In Part 1 of this blog series, we discussed how properly negotiating your office or location lease is an absolute MUST. There are certain provisions that doctors, dentists and veterinarians need to pay special attention to when purchasing a practice. Here are a few more terms to look at and make sure you review the list from Part 1:
- Services Provided By Landlord. Is the landlord providing heating, air conditioning, electricity, water, internet, etc.? At the very least, these need to be sufficient for your particular permitted use, but you should carefully review the lease for landlord obligations and limitations thereon.
- Indemnification Provisions. The landlord will try to impose substantial and far-reaching duties to indemnify. While you will not be able to eliminate these duties, you will want to make sure you are not promising too much when it comes to holding the landlord harmless. Additionally, it will be very important to acquire mutual indemnification rights from the landlord, especially if there are other healthcare professionals operating, or there is a strong likelihood for hazardous materials to be present, in your building or development. Protect yourself from the operations of others as much as possible.
- Assignment. While this will be an important section to all types of tenants, it bears discussion here. The assignment and sublease provisions in a lease are the tenant’s exit strategy. Perhaps you’ve negotiated a 10-year lease, but what if you want to sell, have a falling out with your partners, or something else comes up in that time. If your lease is overly restrictive or outright prohibits assignment, you could be in trouble. And, along with the ability to assign or sublease, it is equally important to negotiate for a release of the tenant and any personal guarantors on certain assignments. You don’t want your practice (or yourselves) to remain on the hook for defaults after an assignment. Landlords are unlikely to agree to blanket releases (unless additional circumstances apply), but it is worth the fight to push for some release rights.
The lease review and revision process should not be taken lightly. There is more to a lease than rent and operating expenses. Take the time to negotiate the difficult legal issues. Better yet, have your experienced attorney do it. We can be the bad guys while doing our best to protect you, our clients, the tenants, from lease pitfalls. And while no lease is going to be completely tenant friendly (and if you stop paying rent, you’re going to be in trouble), it is often worth the time and expense to have an attorney review and negotiate a stronger lease position than what you’ll see in a letter of intent.