5 things to look out for in professional office lease agreement
By Fazle Naqvi
By Fazle Naqvi
In terms of value, a 10-year lease for a professional office could easily be a commitment of half a million dollars. Yet doctors rarely give their lease more than a cursory read.
The lease gets looked into, only once there is a problem. Usually at that time, there is little that can be done to set back the clock.
Here are the top five things that a chiropractor should look for in their lease. While definitely not comprehensive, this is a vital list. Remember that, “a stitch in time saves nine.”
1. What really is your rent?
Quite simply, your rent presented for example as $20 per square foot, may actually end up being significantly higher based on things like:
– Is the useable area and the rentable area the same, or are large volumes of common area added to your useable space to arrive at rentable area?
– Is your rent a gross rent, or a net rent with additional rent added on top? In a triple net lease, for instance, the tenant will pay TMI (taxes, maintenance and insurance) and will be solely responsible for all costs connected with their leased space.
2. How long is your lease term?
For a chiropractor, like for other doctors, the goodwill of their practice gets intertwined with the location of the practice. It is therefore important to ensure that the lease term reflects the amount of time that the doctor feels will help build his or her practice at that location.
Do you have a right to renew, and how many terms does this apply to?
Exercise care though, that you choose a long term only when you are exceptionally certain about the location for your practice requirements.
3. Is your lease transferable?
There are two ways to transfer your lease: sub-lease and assignment.
Sub-lease: This is a method of transfer of lease when you find someone to take over your lease. However, the original lease between you and the landlord continues to remain in place.
In other words, if the sub-tenant defaults on any covenant of the lease, you continue to be on the hook.
Assignment of lease: A lease is assigned when a new tenant takes over the lease and all its covenants. The difference with sub-lease is that you are no more the tenant.
You have to ensure that your lease does not contain a “no release of tenant’s obligations upon assignment” clause. If it does, then you remain on the hook even if the lease is assigned to another tenant.
4. What are your use, exclusivity and restrictions?
These are usually three different clauses; however, they convey connected rights and obligations of the tenant and the landlord.
Use: The “use clause” tells the tenant what they can do, or what they alone can do from the leased premises.
Exclusivity: This is the landlord’s promise of exclusivity that you enjoy. This clause will direct that within the property, for instance no other tenant will be allowed to provide chiropractic, orthotics, physiotherapy, or massage therapy services.
Restriction: A “restriction clause” states what you are not allowed to do. The restrictions clause also reflects other promises of exclusivity that the landlord may have made to other tenants on the property.
5. Does your lease contain a demolition clause?
A demolition clause gives the landlord the right to terminate your lease upon giving you requisite notice. Remember that a demolition clause could seriously affect how your practice is valued when you intend to sell.
The landlord has the right to invoke the demolition clause, regardless of how much term remains on the lease. If the landlord insists upon this clause, what can be negotiated is compensation in the event that the demolition clause is invoked.
These are some of the most important aspects of your lease that you must know about, before you commit yourself to a long-term agreement.
You must ensure that you have professional leasing assistance, and quality legal counsel before you commit yourself to a lease.
Fazle Naqvi is the founder of Health Property, providing real estate leasing solutions and lease negotiation assistance to health professionals. He holds a MBA, and a Master of Management degree from McGill University. For more information visit www.healthproperty.ca