How Your Lease Agreement Affects the Value of Your Practice
Part 2

As we mentioned in “How Your Lease Agreement Affects the Value of Your Practice: Part 1”, your dental practice’s lease is probably the most important contract you’ll ever sign in the span of your career – and so it’s critical that you include all the clauses you need to, and do so correctly.

In Part 1, we listed the first 6 of 12 important clauses that will affect your practice lease, as well as the current or future value of your practice.

Now, we’ll talk about the remaining 6 below:

7. Exclusivity:

In malls and non-medical buildings, having exclusivity would increase the value of your practice and make it more attractive to potential buyers. You want to ensure that this clause is included in order to prohibit the landlord from renting space to another professional competing directly with you. An exclusivity clause protects you from competition in the same property. However, landlords of some large shopping centers (malls) and medical buildings may not be as open to adding an exclusivity clause.

8. Arbitration:

Your lease should contain an arbitration clause that provides a mechanism for settling any disputes between you and the landlord. This proves to be very important if you and the landlord are unable to agree on a reasonable rental rate when renewing or extending your lease.

9. Permitted use clause:

Provisions for permitted uses of the premises is very important. As a professional tenant, you want to ensure that all the intended and related uses are permitted under the lease and under municipal zoning by-laws. Make sure such a clause support any future expansion and growth plans.

10. Death and disability protection:

This provision allows you to terminate the lease agreement in the event that you are deemed unable to work due to death or disability. In addition, you should always have proper insurance coverage to protect you and your family in case of death or disability.

11. Assignment clause:

You should be able to assign your lease on consent of the landlord which should not be unreasonably withheld – and you will only be liable as a guarantor for the balance of the lease term or less if possible. It is as important to ensure that the landlord does not have the option to terminate the lease in the event that you seek an assignment of the lease consent. This arbitrary recapture clause can be used to blackmail the tenant into paying additional fees or higher rent to the landlord and thus rendering the assignment rights to be of little or no value.

Some landlords may include an assignment clause with a portion of the proceeds of the sale price to go to them, claiming that the sale price is attributed to the desirability of the location and as the owner of the location, the landlord should be given a share of the proceeds.

12. Tenant inducements:

The best time to seek inducements from the landlord is before executing the offer to lease or lease agreement. Inducements such as free rent periods, leasehold allowances and/or other renovations to be completed at the landlord’s expense.

By ensuring all of the clauses mentioned in Part 1 and Part 2 are contained within your lease, you’ll not only be protecting yourself from the potential risks – but you’ll be increasing the value of your dental practice.

Alan Rustom