One Clause in Your Dental Office Lease Can Put You Out of Business

Posted on by HS We Do That | Category Practice Management

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By Jeremy Behar, President and CEO, Cirrus Consulting Group

Imagine arriving at your dental practice to find a notice from your landlord stating that the building will be undergoing redevelopment, your office lease is being terminated, and you have 30 days to vacate the premises. Your first thought is “there’s no way this can be real. My landlord would not, could not, and cannot legally get away with this”. Wrong.

Reality Check

This very real and common scenario is a result of the landlord exercising their right to demolish the space as outlined in the “Demolition Clause” in your dental office lease. This clause permits your landlord to relocate you or terminate your lease if they decide to demolish, renovate, or redevelop the building or center you are practicing in. Often the definitions of “redevelop”, “demolish” or “alter” in the lease are highly ambiguous.

Negotiating the Demolition Clause in the Dental Office Lease

It is in your best interest to avoid signing a dental office lease with this clause present altogether, or at least attempt to have it removed. If the clause already exists in your lease, or your landlord won’t remove the clause and you still choose to move forward, there are ways to amend it so it works more to your advantage.

  • Landlord Pays for Relocation Costs: If the landlord chooses to relocate you, put the onus on the landlord to pay for all costs associated with the move or the demolition of your office space, including covering demolition/construction costs, real estate fees, moving expenses, marketing, and other costs.
  • Time Constraints: Try to negotiate time constraints that apply to the landlord for activating the Demolition Clause; the later the better. For example, maybe the clause can only be exercised 5 years or 10 years into the lease.
  • Increasing Notice Terms: How much advanced notice will you be given to exit the space? Consider the amount of time required to relocate or rebuild your practice without having to rush into a new space that is not ideal. There is a big difference between having 30 days to vacate and 9 months to a year to vacate. Having time on your side before you are required to exit equals more time to find an ideal location and re-build your practice.
  • Terms of Activation: Ask your landlord how much of the building will need to be renovated or redeveloped to activate the Demolition Clause. For example, perhaps it can only be invoked if more than half of the property is affected by the rebuild.
  • Proof of Demolition: What proof should your landlord be required to provide you with upon the activation of the Demolition Clause? You want to ensure that the reason for eviction is because your landlord is rebuilding or demolishing the building. Common examples of proof include architectural drawings and building permits. This evidence ensures that your landlord is honest and is not evicting you needlessly, or for a reason other than a planned demolition or rebuild.
  • Lease Termination Rights: In the event you are relocated and you do not like the space you are being relocated to, you should have the right written in to terminate the lease.
  • Compensation: If the landlord invokes the right to terminate your dental office lease based on a redevelopment, they should be legally obligated to either pay to move you, or to pay for your unamortized leaseholds.

Huge Risk and No Reward for Your Dental Practice

The disruption to your practice, loss of business, and moving expenses associated with the Demolition Clause can easily make or break a flourishing practice. Due to the grave costs and risks involved, it is in your best interest to avoid signing a lease with a Demolition Clause in it. If this isn’t possible, try renegotiating the clause so that the onus is on the landlord to pay for any related expenses.

Don’t jeopardize your practice’s future by putting yourself at the mercy of the Demolition Clause. Have a leasing professional carefully review the details of your dental office lease before renewal or opening a practice to ensure your business is protected now and in the future from this clause. To learn more, request a free lease consultation.

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