PROFESSIONAL PRACTICES – Part 3 – Dental Office Name and Leasing
by BPE Law Attorneys D. Keith B. Dunnagan and Matthew Kirkpatrick
In our previous Article, we discussed the business entity options available to dentists when starting their practice.
Today we’ll cover naming and leasing issues.
Naming Your Practice:
An important component of setting up that business entity structure is ensuring that you can operate with the name that you want to use with the public. If you want to operate your practice under a name other then your own personal name, you must submit a Fictitious Name Permit Application to the Dental Board of California. Until the application is approved, all contracts, advertisements, invoices, freebie toothbrushes, or anything else must have the name listed on your dental license. Once the Fictitious Name is approved, it is important that only this name be used for the practice to reduce the risk of personal exposure for business liabilities. However, as with attorneys and other licensed professionals, personal liability cannot be fully shielded by a corporate structure.
Building, Buying, or Leasing:
After the plans have been laid for a corporate name, it is important to obtain a place to conduct your practice. You’ve probably heard the expression that the three most-important concerns are “location, location, location”. You should try to locate your practice in a busy area where prospective patients can easily find you and gain access to your practice. Of course, what you will pay for a location will generally be directly related to it’s attractiveness and convenience. Once you’ve chose a location, you must decide whether to buy real property and develop it yourself, buy an existing dental practice, or lease a space from someone else. Developing the real property or buying an existing practice may be difficult or require more capital than you have available. At such times leasing a practice space in an existing building may be the only available option and possibly the best option for starting-up a dental practice. The focus of the remainder of this Article will be to give you some pointers on leasing a dental office, but if you need help financing and building your own office, or purchasing an existing practice, we can work with you on that too.
Anytime that you are leasing the property of another, you will be required to sign a written Lease which is a contract between the tenant and the landlord and which sets forth all of the rights and obligations of the parties. Assuming that your practice is operating as an entity, the entity will be the tenant under the Lease. However, generally you will be required to sign a personal Guaranty for your entity’s performance of their Lease obligations. The Lease should contain provisions covering all areas of importance to your practice. For example, it is important that your lease allows you and your customers plenty of parking preferably close to your practice main entrance. Another key term is getting proper signage. Signage allocations can vary from directory signs in the building, wall signs on the side of the building, to monument signs visible from the road. Each lease needs to be specifically negotiated and drafted to make sure you know exactly what kind of signage and advertising you will have available.
Rent and Expenses:
Probably the most important terms of the Lease concerns the monthly rental costs for the leased space and who is going to pay for maintenance of your space and the building. There are many expenses required to operate a dental office and it is possible to negotiate which party must bear those burdens. Commercial leases come in many types typically varying as to who is responsible for payment of operating expenses.
A “gross lease” is one where the tenant pays a flat rent and the landlord pays all variable costs, such as utilities, property taxes, insurance, and maintenance. The rent in a gross lease will typically have annual escalations as negotiated in the lease. A gross lease is beneficial for the tenant since they enable you to predict more accurately what your monthly expenses will be.
In contrast, a “full service lease” often provides that the rent paid to the landlord is divided between a base rent and a variable cost, more commonly known as additional rent which may specifically refer to actual expenses of your leased space in the building. The base rent is usually adjusted on a yearly basis to reflect expected increases in rental values. The costs estimate is based upon expected costs increases. In addition, many but not all leases also provide for the tenant to pay a monthly share of the Common Area Maintenance costs, commonly called CAM charges. Tenants typically pay a share of the CAM charges based upon the proportion of the leased area compared to the whole property’s leasable space. This pays for the operation and maintenance of the common areas not included in a tenant’s leased space but necessary for the building’s operation such as entryways and hallways, parking lot, utilities, security, and more. The CAM charges also generally increase annually.
Some Leases are identified or called “Net Leases” which is another way of expressing who is paying for the expenses. Net leases come in a variety of forms from a “single net” or just plain “net lease” in which the tenant pays some defined expenses all the way to a “triple net” lease in which the tenant pays all expenses. These expenses typically are property taxes, insurance, and building maintenance. Although the triple net lease provides for building maintenance, this typically excludes structural matters such as the roof, walls, foundation, and systems. Changes to these areas are typically considered “Capital Improvements” and are a common source of disputes between building owners and tenants as owners seek to have tenants pay all costs of operation and tenants object to paying for improvements that may last longer than their Lease. Other items may not be as clear and would need special attention to make sure that the obligations between the landlord and tenant are clarified as much as possible before a big repair or maintenance issue arises. Therefore, when negotiating the rent you must determine what that rent will cover and what other expenses you may incur through your operations.
The bottom-line to all of this is that in opening a dental practice or any business, you must seek to determine what your monthly operational costs will be and what your expected practice income will be. A start-up business would reasonably require you to have sufficient reserves to pay operational costs until income catches up over time.
The attorneys at BPE have a significant amount of experience in negotiating and drafting leases and forming and guiding business operations. We are familiar with the issues facing today’s dentists and professionals in the ever changing business world. If you would like to know more, please feel free to contact me by e-mail at firstname.lastname@example.org or call our main office at 916-966-2260 to schedule a low-cost consultation appointment either in our Fair Oaks or Sun City Lincoln office.
The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are facing a legal issue of any kind, get competent legal advice in your State immediately so that you can determine your best options.