By Jeff Grandfield and Dale Willerton
For many healthcare tenants, negotiating a good lease or lease renewal against an experienced agent or landlord can be a challenge. While a doctor focuses on proper patient care, savvy real estate agents and brokers are specialized sales people. Their job is to sell tenants on leasing their location at the highest possible rental rate.
As explained in our new book, Negotiating Commercial Leases & Renewals FOR DUMMIES, tenants may go through the leasing process only two or three times in their entire lifetime – yet they have to negotiate against seasoned professionals who negotiate leases every day for a living. Negotiating appropriate leasing terms is vital for a doctor as the amount of rent he pays will directly affect the practice’s financial bottom line.
Whether you are leasing a new location for the first time or negotiating a lease renewal for your practice, these are some money-saving tips for healthcare tenants:
Who Should Be The Tenant? Don’t enter into a Lease Agreement (or an Offer to Lease) under your personal name. Doing this will make your personally liable for everything. Instead, for a corporation or a holding company that will become the tenant. If you are negotiating on locations but don’t intend to incorporate until a later date, then the Offer to Lease should state that the tenant is Your Name on behalf of a company to be incorporated later (or Nominee). If you are opening multiple locations it is often wise to form a new company for each lease agreement as further protection. Corporations also have tax benefits over sole proprietorships.
Avoiding Personal Guarantees: Too many physician tenants passively accept a guarantee because it was left of negotiations for discussion. If you are strongly opposed to guarantees, bring it right out in the open to begin with before you invest several weeks on the deal-making process. Sometimes a limited personal guarantee, equivalent to the tenant allowance, is acceptable. Providing a guarantee that declines over time may not be unreasonable (e.g. a $50,000 guarantee declining by $10,000 per year for five years).
Avoiding Letters of Credit: Some landlords request Letters of Credit or Security Notes rather than personal guarantees. This is where the tenant’s bank guarantees to pay the landlord a pre-negotiated amount of money in the event that the healthcare tenant defaults. This type of security is worse than a regular personal guarantee since the money is too convenient for the landlord to access without going through due process.
Renewing with no Deposit: If your lease agreement requires you to make a deposit for the initial lease term, it is not acceptable for that deposit to continue indefinitely. Ask yourself, are you a security risk? Have your rental payments been made on-time? If so, resist further security deposits and make sure that you state this amendment in the renewal document. Otherwise, your deposit, which was to be applied to the last month, needs to be replaced for the renewal term.
For a copy of our free CD, Leasing Do’s & Don’ts for Commercial Tenants, please e-mail request to [email protected].
Jeff Grandfield and Dale Willerton – The Lease Coach are Commercial Lease Consultants who work exclusively for tenants. Jeff and Dale are professional speakers and co-authors of Negotiating Commercial Leases & Renewals FOR DUMMIES (Wiley, 2013). Got a leasing question? Need help with your new lease or renewal? Call 1-800-738-9202, e-mail [email protected] or [email protected] or visit www.TheLeaseCoach.com.