Signing your first office lease can be an anxiety provoking experience. “Even though I used an attorney, I was still terrified to sign a lease,” said Aanand Geria, MD, a dermatologist in Rutherford, N.J. “It’s one of the biggest decisions you can make.”
Even getting to signing day can take longer than anticipated, according to dermatologist Sheila Farhang, MD, who practices in Oro Valley, Ariz. “Finding an office lease can take way longer than people think because of the negotiation process,” she said. “Maybe there already is a tenant there.”
I surveyed three dermatologists who have opened their own practices for their advice on what dermatologists should know before signing an office lease.
Define the space
“It’s important that the landlord clearly defines what is rentable versus usable square footage,” said Dr. Geria. “Rentable basically means that they are including common areas such as the lobby and hallways.”
Consider a longer lease length
“I knew it was a growing area,” said Dr. Farhang, who signed a 10-year lease. “If I had a 5-year lease, my rent would exponentially increase when I went to renew.” Dr. Farhang also said the size of the space – 3300 square feet + potentially 1000 square feet in loft space – made her more comfortable in signing a longer lease.
Dr. Geria also signed a 10-year lease. He said longer leases should come with lower starting rent and smaller annual increases. “If you’re uncertain about the location or you might want to move somewhere else in a few years, you’re better off doing a shorter term, but it will probably be more expensive.”
Matthew Elias, DO, a dermatologist in Fort Lauderdale, Fla., found a flexible alternative – a five-year lease with three, 5-year options for a total of 20 possible years.
Ask for tenant improvement funds throughout the buildout
As part of a longer lease, Dr. Farhang received tenant improvement funds that went toward the buildout. However, her contract stipulated she would receive the funds after she obtained a certification of occupancy, which she couldn’t get until the construction was complete. “I started to run out of money, so I had to think about funds and use a lot of credit cards,” she said. “Get tenant improvement funds throughout the buildout or plan to up-front those costs.”
Negotiate clauses that can help your business
Dr. Geria recommended an exclusivity clause, which would prevent the landlord from leasing other space in the building to another dermatologist, plastic surgeon or medical spa. Dr. Elias recommended a clause that provides first right of refusal to purchase the property.
Consider the landlord (and the landlord’s connections)
“The current landlords of our locations have been fair and reasonable, which is an important thing to look for when starting out,” said Dr. Elias. He said the renegotiations have gone smoothly because of the landlords’ character.
Dr. Geria cautioned that a dermatologist’s broker may at the same time also work on behalf of the landlord. “Sometimes having a broker working as a ‘double agent’ can result in conflicts of interest,” he said.
Dr. Farhang recommended making sure you agree with the landlord on what contractors the landlord will use on facets of the building that impact your space, such as heating and air conditioning.
Have the right players at the table
“An attorney is extremely important to make sure you understand all the minutiae and legalese,” Dr. Geria said. He recommended taking the time to get the major details agreed upon before the contract is sent to attorneys for review. “Trying to hash out these details when lawyers are involved can dramatically increase your legal fees,” he said.
In addition to an attorney and broker, Dr. Farhang said she may involve her accountant in any future lease agreements. She said it’s important to remember that, if you have a start-up loan, there are several stipulations regarding the build-out. “The bank will want to make sure most of your loan isn’t going for your build-out and leave no money for supplies or staff,” she said.
Dr. Farhang, who used to flip houses, said she would buy a building for her practice if she had the ability. For early career dermatologists who haven’t yet had the time to build capital, like Dr. Farhang, renting can make the most financial sense.
Need help deciding where to open a practice? Read part 1: Choosing an office location.
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