Navigating Lease Negotiations: Essential Insights for Dental Practice Owners
Zane M. McCartney, MBA
Strategic Business Development & M&A | Driving Growth in Corporate Development & Acquisitions | National Healthcare Real Estate
How to Save Thousands Per Month
Hello, I'm Zane McCartney, your trusted advisor on healthcare real estate and practice brokerage. My mission is to assist physicians across the country in starting, expanding, and exiting their practices by connecting them with essential team members such as bankers, attorneys, and CPAs, and providing expert advice on the valuation and sale of medical practices. Today, I want to focus specifically on a crucial aspect of your practice's success: lease negotiations and renewals.
Why Lease Negotiations Matter
Lease negotiations are often a daunting task for healthcare tenants, particularly at renewal time. Landlords frequently exploit these situations, which is why representation is vital. A strategic leasing broker can protect your interests and secure favorable terms, significantly impacting your practice's value. Let's explore two case studies that illustrate the importance of effective lease negotiations.
Case Study 1: Young General Dental Practice Owner
A young general dental practice owner acquired a practice a few years ago, inheriting the existing lease. He had an automatic option to extend his lease, but the landlord was difficult to communicate with, making it challenging to exercise this option. While extending the lease seemed easy and compulsory, it was not in the best interest of the tenant due to unfavorable terms.
The doctor needed to focus on patient care while managing the financial burdens of paying down the practice loan, student loans, and everyday operating expenses. Recognizing the difficulties, he engaged me at Caton Commercial Real Estate Group to assist with renewing his lease, which was set to expire in a few months. The existing lease terms were significantly higher than the market rate due to compounding annual rental increases that didn't reflect post-COVID office lease market changes.
I immediately engaged the institutional landlord, conveying my client's demands based on a deep understanding of the local market, the landlord's financial challenges, and the property's market dynamics. Before the lease expiration, I successfully secured new lease terms, resetting the tax basis, saving the doctor over $200 a month in pass-through real estate taxes, and reducing the monthly base rent by $1,891.26. Additionally, I negotiated a tenant improvement allowance to replace the office flooring.
This engagement resulted in the doctor saving over $25,000 per year in rental expenses. These valuable dollars can now be reinvested in the practice for updated equipment, paying down loans, and ultimately enhancing the practice's profitability and value.
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Case Study 2: Established Orthodontist
A well-established orthodontist, practicing in the same space for almost two decades, was nearing the end of his last option period and needed assistance negotiating a new lease before his current lease expired in 18 months. I connected with the local property owner and quickly negotiated an updated lease, maintaining a strong professional relationship for the mutual long-term benefit of both parties.
I secured a new seven-year term with additional options, reducing the doctor's rent significantly, with immediate savings rather than waiting for the lease expiration in 18 months. The doctor realized $29,330 in savings in the first year and over $130,000 in total savings over the lease term. Additionally, I negotiated a $17,525 tenant improvement allowance for minor updates throughout the space.
These case studies demonstrate the critical impact of effective lease negotiations on your practice's financial health and overall success. If your lease is expiring within the next 24 months, don't navigate these waters alone. Connect with me to ensure you secure the best possible terms for your practice.
What would you do if you could reduce your annual rental expense by $25,000? How would that impact the value of your practice and overall profitability?
If you are a dental practice owner with a lease expiring within the next 24 months, I urge you to reach out. Let's work together to protect your interests and enhance the value of your practice. Email: [email protected]