5 Pitfalls To Avoid When Negotiating Your Dental Lease

Information we’ve gathered reading 1,000’s of dental leases.

Your lease is the most important document you will sign during the process of opening your practice. It likely involves the most money, the most risk, and the needs of your 3 most expensive cost centers – equipment, construction, and rent. After helping over 500 doctors sign leases, we have a clear understanding of the best approach to reduce our client’s risk, achieve ideal terms, and tee up the practice to succeed.

There will be a lot of voices that need to be represented in the contract including the tenant and landlord as well as each of their contractor’s, lenders, insurance agents, as well as many others. This article is focused on what you can do to best position yourself for success.

Rule Number 1 of Lease negotiation: Hire an experienced Dental Attorney

A lease for a commercial property is much in-depth and bespoke than a residential contracts. You as a dentist have very different needs and risks than a restaurant or a nail salon. As such, we highly recommend clients work with a lawyer who specializes in dental lease negotiation to both streamline the negotiation timeline and to ensure you are appropriately protected in the contract.

The largest pitfall we see clients make is opting to work with a non-specialized attorney, often because they believe a friend or relative will both do a better job protecting their interests and save them money. Our experience is quite the opposite and after negotiating thousands of contracts we stand firm that this is the biggest pitfall you can avoid.

We have worked with scores of attorneys who specialize in negotiating dental lease agreements and we are happy to help provide a list of options that work for your market, stage of growth, and budget.

Practice Real Estate Group Partners

Skillful negotiation can make a big difference in your lease terms and costs. Why not have expert negotiators on your side?

In order to ensure that you receive the best possible terms, we assist you throughout the lease negotiation process. We have negotiated hundreds of leases for medical professionals throughout the country, and we know how to keep a negotiation focused on what matters most for your practice. Our in-house contracts attorney lends expertise to every negotiation and facilitates the document/term trading, which assists your legal team in getting you the best possible terms. We also advocate for critical rent and expense checks and balances. This helps to ensure that your practice launches and grows successfully.

The Pitfalls to Avoid During Dental Lease Negotiation

The negotiation process in commercial real estate is typically split in two major parts, the LOI and lease.  Briefly, the LOI is agreeing to the major terms that will be in the lease contract and the lease negotiation is agreeing to the specific wording.  Since the lease is often over 50 pages and the contract term regularly exceeds 10 years, this is a significant discussion. As such we recommend these tips during your dental lease negotiation. 

1 – Do not lose your cool or take things personally, especially with an outside party

Things will get heated, parties will drop balls, re-trade, and not respond for extended periods.  The best thing you can do is communicate primarily with your team and do your best to keep tensions low.  While it often feels like a negotiation between two parties, it’s important to remember that there are contractors, bankers, insurance agents, and lawyers involved on both sides and it is much more complicated than buying a couch on craigslist.

2 – Do not overestimate your leverage

As a medical tenant, you provide a specific type of value to a landlord.  This can be both positive and negative. The positives include your high likelihood of success, your longer lease term, and your penchant for attracting clients to a retail center.  These can help provide leverage to you in negotiations. Possible negative can include small space size, few assets in the business, complicated construction requirements, and high up cost for tenant improvement.

If you are looking to lease in a building with over 50,000 sq ft, your space of 2,00 – 10,000 sq. ft. may feel small.  If you are working with a smaller center, your construction costs could be daunting. Being mindful of both your strengths and weaknesses can help you have a healthy perspective  for achieving your goal.

3 – Avoid Assumptions

Assumptions rarely lead to successful negotiation outcomes. They can cloud your perception of your counterpart’s motivations and prevent you from reaching a satisfactory agreement. Don’t simply take it for granted that a landlord needs your tenancy. By the same token, don’t assume that money is always the driving factor. Certain landlords may prefer a more cooperative tenant over one who is willing to pay more. Consequently, focusing on pricing in such a situation could backfire.

4 – Be clear with your team up front about any rigid rules

Because there are such a large number of terms to negotiate and parties to consider, it is important to clarify your needs up front.  This is why the LOI negotiation is where most of the negotiation for large items takes place. LOI negotiation includes significant back and forth on the most visible terms that will come in to play.

Conversely the lease negotiation is when lawyers work together to make sure all parties are protected and the wording in the contract accurately communicates the terms agreed to during the LOI.  We encourage you to be clear up front because having a change of heart during lease negotiations is often too late and can lead to much time being essentially wasted.