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DENTAL TRIBUNE | May 2010 Practice Matters 11 Whether you are starting a dental practice from scratch or purchasing an existing dental practice, your com- mercial lease agreement will be a very important part of the process, not to mention a huge investment. Before you sign a lease agreement and spend thousands of dollars over a five to 10-year period, you should seek legal counsel. Lease commencement date Once your lease is signed, you and the property owner have opposite goals. The property owner wants the lease to start as soon as possible so that you can begin paying rent immediately, even though your office space may still be under construction. Conversely, the tenant wants to delay the payment of rent as long as possible in order to preserve capital. If your property owner or contractor is building out your office space, it is important that you give him/her detailed construction plans in order to avoid any type of construction prob- lems or delays. However, it is also very important to ensure that your payment of rent does not start until the construction work has passed inspection, and you receive a Certificate of Occupancy, which will allow you to occupy your office space and start seeing patients. Many lease agreements provide that the build-out will be deemed complete when the contractor or architect certifies that the construc- tion has been “substantially complet- ed.” (An architect should be consulted before construction begins.) If you receive a Certificate of Occu- pancy and certain construction items still need to be completed, this is usu- ally called a “punch list” of items that will be completed by the contractor after your dental practice is open for business. If you are building out your office space, you should select the most-qualified contractor and negoti- ate an appropriate build-out period (i.e., generally 90 to120 days). You may also want to insert a “liq- uidated damages clause” in your con- struction contract, which states that if construction delays occur through no fault of your own and the opening of your practice is delayed, the contrac- tor will pay your rent for a specified period of time or pay you a certain sum of money. In addition, if your property owner is building out your dental office, you may seek free rent for a specified period of time if the construction is not completed within a specified period. Rent increases Nearly all lease agreements have a rent escalation clause, which states how much your rent will increase over the term of the lease. Escalation clauses may either be specifically outlined in the lease (i.e., rent increases 3 percent per year) or tied to an index, such as the Con- sumer Price Index (CPI). The best practice is to set an exact amount of rent you will pay each month over the term of the lease. Any type of yearly rent increase that is tied to an index is very unpredictable and can hinder the cash flow of a practice. Rent during option periods When negotiating your lease, you should always include an option period to renew your lease, and the option period should specify the exact amount of rent you will pay during the option period. The lease agreement will usual- ly contain one or two methods that will be used in order to calculate the amount of rent you will pay during the option period, which are: (1) rent increase that is tied to the CPI or (2) the prevailing market rent. The option period should specifi- cally state the rental period (usually five to 10 years), and the amount of rent you will pay for each option year (i.e., during months 61 thru 72, rent AD By Stuart J. Oberman, Esq. What every dentist should know about lease agreements g DT page 13