The Real Skinny on Dentistry Real Estate

By May 11, 2016Insights

Are you paying too much for your lease?

There is no rule for setting lease rates. It all comes down to what you can negotiate. Many dentists are not aware that they can negotiate, even on an existing or long-term lease.

Let’s explore a few scenarios that have dentists paying too much…

Dr. Smith is on a 5-year lease, and rent has been raised $1 per square foot each year. He’s writing checks every month, and he’s not even realizing that there has been incremental increase. It’s just another little thing he does to keep his practice running.

Dr. Garcia paid the same flat lease rate for her first 5 years, and didn’t question a $2 per square foot bump in rate for the next five years.

Dr. Jones asked other tenants in the building what they were paying. He learned that the tenant downstairs is paying $2 more per square foot, so he figured he’s getting a good deal and he let the matter go. He didn’t ask the tenant upstairs, who is paying $6 less. And he didn’t negotiate with the landlord, who would have been willing to $7 less to keep him in the building. What he didn’t know is that lease rates can vary $10-$15 per square foot in the same building.

It seems such a small amount. What’s the big deal?

Let’s look at another scenario to see what this adds up to over the long term.

Dr. Williams negotiated what he thought was a fair lease rate when he moved his office five years ago, and didn’t realize that the landlord was charging 4% more each year. His original $5,000-per-month lease is now costing him an additional $7,200 per year – and climbing. That’s money he could have taken home!

When it comes to leases, the rate of increase often outruns the rate of inflation and cost of living. When you get that renewal, realize that you have every right to negotiate down the lease rate. In fact, you don’t even have to wait until the lease is up for renewal. It’s your right to renegotiate anytime. 

Here are just a few examples of deals that dentists have negotiated:

  • Free rent – Lease was signed on December 31 and the dentist negotiated three months of free rent. First payment was April 1.
  • Tenant improvement money – Upon renewal, the dentist negotiated to receive funds for free fresh paint and light fixtures.
  • Lower lease rate – The dentist dropped more to the bottom line thanks to a lower monthly rent payment.
  • Assignability clause – The doctor was preparing to transition out of the practice, and wrote in a clause to break the lease early or transfer the lease to a new owner.

Set a meeting with your landlord today. One dentist did just that and saved $15 per square foot in a 3,000-square-foot practice. That’s $3,700 per month!

You never know what you’ll learn if you don’t ask.

Written based upon an interview with Ryan Nolan of Carr Healthcare Realty. To learn more, attend the Dentistry Unchained webinar, Winning in Commercial Real Estate: Essential Strategies to Maximize Profits on Thursday, May 26, 2016. Click here for details.