Dentists all across the United States are all aware that many dental office leases contain hidden traps if you don’t read them thoroughly or get advice from experts. The good news here is that many landlords tend to be flexible. We strongly advise dentists to work with an experienced team of advisors who deeply understand the local dental climate and the complexity of dental leases.
Let’s think of the next, pretty common situation:
A dentist decides to start a personal practice, either by starting from scratch or purchasing an already existing practice. The same dentist finishes the rent negotiations, which includes free rent, tenant allowances, renewal options and cannot wait to sign the lease agreement.
Then the landlord presents a dental office lease agreement that appears to be pretty standard and asks the dentist to sign it, because “every other” tenant has. Should the dentist sign the lease?
No. Not without consulting with an attorney or an advisor first.
You should know from the start that the tenant and the landlord naturally have opposite goals once the dental lease agreement is signed. The landlord wants the lease to start as soon as possible so the rent will be paid promptly, even in cases when space may still be under construction or renovation.
If the office space is being built out, it’s crucial that the tenant provides the landlord with detailed plans, even specifying the carpet type, location of kitchen and bathrooms, sinks, what type of cabinetry they need, lab space and reception area, and other details that’ll help in the effort to guarantee that the new space will meet all the expectations and needs. It’s also important to ensure that the rent payment does not start until all the construction work is done.
The vast majority of lease agreements provide that the built-out will be considered complete when the landlord/contractor certifies that it is “substantially completed”. In most cases, this means that “punch list” items will be completed by the contractor after the practice is officially open for business and this surely is not the image a dentist wants to present to their patients.
When building out space, the dentist should select the most qualified contractor as possible and work on negotiating an appropriate build-out period. It would be smart to include a liquidated damages clause in the construction contract, that will ensure that if construction delays are behind schedule, the contractor will pay the rent instead of the dentist until the office is completed entirely.
