Finances

Smart Real Estate Shopping: Read the Fine Print and Negotiate

By Pamela Miller, OD, FAAO, JD

Before renting or buying office space, reading the fine print of a lease or purchase agreement can make a huge difference in your practice success there. Here’s how to negotiate a contract that works for you.

When in the market to rent or purchase new office space, an OD has a lot to consider, from square footage to neighborhood, to the ability of the space to adapt to a growing practice. Along with these concerns, a doctor must take precautions before signing a lease or purchase agreement to protect her practice. The right strategy when negotiating will increase the chances of getting the ideal space for your needs while avoiding legal pitfalls. As with all legal matters, it is best to consult your attorney and state optometric board on state-specific laws regulating your structure such as the need for an adequate number of entrances. Here are some key points to consider before signing your next lease or real estate buy/sell agreement.

When Renting

Review Rental Lease With Attorney

Most leases are what is called “triple net leases,” meaning the renter has responsibility for not just the space she is renting but a portion of the property taxes and insurance and a portion of the cost for needed building improvements. You may also be responsible for a portion of the landscaping and upkeep, security, etc. For that reason, it is essential to calculate out these added costs that will be layered on top of your monthly rent. At the very least, make certain that you know exactly what your bottom line costs will be prior to signing a contract.

In addition, find out specific terms of the lease such as the circumstances that would allow you to break the lease. If you die or have a major accident that forces you to close the practice, will you (or your family in the case of death) still be responsible for fulfilling the lease? Also, look at whether the lease will automatically be renewed if you do not stipulate otherwise by a given date.

Think about the elements that come with the office space such as carpeting or flooring. If it needs repair, whose responsibility is it? Yours or the landlords? Don’t forget to consider any remodeling that will be needed–this is often a negotiable item with your landlord, especially when the market is slow.

Does the Landlord Have Property and Building Insurance?

You probably have malpractice insurance and plan to insure the office space you rent, but along with the insurance you procure yourself, it is wise to ensure your landlord also is covered. You may have a significant problem if your landlord is without building and property insurance and a patient slip and fall occurs, or there is a major property issue such as weather-related damage. Don’t take your prospective landlord’s word for it if he says he has insurance. Ask to see it for yourself, making certain it is current.

Review Lease Renewal Well in Advance

Request a copy of the new lease as much as six months ahead of time and start reviewing crucial details like how much the landlord is permitted to raise the rent per year(s). In some cases, the lease can stipulate that rent increases will not exceed increases in the local cost of living index or that the rent will increase commensurate with the rise in interest rates.

You May Have Leeway in Negotiating

How is the commercial real estate market in your area? If it is struggling, take advantage of the renter’s market and push for greater advantages. For instance, a motivated landlord may agree to chip in funds to renovate the space prior to your move-in date, or guarantee in the lease that you will be the only eyecare provider in the building and in any of his surrounding properties.

When Buying

Comes Down To:

In purchasing property, do the math on how many patients the location will provide. You will spend more for a busier location, but it may be well worth it.

Real estate in the heart of a large city may be far above what you can afford, but if it is within a price range you could manage, it might be worth thinking about. The population density and proximity to stores and office buildings means your exam chair may always be full. On the other hand, a space on the outskirts of the city or in the suburbs may be much less expensive but could also mean fewer patients, or it could be an area with significant growth potential. Think in terms of small compromises. What if instead of a super-expensive space in a prime downtown location, you purchased a space a couple miles away, though still well within a bustling area of the city? That small compromise might mean a significantly less expensive purchase price and can make or break your practice.

Greater Responsibility vs. Greater Freedom

When you become an office space owner, you have the freedom to do whatever renovations you choose as long as they do not violate building codes and property zoning laws, but you also have all the problems that formerly were your landlord’s. Payment of all taxes and insurance for the property and space falls on you, and you alone are responsible for maintaining your investment. If major repairs are needed, you will foot the bill alone without the benefit of a landlord to lean on.

Adhere to Law When Making Renovations or Expanding Space

If you decide to overhaul or expand the space, be sure to find out yourself at city hall about all the needed permits and take the time to learn the local building codes. You may even have to personally appear before your city council or planning commission. It is easy to shrug off this responsibility and leave it to your contactor, but you are the one who will be held responsible by the city if the contractor fails or is negligent in this area. Contractors typically work with sub-contractors so make sure that not only your contractor is licensed, bonded and insured but that your sub-contractors are, too. Prior to any final payment, make certain that all sub-contractors are paid and that there are no liens on your property for non-payment, and that all building permits have been signed off by the city. It also is prudent to check the contractor’s references and the contractor’s state licensing board to make sure he or she is in good standing.

Stipulate Time Table for Completion

As we all know, contractors often do not finish their jobs within the time table they initially agreed to. For that reason, it is important to put in writing that barring unforeseen circumstances like a damaging storm or changes in your building plans, that the renovation, expansion or build-out will be complete by a specific date. The contract could stipulate that penalties such as reduction in payment to the contractor will be affixed for each day or week that completion of the job is overdue. These damages generally need to be reasonable and bear some relationship to the actual costs that may occur.

Don’t Pay All to Contractor Upfront

It is best to divide payment to the contractor into thirds–one third at the outset, another third at the mid-way point and the last third upon completion. That way, you are at least partially protected if the contractor walks off the job before completion, or otherwise fails to deliver on what he or she promised. As in all things, the buck stops with you. This is the time when you personally need to be on top of the entire situation and making certain that you are visible and that you are checking on the progress, workmanship, problems, etc. If not now, then later will be too late.

Related ROB Articles

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Building Out a New Office Space: the Importance of Design

Pamela Miller, OD, FAAO, JD, DPNAP,has a solo optometric practice in Highland, Calif. She is an attorney at law, holds a therapeutic license, is California State Board-certified and glaucoma-certified to prescribe eye medications, and offers comprehensive vision care, contact lenses, visual therapy and low vision services. To contact her: drpam@omnivision.com

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