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Look at Your Lease by Ryan Wilson

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The troubled economy has put a damper on the commercial real estate market, which ends up being good news for orthodontic practices. Whether you’re signing a new lease for your practice or are renewing an existing one, you are now likely to enjoy a stronger negotiating position than you would have in the recent past. Developers overbuilt during the real estate boom, most national retailers have cut back their store-growth plans, and some smaller, local businesses have had to close their operations. As a result of these factors, vacancies are high. Commercial landlords are motivated to approve deals in order to attract and retain good tenants, which they might not have in better economic times.

Landlords’ desire to cut deals doesn’t mean, however, that they’re giving away the farm. Orthodontists would be wise to pay close attention to the leases they are asked to sign. The following three contract sections are areas where we have found landlords often try to gain an upper hand.

Term

Generally speaking, the landlord’s goal is to lock the tenant into a longer term while the tenant hopes to pay as little as possible. You can frequently ask the landlord to add years onto the lease in return for lower rent or to gain other concessions like a tenant improvement allowance.

In truth, most orthodontists will have to commit to a 10- year lease. Orthodontic practices have high build-out costs for their offices, often $85 per square foot, and might need to borrow upward of $100,000 from a financial institution. Most banks require a 10-year lease before approving such a high build-out loan. Landlords, however, typically aren’t aware of this requirement and might assume an orthodontist’s build-out costs are similar to a general dentist’s (approximately $55 per square foot). As a negotiation tactic, you can start by offering to sign a seven-year lease and allow the landlord to raise the term to 10 years in order to gain lower rent. In case the landlord actually approves a seven-year term, you can ask for three additional option years, which will give you the chance to extend the contract and meet the bank’s requirement.

Before renewing a lease, the doctor should take various factors into account such as nearby competition, the health of the local economy, any desire to relocate and the level of satisfaction with the present location. Even if you are satisfied with where you are, about a year before your contract expires you should take the time to contact other landlords and discuss the incentives they are willing to offer for relocation. Learn what your neighbors are paying. Get a sense of the market, and use your findings as leverage. If your practice already has more than one office, your position is even stronger since you have a back-up place to practice in case contract negotiations fall through.

Indemnity

Disputes between tenants and landlords will happen. Most are small and can be resolved easily, but others can concern tens or even hundreds of thousands of dollars. You might feel your landlord should pay for a new roof or A/C system. An employee or patient of yours might suffer a bad fall in an icy parking lot, and in your view, the medical costs are the landlord’s liability.

You will find it difficult to seek resolution through the legal system if you signed a lease that includes an indemnity clause. Such a clause means the tenant has waived rights, which could include rights to recovery, claims and actions against the landlord and sometimes the right to a trial by jury. Often, an indemnity clause can be a single sentence slipped into a lengthy section of legalese, and doctors will not be aware of the rights they are signing away.

Be careful of indemnifying landlords against legal action. If they are firm about such a provision in the lease, you should at least insist upon mutual indemnification, so your practice has the same protection the landlord has. For a dispute covered by a lease with mutual indemnification, the matter will go to a jury. Juries tend to like doctors and to rule in favor of the little guy. Since a jury trial is more likely to go in your favor, some landlords wish to preclude this possibility. If the lease indemnifies the landlord from a jury trial, the matter will go to a judge who might be more inclined to favor the landlord.

As a rule, keep an eye out for indemnification clauses. You might decide to waive some judicial rights because you find the property ideal or because of some other business reason, but make sure you are doing so consciously and not because of a deception or a failure to carefully read the contract.

Triple Nets

Most leases will contain a section covering the property’s base rent and a separate section covering extra costs passed along to tenants. These extra costs, called “triple nets,” consist of three items: real estate property taxes, insurance on the property and Common Area Maintenance (CAM). The first two items are typically straightforward because landlords cannot readily negotiate their own costs with the government or insurance carriers. Still, as a tenant with your own expense projections to consider, you should always request a cap on the amount the landlord can increase your costs each year. A good strategy is to ask for a three percent cap on annual increases in triple nets, and most landlords will settle for a four or five percent cap.

Unlike insurance or taxes, CAM fees are one area where landlords often try to pass off their own costs onto the tenants’ shoulders. Legitimate CAM fees will help the landlord cover direct expenses for the areas shared among multiple tenants, areas such as lobbies, public bathrooms and parking lots. On the other hand, CAM fees should not cover the landlord’s management, administrative, accounting, legal or marketing costs. Ask for the lease to explicitly state what CAM covers. At end of each year, your landlord will submit CAM expenditures, and you’ll have 30 days to review them. Most doctors are so busy, they don’t look at the list, but I have found that many landlords will try to insert illegitimate charges. If you successfully dispute any fraudulent CAM fees, you will also be entitled to reimbursement of your legal costs.

The three sections discussed above only scratch the surface of the potential traps found in leases, which can be quite lengthy and often impenetrable. You don’t have to assume all landlords are ethically challenged adversaries, but it’s a good idea to prepare for the worst by reviewing your lease carefully before you sign and enlisting the help of a good real estate agent or lawyer. The greatest leverage you can have is to always be willing to walk away from the deal.

Author’s Bio
Ryan Wilson is the real estate director for OrthoSynetics (OSI), a business services firm that assists orthodontic and dental practices utilizing a full service, management approach to address all nonclinical practice functions to gain better efficiencies and profitability. Services are also offered on an a la carte basis. For more information, visit www.orthosynetics.com or email sales@orthosynetics.com.
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October 2025
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