Demolition Clause in Office Lease: What You Must Know

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.

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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.