Buying a Dental Practice? Don’t Let Office Lease Terms Hold You Hostage

Buying a dental practice is a complex process filled with significant details. One very important, but often overlooked, detail affecting the acquisition of a practice is the office lease. Without acceptable lease terms, a lender will not lend, and a buyer will not buy. Who would purchase a business without a secured location?

In the current market of rising dental practice values, some landlords are attempting to leverage the lease as a bargaining position to capture a portion of the purchase price from the seller. There is even a trend by corporate landlords to extract additional monies from their tenants.

Here’s how it works: Most tenants or prospective tenants who are buying a dental practice focus on the price of the rent. However, there may be additional hidden costs, usually in the form of common area maintenance fees (CAM) and pass-through expenses like insurance or real estate tax increases. Not only are these costs generally missed, there are other clauses that we have seen inserted, some of which can be extremely costly to the seller such as:

• Lease assignment language that can prevent the sale of the practice or require a significant financial buyout negotiation.
• Recapture clauses that can completely nullify a lease, prevent a sale and possibly cause your business to be homeless.
• Non-transferable personal options – Even though you and your counsel may have been diligently negotiating and reviewing your lease, even requesting lease options, there have been instances where personal options may not be transferable to a prospective tenant.

How much could all this cost? During the process of buying a dental practice, you may discover that lease clauses, when triggered with the right (or wrong) language, could require anywhere between 25%-75% of the earnings of the sale. While it may not come to that point if you have offered a settlement, remember that it’s entirely up to the landlord to accept or decline your proposition. The bottom line is that the landlord knows that he is in control, and the lease terms put him there.

And that’s not all! Have you read over your lease again? There are many instances where a seller may not be released from liability on the lease after the sale, or the landlord may be permitted to adjust the rent to the new tenant. Above all, don’t forget that the landlord may not be required to consent to the assignment.

When buying a dental practice, the lease is an integral part of the sale of a professional practice because without it, there will be no sale. If you haven’t re-read your lease yet, now’s the time. If it’s time to renegotiate or if you are in the process now, be sure you have experienced, reputable representatives looking out for your long-term interests.

Nobody understands what you’re looking for in a dental practice better than Henry Schein Professional Practice Transitions. Whether you’re ready to buy a general dental practice or just beginning to investigate your transition options, call today, 1-800-988-5674, or contact us online to schedule a free 30-minute consultation with an experienced consultant at Henry Schein PPT.

Henry Schein Professional Practice Transitions, Inc. is a national leader in dental practice transitions. A subsidiary of Henry Schein, Inc. they provide expert guidance for selling and buying dental practices, dental practice fees and management, assessing partnership and associate-ship opportunities, and performing dental practice appraisals and valuations.