After staff salaries, office rent is the biggest overhead expense. The mistakes you could make in setting up the lease will haunt you for years.
Here are a few negotiating points to help you come up with the best possible lease agreement.
- From a landlord’s perspective, physicians are one of the most steady and credit-worthy
Take advantage of your “Triple A” status and push for things you want included in the lease. Most lease contracts are drafted in the landlord’s favor. There is no such thing as a “standard lease”, so treat every provision as being negotiable. It is imperative that your lawyer formulate the proposed changes to the contract and negotiate them with the landlord’s lawyer. - Count on the fact that the landlord will never want to talk to you again about the lease after you signed it, so make sure that you don’t leave any issues outstanding to be resolved after the execution of the lease. If the landlord is willing to give you extra designated parking spots, it should be stipulated in the lease document.
- Most commercial leases are based on a “triple net” or minimum rent, which means that you pay the base rent to the landlord as stipulated in the lease and then pay your pro-rata share of all the operating costs. Review the operating costs for reasonableness and make certain that the square footage allocation is correct. You may want to get an outside expert to confirm the square footage.
- Negotiate a “tenant inducement”, which can be in the form of a cash contribution by the landlord to help finance the leasehold improvements or an equivalent reduction in the lease payment.
- Check the terms of the renewal. The lease may stipulate that the rent will be based on fair market value, but not less than your current rate. This would prevent the tenant to renew at a lower rent in case the leasing market has softened. The renewal should be subject to arbitration.
- Have your legal counsel review the destruction and demolition clauses. If the premises are destroyed by fire and the landlord has the right to restore the premise, ensure that the repairs are done within a reasonable period. Alternatively, you should have the right to terminate the lease and move to another location.
- Be aware of any clauses that protect the landlord from any claims that patients may have when they are injured on the premises as a result of the negligence of the landlord. Resist any attempts to indemnify the landlord against any claims.
- Consider negotiating an early termination clause, that is, if you wish to retire, or become disabled, you have the option to terminate the lease with a relatively short notice. A three month rent payment would be reasonable.
Many doctors dislike lease negotiations, because they feel that landlords are inflexible as they seem to have all the cards. Perhaps you want to enlist a lease professional to represent you in helping you secure a facility lease that is best for your situation.
