Can your landlord relocate your dental practice?
Tuesday, January 10, 2017
Picture this: You've built or bought your dream dental practice, amassed a loyal patient roster and are enjoying the fruits of a successful dental practice. Having found a space that works for your business, you feel lulled into a sense of security by what you thought was a good, solid dental office lease.
Suddenly, without warning, you receive notice from your landlord that the dental practice you have worked so hard to build is being relocated to make room for the accountant next door who is expanding. You realize the office lease you thought was designed to protect your interests is actually riddled with clauses that the landlord can exploit to his advantage — in this case, it's the "relocation clause."
So, what does this mean for you and your practice?
What is the relocation clause?
To start with, the relocation clause gives your landlord the right to move your dental practice to another location in the center or building. Landlords generally exercise this right when they have a tenant interested in expanding into the space or are willing to pay higher rental rates.
A more attractive or lucrative offer may give incentive for a landlord to invoke the relocation clause and request that current tenants vacate their space — with typically 30 days' notice — and move to a new location. As dental practices in particular are expensive to maintain and difficult to relocate, a hidden relocation clause can pose major problems for a tenant.
Is a dental practice relocation really so bad?
A surprise relocation can be devastating to a dental practice for multiple reasons. Here's what you should consider:
Relocation costs: Many leases do not put the onus on the landlord to cover relocation/moving expenses. This means all costs associated with the move, including demolition of the current space, renovation and build-out costs in the new location, marketing materials and stationary, movers, etc., are your responsibility. A relocation can easily add up to hundreds of thousands of dollars in unexpected costs to a dental tenant.
Increase in rent: If you are moved to a "more favorable location" (e.g., from the third floor to the first floor), you may face an increase in rent for the upgraded real estate. If you are moved to a larger location, you may suffer an immediate increase in rent for the additional square footage.
Size: There is no guarantee that the size of the new location will be comparable to the original premises. If smaller, you will have to downsize, reconfigure layout and operatory rooms, and ultimately suffer a loss in production.
Business downtime: If you are relocated, you could face business "downtime" or "dark time" while your new practice is being built out. Every day that your practice doors are closed before the new location is functional is a loss of revenue.
Downgrade in facility: You may be forced to trade in prime real estate for an out-of-the-way corner unit with low visibility and zero foot traffic. The landlord controls the relocation, which means you could face a serious downgrade in the quality of your environment, as well as a lower potential for walk-in business.
Competition: You also may not have control over potential competition in the vicinity of your new unit. Your new space may mean close proximity to competing dental offices, which could negatively impact your ability to draw in or retain patients.
Accessibility: For both new and existing patients, accessibility is a huge factor. If your new office is not easily accessible, or does not have parking amenities, you risk alienating your client base. When you do open your doors again, you may find that not all of your patients were willing to make the move with you.
Can’t remove it? Improve it
The most effective way of avoiding a surprise relocation is by identifying this clause in advance and negotiating it out of your lease before you sign it. If it cannot be removed, often it can be redrafted in a way that is more favorable to the tenant.
The best defense is a good offense, and with a planned, strategic approach, often the terms of your dental office lease can be renegotiated with your landlord. Consider some of these remedies to altering a relocation clause in your favor:
Landlord is responsible for all expenses: Negotiate the terms of the clause so the landlord becomes responsible for all costs associated with the move, including marketing materials and stationary, moving expenses by trained dental movers, demolition, renovation and the build-out of the new space. Put the onus on the landlord to conform the space to your needs, not the other way around.
Rent abatement: Ensure you will pay the same or comparable rent in the new location.
Comparable location: Add language that will ensure the new premises will be comparable with the original space in terms of size, configuration, view and foot traffic.
Sufficient notice: Demand a sufficient notice period in order to adequately prepare your staff, patient roster and build-out of the new space to avoid any practice downtime until the new location is ready.
Limit the number of relocations: Because landlords can exercise their right to relocate you indefinitely, negotiate the language so you can only be relocated once during your term.
Lease termination rights: Finally, try to negotiate your option to terminate the lease should the landlord relocate you to a less-than-adequate location.
Better yet, avoid the problem altogether
Starting or buying a dental practice is always exciting, but before you break out the bubbly and sign your name on the dotted line, it's imperative to conduct a thorough review of the details in your dental office lease. Look for any hard-to-spot risks like the relocation clause in the lease, and devise an appropriate lease negotiation strategy to improve the terms of your lease agreement before it's too late.
A strong lease can set you up for success by offering security and long-term practice location protection so that you can focus on practicing dentistry without having to worry about packing up your business down the line.
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