Negotiating a Lease for Your Group Practice

Negotiating a lease can feel like entering a lion’s den. Your role in the negotiations, what you can ask for, what will be asked of you, and all the nuances in between can feel daunting,especially when you’re new to it. To soften the punch, here are some tips for when you’re getting ready to negotiate your next lease.

1. Find a local commercial realtor and commercial attorney. They know the market, they know fair asking value, and they know how to ensure that the lease has protections for you as the lessee.
2. Ask for a right of first refusal. This means that if an office space next to yours opens up, the landlord needs to ask you if you’d like to take that space before offering it to someone else. This can be helpful if you are interested in expanding your practice or moving there instead, if that space is larger.
3. For most of us, it is difficult to cover the costs of a build-out (i.e. improvements to make the space functional for the tenant). A few things may help when it comes to having those build-out costs reduced and covered by the landlord. Landlords often feel more secure about covering build-outs when the lessee increases their lease term. Instead of one year, investing in three-, five-, or even ten-year leases will likely increase their potential to pay for the build-out. Additionally, longer lease terms help to reduce rental rates. Typically, landlords will reduce the dollar per square foot rate with a longer lease term.
4. Look for hidden costs. Is your lease a gross lease or net lease? Gross typically has all costs included. Net (single, double, or triple net) all have a base lease with additional costs like property taxes, insurance, and maintenance fees. Be sure to know which type of lease you are getting into and what that actually looks like financially. I learned a hard lesson on how much a triple net lease actually costs, despite knowing that NNN (triple net) meant that my lease rate would be more than the base rent and believing that it gave me the potential to save more above and beyond the monthly rental amount.
5. Ask for a sublease clause. Many original leases don’t have a sublease clause. You may decide to grow into a space that is much larger than what you need, and subleasing could be a great short-term option. Or, if you need to move your group practice before your lease end date, you can then sublease your space to offset the costs.
6. Check on signage. What type of signage will you be able to have at the new space? Outside signage (and is there a cost to you?), directory signage, or nothing?
7. Yearly rental rate increases. Most leases have a yearly rental rate increase each year. Commonly, we don’t even pay attention to that because we are looking right in front of our noses. But you can also negotiate the yearly rate increases before you sign your lease. Often shown as a dollar amount increase per square foot per year (i.e. $1/sf/year) or as a percentage (i.e. 2% increase), requesting a reduction in percentage can make a big difference over the course of your lease.
8. Think about soundproofing. Duh. A typical nightmare for the owner of a group practice is a space with thin walls. Do some research and make sure that whatever you choose for soundproofing is actually installed. In other words, be sure that you watch the contractors install your soundproofing materials. If you aren't the one paying for a build-out, you always want to make sure whoever is paying for it doesn’t pinch on the build-out.
9. Check the termination clauses on how both you or your landlord can (or cannot) terminate the lease. Ensure that the lease covers you in the case that the landlord sells the building or needs to terminate the agreement for whatever reason. Oftentimes, the lease will give a short termination clause should the landlord need to end the agreement. The last thing you need is a short 30-day turnaround to move your group practice.
10. Think about security. How is the building set up for security, and what does the lease say about you having your own security systems (if that’s what you need)? Also, make sure that you are comfortable with what the lease says about the landlord entering your premises. Most of us ask for 24–48 hours’ notice before entering the group practice space to ensure client confidentiality and safety.