Dental Office Leases: What Dentists Should Know

Anyone looking at dental office space for lease will meet the same forms any office tenant does, and those forms were not written with a dentist in mind. Attorney Philip Bogart, writing in Dental Economics, calls the lease one of the most important contracts a dentist will ever sign. He also warns against believing a landlord or the landlord's broker who says the lease is standard or not open for discussion.

Three facts separate a dental tenant from an ordinary office tenant. The space is costly to build, because plumbing, vacuum and air lines run to every operatory. Patients and goodwill are tied to the address. And there will probably be a sale or a transition one day, in which a buyer and the buyer's lender will read the lease closely. Almost every term below connects to one of those facts.

Your term should be long enough to recover the build-out and protect the location, without tying you down longer than necessary. Options are the usual way to balance those. They let you stay if things go well, and you keep the choice.

• Match the term to your financing. Bogart notes that lenders require a lease of minimum duration, at least as long as the loan. Ask your lender what it needs before the term is set.
• Read the rent during options. Ask how it is set and whether you can see it in advance.
• Check whether options are personal. Another dental law article warns that options are often personal to the original tenant, which makes them useless to a buyer.
• Read the notice dates. A missed option deadline can end the right, so put it on the calendar with your attorney.

A dentist signing a first lease is rarely thinking about retirement. The lease should think about it anyway. Some leases treat any change in ownership, even a partial buy-in by another dentist, as an assignment, according to a Boston law firm's guide. That can create a problem for bringing on a partner as well as for a sale.

Personal guarantees come up in nearly every deal. Landlords normally require one, and some ask for a spouse's guarantee too, which Bogart says is seldom advisable. He notes that a landlord may agree to a cap on liability or a burn-off, where the guarantee ends at a set point if rent has been paid. Our guide on selling a practice looks at how assignment and guarantees play out when you exit.

These are short clauses that are easy to skim past, and each can matter a great deal.

• Relocation. Some leases let the landlord move you within the complex. For a dental office, that means new plumbing and lost time, so try to delete or limit the clause.
• Restoration. Surrender language may require returning the space to shell condition at the end, which a Henry Schein article notes can mean demolition and construction costs, and can put off future buyers.
• Use. Limits on services can block alternative forms of dentistry or adding associates later. Ask for a broad permitted use.
• Exclusives. A landlord may agree not to lease nearby space to a competing dental practice. Check how it is defined and what happens if it is breached.
• Hours and HVAC. Ask whether you can open after hours for emergencies or on weekends, and whether heating and cooling will be on when you do.
• HVAC replacement. Tenants may be required to carry the maintenance contract. Dentists often try to keep replacement with the landlord.
• Casualty. Forms may give the landlord room to delay rebuilding after a fire. A dental law article suggests setting deadlines for repairs, with a right to terminate if they are missed.
• Death and disability. A solo owner may want the lease to end automatically if the owner dies or becomes disabled, to protect the family.

Before signing, read every section with a future buyer in mind. If a clause would worry a buyer of your practice, it should worry you now.

Bogart notes that many dental leases are triple net, so the tenant pays taxes, insurance and maintenance on top of base rent. Ask for a list of those expenses and past figures, and model escalations as compounded. Ask whether the landlord will fund part of the build-out through an allowance or a period of reduced rent, since landlords sometimes agree but have to be asked.

Compliance is also part of the lease. A Boston law firm's guide points out that most leases say the tenant will comply with all laws, and singles out ADA, building code and environmental law. For dentists, one federal environmental rule touches the premises directly: EPA says dental offices that place or remove amalgam must operate and maintain an amalgam separator and file a one-time compliance report, with exceptions in the rule for certain specialties. State x-ray rules also vary, so ask your state radiation program what your equipment requires.

Leverage is highest before you sign and while you have another option. The term sheet or proposal letter is where most of it is spent. It is usually nonbinding, but Bogart warns that landlords seldom agree to concessions later if they were left out of it.

1. Get a dental contractor to walk the space, checking for structural or plumbing obstacles.
2. Compare at least two spaces, even if you plan to stay where you are.
3. Put term, options, allowance, free rent, assignment, guarantee and restoration in the term sheet.
4. Have an attorney with dental and leasing experience review the full lease.
5. Before signing, list all key dates and notice deadlines in one place.

That is the value of a real alternative, even for a dentist with no wish to move. TAG represents tenants and buyers, not landlords, and for dental practices we run the search and the economics, then work alongside your attorney on the lease document.