Running a dental practice means that you not only have to be an expert at the practice of dentistry, you also will need to become at least a partial expert in all the other functions involved in running a small business. With so much requiring your attention, it can be tempting to be more relaxed in some aspects of the business if it seems the impact will be minimal. That said, is your lease agreement one of those obligations you can pay less attention to?
Part of running your own dental office is knowing which areas need that extra attention to detail and which ones can handle a relaxed approach. Dealing with utilities, suppliers, equipment maintenance, payroll and staffing matters all take up time that could be devoted to treating patients or otherwise growing your practice. And if a verbal agreement here or a handshake there can save you some precious time, what’s the harm? After all, you may feel that you have a good relationship with your landlord. Maybe you’ve had some conversations, and you’re both on the same page regarding the terms upon which you’re prepared to lease your new space. So, you should be fine to move forward with construction plans and deal with the paperwork later, right? Or perhaps you signed an offer to lease that refers to a future lease document, but the landlord doesn’t seem to be in a hurry to get you a draft or a signed lease, so you assume you can forget about that for now. In these and many other situations, it may seem like a formal lease agreement can easily be pushed to the bottom of your to-do list. But that is a mistake. Here are a few reasons why making sure to have signed, written lease agreements is key to sustaining and growing your dental practice.
Is A Written Lease Legally Required?
From a legal standpoint, there are certain circumstances when a written lease is not necessary. For example, you could simply have an oral agreement with your landlord to lease a location for some time at a specified price. However, this exception generally only applies to leases with less than three-year terms. And most dentists need to guarantee at least five years to make the investment in a new practice worthwhile or even feasible. So, from a practical standpoint, you will generally always be required to have a dental lease in writing for it to be valid and enforceable.
Reason 1 to have a written lease document:
Without a written lease, you may not have a legally enforceable right to remain in your space, even if you’ve invested considerable funds and time in making plans and constructing leasehold improvements.
What Makes A Written Lease Valid?
In Ontario, the courts have looked for six fundamental terms¹ as being requirements for a valid lease:
- The identification of the parties
- I.e. who exactly is the tenant? You personally or your DPC?
- The description of the premises
- I.e. a municipal address, square footage of the premises, etc.
- The specification of a point of commencement
- I.e. a particular date or a time dependant on some other circumstances, like the end of construction
- The specification of the duration of the term
- Will there just be one term? Any renewal options?
- The rent
- If any
- All the material terms of the contract not being matters incidental to the relation of landlord and tenant, including any covenants or conditions, exceptions or reservations
- I.e. what are the essential factors in this lease to this tenant and landlord?
The sixth factor will depend entirely on the particular circumstances of each tenant and lease. For example, a fast-food restaurant would have very different lease needs than a dental office, and therefore would have different conversations with a landlord before entering into a lease.
What If I’ve signed an Offer to Lease?
In our second scenario above, we mentioned having signed a written Offer to Lease but not a formal lease agreement. Offers to lease can be extremely detailed and lengthy. They can even sometimes be as long as the final lease itself and deal with all of the terms that are important to you as a tenant. So, depending on the actual wording of the offer to lease, you may be fine, or even better off, without ever moving to the formal lease stage. However, we have often seen offers to lease that contain terms stating that you agree to enter into the landlord’s standard lease within a specific time after signing the offer. And you don’t want to end up tied to a standard lease with terms you haven’t negotiated.
Reason 2 to have a written lease document:
If your offer to lease requires you to enter into a lease within a certain time period, a lawyer can help you determine the best approach for your individual situation.
I’m already a tenant – Do I Really Need Written Extension Agreements?
When your current lease term is nearing its end, it’s essential to pay close attention to the obligations contained in your agreement concerning extension options. For example, you may need to exercise any options within a specific time period. You may also need to enter into a new written agreement with your landlord for the extended term. Often, you must give notice in writing that you want to extend your lease. Failure to do so can mean that your lease extension option is void, and you no longer have the right to stay in your space.
After properly giving your notice to extend, you may have some conversations with your landlord about the terms you’re willing to agree to for the extension period. In many cases, most of the terms of your lease will remain the same other than possible new rental rates. In such instances, some landlords don’t prioritize providing you with a written extension agreement (or a new lease). This leaves you to assume that you don’t need to worry about getting that document. But, just like your initial lease agreement, you need any lease extension agreements to be signed and in writing to legally protect yourself.
Reason 3 to have a written lease document:
Without a written lease extension agreement, you put yourself at risk of your landlord claiming that you are overholding, and your tenancy could end on short notice.
If you have operated your dental practice in the same location for many years, you will likely be familiar with your landlords and, hopefully, are on good terms. You may have even had your lease extended without a formal agreement. And while following up to make sure you get that written extension agreement now may not seem important, it will be necessary if you ever consider selling your practice. Reviewing the terms of your current lease agreement is a critical step for a potential buyer, as a bad lease can drastically affect the appeal of your practice. Thus any potential buyer will request all lease documentation for their lawyer to review and complete their diligence. And even friendly landlord-tenant relationships can become strained under the pressure of a sale. So, it’s best to get your lease documents formalized before they present a potential problem.
Reason 4 to have a written lease document:
If you have plans to sell your dental practice, not having a written extension agreement will put you in a difficult position of needing to deal with missing paperwork. Delays in getting the lease documents will delay a sale or even lead to a buyer walking away from the deal.
Dealing with leasing matters as a dentist will nearly always require a written agreement. Be cautious of relying on conversations or non-binding documents. Managing your dental practice is hectic enough, so don’t let an informal lease agreement put your practice at risk.
So, if you are a dentist nearing your lease renewal window, or looking to enter a new lease agreement, you can contact us for a free consult. DMC has extensive experience negotiating and drafting leases for dentists that protect you and your practice. Send us an email or call me directly at 416-443-9280 ext 208 any time.