Tuesday, October 30, 2012

When Should Dentist Begin Paying Rent?

Hypothetical situation....well not really.

Say you and your partner are expanding your office.  Say your partner owns the building.  Say you are splitting the cost of the furnishing and equipping of said office.

How would you split the cost of construction? 

It depends on the nature of the construction. The portion of the construction that the landlord might generally incur will be paid 100% by the landlord, improvements generally done by the tenant is paid 100% by the practice.

Or, determine a reasonable landlord TI allowance for the area, say $50/square foot and that's the cost the landlord covers.

Or, a combination of both if the "construction” includes things like cabinetry, etc.

How would you/wouldn't you have this influence the new rent? (obviously it will increase, but would you tie this to construction cost?)

It seems to me you've already established a fair rental rate when you bought into the practice, so I wouldn't expect it to deviate much from the current “per square foot” rent you're already paying. If you select a TI allowance which the landlord pays I don't think it impacts the construction cost. If the landlord is funding 100% of all improvements above an allowance, they'll generally include the tenant financing on top of the base rent so you, the tenant winds up paying for it anyway.

 When should rent increase?  When construction starts?  When you occupy the space fully?

When the space is done and the tenant occupies it. Don't forget that sometimes the landlord will offer free rent for several months as an incentive for the tenant signing a long-term lease. The tenant may also be able to negotiate a lower rent “per square foot” for more space. Has the rental market decreased in your area since you bought in?

Give me some advice.  I'm sure I will have more questions as we discuss.


If you can, see if you can find a commercial real estate rental agent who you can consult with either together with your practice partner or individually to represent you more or less. George Vaill may also be able to assist you in what might be "fair" (I know he hates that word) based on all the lease negotiations he's been involved with.

Good luck.

For more information, please contact info@dentalcpas.com

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