MedEsthetics magazines offers business education and in-depth coverage of the latest noninvasive cosmetic procedures for physicians and practice managers working in the medical aesthetics industry.
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LEGAL ISSUES | By Jean Warshaw Lease Considerations There are 10 key issues to examine as you negotiate a commercial lease draft. 1. How Long is the Lease? The length of time a lease runs is called the lease term. When landlords expect rents to increase, they will offer 22 JANUARY/FEBRUARY 2014 | MedEsthetics shorter lease terms so that they can increase the rent at the end of the term. If you think that rents will rise in your area, you will want to negotiate a longer lease term. The exception is new practicees. If you haven't been in business long, you want to be sure you can get out of your lease if the practice fails to flourish. Options to renew can give you the best of both worlds. When you have an option to renew, you will be able to give your landlord notice that you are extending your lease for a fixed number of years—typically at a renewal rent that was negotiated in the original lease agreement. The rent for a renewal term is typically higher than the rent for the initial term. You may be able to negotiate a fixed increase based on the Consumer Price Index or on values given by real estate appraisers when the initial term has ended. Some businesses can also try to negotiate a kick-out clause, which is the right to terminate if sales don't reach an agreed upon level. For example, if your sales don't reach "X" amount of dollars by the end of the first year, you may be able to write into your lease an option to terminate early. 2. What Will the Lease Cost? Your rent is the primary component of your lease costs. Many commercial rents are comprised of a combination of base rent, which is a fixed payment that is due at the beginning of every month, plus a percentage rent, which is a percent of the business' gross sales. Even if you don't have to pay a percentage rent, your rate will almost always include ©THINKSTOCK The real estate market is slowly recovering, and commercial real estate occupancy rates increased modestly in late 2013. As a result, Forbes Real Estate Forecast recently recommended that tenants who want to stay in their current spaces should try to lock in their rents for as long as possible. Similarly, if you are considering leasing new space for your practice, this could be the last opportunity for some time to claim the benefits of tenants' recent negotiating advantage. There are many legal considerations to take into account when you lease new space. This column will highlight 10 of them. But before we get to them, there are two main points to keep in mind as you review the draft lease. First, the landlord has drafted it and, therefore, likely stacked the deck in his favor. Second, even though the draft lease may be 100 pages long, it can't cover every potential problem that may arise. Thus, it's a good idea to think ahead and identify the issues that are most likely to arise for your specific business, and make sure the contract covers the issues that are most important to you. When you are negotiating your lease, use a knowledgeable commercial broker who can tell you what terms landlords typically offer in your region. And, while savvy businesspeople can negotiate their own contracts, leases are complex enough that legal advice is a good idea.