Are you considering opening a dental practice? It is likely that you will be required to enter a commercial lease. A commercial lease is an agreement that provides you with exclusive possession over a premises from which you can operate your practice. It is important that the lease meets your goals, and expectations in relation to your dental practice. Signing a lease with adverse terms can have significant negative consequences. Speaking to a leasing lawyer before you enter into a lease can save you money down the track.
Here are the 5 essential terms that you should look out for, as a dentist, when entering into a commercial lease for your new dental practice:
Subject matter of the lease
The subject matter of the lease provides a description of the property over which you are being provided exclusive possession. However, your dental practice may also be connected to adjoining premises or part of a larger building. In this circumstance you may be sharing areas, such as stairs, lifts, car parks and driveways, usually referred to as common areas. The lease should clearly outline whether the tenant or the landlord is responsible for maintenance of these common areas.
Another often neglected aspect of a lease is the provision of car parking space. If your patients or employees will require car parking space, the lease or another collateral agreement should clearly outline how many spaces will be needed and should provide for access and use during the lease term.
When you enter into a new lease, the amount of rent you will need to pay is one of the most important costs to consider. However, a matter that is often overlooked is that rent will rarely stay the same for the duration of a lease. There are three ways a lease may permit an increase of rent.
- A fixed rate increase is where rent will increase at a fixed rate or percentage, usually on an annual basis. For example a 25% increase will mean that if the rent for your dental practice is $20,000 for your first year then it will be $25,000 in your second year and so on.
- A market review is where the rent will increased based on the current market rent for your premises. It is common that this mechanism is applied for the first year of an option term of the lease (if any). If the parties cannot agree on what the market rent is then usually the lease will specify a person such as a property valuer or real estate agent, who will review the current market rent and value of similar properties to determine what your rent should be.
- A Consumer Price Index (‘CPI’) rent review is based on an evaluation of CPI. A CPI review evaluates the inflation in the price of goods and services and usually takes place on a yearly basis.
Rent and any rent-free periods are usually negotiated during your initial discussions with a landlord so it is important to contact a leasing lawyer as soon as you receive an offer for lease or a lease.
Use of the premises
All commercial leases describe the permitted use of the premises. Under the lease, you will be provided possession of the premises subject to this use. As a dentist you should ensure that the lease permits you to conduct dental procedures and that the landlord clearly understands how you will be using the premises.
A leasing lawyer can draft the appropriate description to be inserted into a ‘permitted use’ clause to ensure that your dental practice can operate as intended.
The key dates of the commercial lease
When opening a dental practice, there are two key dates of which you should be aware.
- The handover date refers to when the premises will be provided to your practice. This is usually the date on which you can start your Fitout of the premises. Depending on your negotiations you may not need to pay rent during this period until the commencement date.
- The lease commencement date is the date when a lease will actually commence. On this date, your practice will be required to be ready to open and pay rent.
It is important to ensure that there is a sufficient period between the handover and commencement dates to allow you to make the correct fit outs and renovations for your dental practice. A dental practice will not be able to run without the correct installation of surgery equipment, but this will not stop your landlord from making you pay rent. In other words, make sure your equipment and Fitout is ready for your installation on the handover date.
Options for renewal
The commercial lease for your dental practice will also have an expiry date. As most dental practices rely upon the client base and goodwill they build up within a certain community, it is important to ensure you have an option to renew your lease. An option to renew a lease is a right to continue renting the premises upon expiry of a former lease i.e. expiry of the initial term. A leasing lawyer can help you negotiate a clause to ensure you can continue running your practice after the expiry of your initial lease!
Before you sign any leasing offers or documentation for your new dental practice, make sure you go through them with a leasing lawyer.
At LegalVision, we’ve helped a number of dentists start up their new practices. Contact LegalVision on 1300 544 755 to speak to one of our commercial leasing lawyers today.