Unfortunately, price rises are a fact of life. No matter how carefully you try to cap your dental practice’s expenses, they will go up year over year. Still, there are steps you can take to protect yourself from costs soaring out of control. For many dental practices, the building lease is among the biggest expenses. It is also one of the expenses that is most vulnerable to dramatic price hikes. Here’s how to protect yourself against dental lease inflation.
Know the Terms
Dental leases, like other commercial leases, can be structured in a few different ways. Some leases require you only to pay the rent and utilities, with a clause that allows rent to be recalculated each year. Others, known as triple net leases (or nnn leases), charge a lower rent price in exchange for the tenant paying not only the utilities, but also the estimated costs for property taxes, maintenance, and building insurance.
Landlords often prefer triple net leases, as they pass the variable costs of property ownership through to the tenant. A triple net lease can also result in a cost savings for the tenant as compared to a traditional lease. However, like traditional leases, triple net leases generally have provisions for rent increases year over year.
It is important to understand what type of lease you are signing, so that you know what to expect. Different types of leases can lead to skyrocketing costs in different ways.
Since dental leases are generally multi-year in duration, typically between 5 and 10 years, a bad lease can leave you stuck for a long time. Negotiate a cap on the amount that your lease payment can rise each year. In a triple net lease, experts suggest capping the increase at 6 percent per year. For a traditional lease, you might settle on a dollar figure instead.
Be Willing to Walk Away
Starting a dental practice is an expensive and time-consuming endeavor. It can be tempting to jump on a lease with favorable starting terms, under the assumption that your practice will grow year over year. It can also be tempting to buy an existing practice without consideration for whether the building lease is currently at, above, or below market value, or what the future terms are.
Whether you are buying an existing practice or starting from scratch, though, your building lease can be a significant factor in whether your practice becomes and remains profitable. Negotiate hard, and never be afraid to walk away. The right property for your practice is out there, and it is far better to take the time and energy to find it from the outset than to get locked into a bad lease.
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.