental Practice Building?

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If you’ve decided to own a dental practice, there are lots of things to be mindful of to be successful beyond the day to day operations. Your time, money and other resources need to be spent on marketing, effective management techniques, and bookkeeping. In addition to all of these, you also need to factor the whereabouts of the physical location of your business. And with that comes the need to think about what your plans are for your practice for both the long and short term.

Do you want to have more flexibility for the physical location of your practice? Do you have access to funds for a down payment and mortgage for your practice space, if desired? These types of questions can help you hone in on the more practical option for your business needs and goals.

And these questions lead to a very important one.

Should you own or lease the office space for your dental practice?

 

PROS OF LEASING

Leasing is essentially the same thing as renting your office space. If location is of utmost importance to you, leasing allows you to have more flexibility than owning real estate. There’s a higher likelihood of being able to find short term leases, for example, if that’s something you feel you need. In many cases, leasing gives you more options in terms of property locations. Finally, you won’t need to have a large amount of capital to invest in real estate property if you decide to lease.

 

CONS OF LEASING

If you’ve had experience with renting at all, you know that one of the biggest drawbacks is that rental rates consistently increase over time. If you’d like your dental practice to remain in the same location for the long haul, signing onto a long-term lease might not be in your best interest. You also don’t get the benefits of property ownership, namely equity value and tax advantages, if you lease your office space.

 

PROS OF OWNING

Real estate ownership offers many advantages and benefits in general, and the same is true if you want to purchase property for your dental practice.  Some of the most compelling benefits are flexibility in controlling location and any future expansion projects, the ability to build equity as you pay down the financial terms, and to eventually earn a return on your investment.

 

CONS OF OWNING

In contrast, owning your dental practice location requires a significant amount of upfront capital. As a property owner, you would also be responsible for any upkeep and maintenance, including fronting the cost for any property-related damages. These responsibilities can take away from other tasks necessary to growing and sustaining your practice,like marketing, staff management, and accounting.

The decision to lease or own your dental practice property is based on a combination of your personal and business needs. It’s good to think through all of your options with either choice.

 

WONDERING WHERE TO BEGIN?

Are you just starting out with your practice? Sign up for Dr. Coughlin’s program that details the principles of success to learn what it takes to have a successful, thriving dental practice!

Demolition Clause in Office Lease: What You Must Know

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Office leases can be quite complex, and many dentists are unsure exactly what all the complicated language means. It is always best to have a competent attorney review your lease before you sign it, as there are many clauses that could be problematic to your dental practice. One of the biggest red flags to watch out for is a demolition clause. Here is what you must know.

What Is a Demolition Clause?

A demolition clause states that if the landlord decides to demolish or redevelop the building, he or she can serve the tenant with a notice to vacate. Different states have different laws surrounding the notice period that must be given, but 30 days notice is typical. As you can imagine, that is not much time to find a new property and move your practice, and unless other terms are negotiated, you may be on the hook for all your relocation expenses.

Possible Problems You Could Face with a Demolition Clause

Time Frame: As you know, a dental practice is not a plug and play business that can be dropped in just anywhere. You will need to find a suitable property, build it out, and move everything over. You will also need to let your current, former, and prospective patients know where to find you. A tight time frame could be devastating to your practice.

Relocation Costs: If you are held responsible for your own move costs, the financial impact could be severe, or even put you out of business. Does your practice have the spare cash, today, to cover the costs of renovations and build out, hiring movers, changing your marketing, updating your signage, and all the other expenses associated with a move?

Rent Increase: There is no guarantee that you will find a new lease on a suitable property for the rent you pay now. In fact, if you have been in your current location for a few years, it is almost inevitable that a new lease will come with higher rent.

Trouble Finding Comparable Space: Of course, you might not find a comparable space at all. You may have to downsize, take a location with less foot traffic, deal with close proximity to an established competitor, retrofit a space for disabled accessibility, or cope with innumerable other challenges.

Difficulty Selling Your Practice: Even if the demolition clause is never exercised, just the fact that it exists in your lease could make it tougher to sell your dental practice. Some buyers and many financing companies are reluctant to take on an acquisition with a demolition clause, as it removes the security of the lease term.

Negotiating the Demolition Clause

It may be difficult to get your landlord to remove the demolition clause altogether, but some landlords are willing to negotiate. Here are some common ways to amend this clause.

Landlord Pays for Relocation: This is a real game-changer for the demolition clause, if you can get your landlord to agree. Amend the lease to say, in writing, that the landlord will pay any and all expenses related to your relocation if he or she invokes the demolition clause.

Time Dependency: Try to negotiate a length of time that must elapse before the landlord can activate the demolition clause, such as 5 or 10 years. This gives you time to build your practice and save some capital before you need to worry about being put out on the street.

Notice Terms: Try to expand the amount of notice your landlord must give you to vacate. It is far easier to relocate with a year’s notice than with 30 days’ notice.

Terms of Activation: Some landlords will use clauses such as the demolition clause as a pretense to replace tenants with those who will pay more. Ask for a stipulation that the clause can only be invoked if more than 50% of the entire property is demolished or redeveloped.

Proof of Demolition: Get a written commitment for the landlord to provide you with specific proof of demolition or redevelopment when activating the clause, such as architectural drawings and building permits. Otherwise, how will you really know if demolition was the reason you were evicted?

You may not be able to get rid of a demolition clause altogether, but there are ways to make it far fairer to you as a tenant. Always have a competent attorney review your lease before you sign or renew, and always negotiate to get the best possible 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.