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Dental Leases (Part 1)

By March 24, 2014January 20th, 2022Leases

Here’s the basic idea. You are a dentist and you have a lease. Now, pursuant to the terms of the lease, the minimum rent is not determined for a renewal term (this is the term that the tenant would typically have the option to have AFTER the initial term expires). Now, not having the minimum rent determined is generally in favour of the Landlord (because rent has been going up over the past few years in urban centres and Landlords want the market to dictate in the near future). If it were in the dentist’s favour, the minimum rent would have been known and pre-determined well in advance. But they’re not. Instead, it may say something like “rent will be based on the current fair market value rental for premises of a comparable size, use, age, and structural condition in the vicinity of the Premises”.

Now, it’s important to understand what exactly these things mean. What does “vicinity” mean? What does “comparable” mean? You see, there may not be “comparable” Premises within an immediate vicinity to the Premises. And this may result in an adjudicator looking outside the immediate vicinity to determine what rent is appropriate. This could end up costing the tenant a lot of money – particularly if the Landlord points to a retail hub with high rent!

Indeed, there are a number of decisions in which adjudicative bodies will allow for a broad interpretation of “vicinity” if “comparable” premises are not within the immediate location of the Premises.

So what should a dentist tenant do to prevent this? Well, a solution might simply be to limit the geographic distance from the Premises within which the inquiry for “comparable premises” may occur (e.g. 5 or 10 km).

How should new premises be comparable to the existing/old premises in the context of a relocation? Well, be sure that the lease says that the new premises should be comparable when it comes to things like:

  • Internal space (i.e. overall and useable square footage)
  • Geographic Area
  • Floor
  • Leasehold improvements
  • Configuration / layout
  • Proximity to things like transit, parking, roads, amenities like bathrooms, etc.
  • Accessibility
  • Frontage
  • Traffic flow
  • Exposure

Just be sure to include some or all of these things in your lease. Remember: it must include details about the QUALITY and the QUANTITY!

DMC