Whether you’re a new dentist looking to start a practice OR an existing tenant who needs to renew their lease OR a dentist looking to sell their practice: you should NEVER BLINDLY TRUST your landlord. And to give you something to think about, here are some recent horror-stories:
We Own the Leaseholds, Now Pay Up!
In one transaction, it was discovered that the landlord (as per the lease) owned some of the cabinetry and the front desk in the dental office. So why would a purchasing dentist be paying the seller for those things? How did it get resolved? Thousands of dollars came off the purchase price.
Pay Me 5% of the Purchase Price Please!
This came out of left field. The lease was SILENT on how much the landlord was entitled to in the case of consenting to an assignment of the lease from a selling dentist to a purchasing dentist. But when the landlord was notified of the sale, they asked for a copy of the purchase and sale agreement and 5% of the purchase price as their administrative fee. Ouch! How did it get resolved? The landlord ultimately didn’t follow through on the 5% (perhaps they recognized that they weren’t entitled to it under this particular lease, but may have been entitled to it in other leases with other tenants in the building).
Show Me Your Audited Annual Financial Statements Please!
This came from an absolutely brutal lease (perhaps the worst one I’ve ever seen negotiated by a lawyer – not our firm). It included giving the landlord the right to have audited annual financial statements. Holy Cow Batman! Those are expensive to create and why does the landlord need to see them. How did this get resolved? The prospective purchaser did not move forward with buying the practice because of the horrific lease (and the landlord’s reluctance to amend it).
We May Need To Demolish!
In one famous example, a lease contained a provision allowing the landlord to terminate (and kick the tenant out) in order to demolish and put up a condo. There were condos all around the practice and a high vacancy rate in the building itself. The landlord was very uncooperative and refused to limit or remove the demolition clause. Any prospective purchaser would have nightmares of that demolition clause if they were to pay the $1-million the practice was appraised for. How did this get resolved? The purchaser paid $540k, largely in part because of the demolition clause, and relocated the practice to a new condo unit down the road which the purchaser bought.
The moral of the story: have a lawyer review the offer to lease or actual lease BEFORE you sign it to make sure there are no hidden disasters that could cost you money down the road.