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:
Beware of the Realtor’s Dual Agency: If the Offer to Lease presented to you states that you are subject to dual agency, beware. Effectively, this means that you are giving the agent the right to represent you and the landlord simultaneously (and can one agent simultaneously serve two masters?). If the agent’s commission is being paid by the landlord then most landlords believe that the agent is working in the landlord’s best interest (to get the healthcare tenant to sign for a longer lease term, lease a larger than necessary commercial space, and/or pay a higher monthly rental rate). You can remove dual agency from the Offer to Lease before signing … just cross this out by pen if you don’t like it or disagree).
Hold Back Your Deposit on Offers: Most Offers to Lease state that the deposit is due at the time the healthcare tenant signs this document. Giving an up-front deposit for most healthcare tenants will minimize their effectiveness in future negotiations. Instead, modify the clause to say that your deposit will be payable 72 hours after the landlord accepts the offer. Another option is to make the deposit due and payable once you and the landlord have both removed your conditions, or upon both parties signing the Formal Lease Document.
Operating Cost/CAM Queries: Operating Costs/Common Area Maintenance/CAM often make up a large portion of the gross rent that a healthcare tenant pays. Before you lease, ask the landlord and existing tenants if Operating Costs for the property have increased much over the past year. Base/Minimum Rent is fixed; however, Operating Costs are adjusted yearly and tend to rise more often than fall. Landlords managing their own property may tend to over-spend to maintain or increase property value.
Management Fees on Taxes? Most administration or management fees are based on 15 – 20% of the property’s Operating Costs. Most property managers or landlords apply this management fee to property taxes and insurance. Since there is inherently no actual management on these costs, it is considered questionable whether the hundreds of thousands of dollars in property taxes being paid for by healthcare tenants should be levied a management fee or not. We often try to negotiate for no management fees on taxes.
For a copy of our free CD, Leasing Do’s & Don’ts for Commercial Tenants, please e-mail request to JeffGrandfield@TheLeaseCoach.com.
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 DaleWillerton@TheLeaseCoach.com or JeffGrandfield@TheLeaseCoach.com or visit www.TheLeaseCoach.com