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Finding chiropractic office space can be overwhelming. But finding a location is just half of the battle. Now you have to review and negotiate a chiropractic office lease. Here are the common mistakes chiropractors make on their commercial office lease, taken from a study of our chiropractic office lease reviews.
The larger the landlord, the more willing they will usually be to providing a tenant improvement allowance.
That allows tenants to construct the space according to their needs without having to fund that expense themselves. This allows them to spend money on other items such as hiring staff, advertising, etc. Since the construction of the premises is usually the largest single expense in setting up a chiropractic office, this should normally be outsourced to the landlord.
The landlord will charge interest on the tenant improvement allowance, but having available cash to grow the business should be the biggest priority at the early stages.
A personal guarantee is normally found in every commercial landlord's standard form of lease. In the case with chiropractors, if the practice fails, the individual chiropractors would be personally liable for the rent.
This can be troublesome and problematic, especially for practices in which the partners of a practice sublease a portion of their space to independent chiropractors who may decide to stop subletting at any time.
This clause can sometimes be hard to remove from a chiropractic office lease, especially if the landlord is small, risk averse and is funding some or all of the leasehold improvements. However, the reason why corporations exist is to limit personal liability for business owners.
Normally the solution is to provide a larger than average security deposit. Most commercial leases have a two-month deposit (first and last). For most start-ups with significant leaseholds, the deposit can be 6 months and even as high as 12 months.
We would recommend that the deposit start to be exhausted over the lease term and not held on by the landlord until the end of the lease. For example, a 6 month deposit could start to apply to rent starting at month 13 of the lease, and in that case the landlord would have secured the first full year?s worth of rent.
The majority of chiropractic office leases have the obligation for a tenant to restore or make good on the leasehold improvements at the end of the lease term. In other words, demolishing all of the drywall, removing the flooring, and restoring the premises to a concrete to concrete condition.
This cost normally is in the $5 per square foot range.
What most chiropractors do not understand is that this clause can typically be removed at the negotiation stage.
Here is some sample wording to include in your letter of intent or offer to lease:
The lease shall not contain a provision to make good or restore the premises to base building condition at the expiry of the lease, and the landlord shall agree to accept the premises in an as-is condition at that time.
Landlords want to have this clause in the lease so that they can offer a clean shell to the next tenant that moves in. Sometimes landlords will charge the vacating tenant this exit cost and then not even complete the demolition work and re-lease the space in an as-is condition (for example, they could rent the space to another chiropractic office).
Signing a chiropractic office lease can be daunting, given the upfront costs at a time when there are no patients. A 5 year lease can seem like an eternity.
However, most tenants at the end of 5 years typically feel like the time flew by and are now back at the negotiating table on the lease renewal.
There are a few disadvantages to signing a lease that is too short:
1) You have not amortized the leasehold improvements over a long enough time period. If you had chosen a 10 year lease term then the monthly payments of rent would have been lower (if the rent included the leasehold improvement allowance).
2) You are reaching the lease renewal negotiation 5 years sooner and the landlord may try to hold your ransom on the renewal price. Although you may have a right to renew at fair market value, depending on what your lease says, the landlord could still make life difficult as the definition of fair market could be murky.
3) In our experience the escalations of a 10 year lease term end up being more tenant favorable than a 5 year, plus 5 year renewal.
Retail rental rates can vary wildly.
While it is enticing to sign a lease for the lowest rent possible, the lower rent options do not have the same kind of visibility. It is very hard to measure, but spaces that are highly visible act as a billboard for chiropractors.
Seeing a physical location over and over reminds consumers of the pain they have and they can see who provides the solution.
What is more is that describing the physical location is what happens when one client recommends your practice to a friend. "My chiropractor's location is in the plaza at the corner of Main and Stevens...right beside the grocery store." That description is much better than "My chiropractor is in an industrial plaza on a side street that I can't recall right now."
You can overcome a bad location with a brilliant digital strategy, but it is still a safer bet to ensure that you have a well exposed spot.
Most landlords have a right to relocate clause within their lease, but this is often an item that can be negotiated out.
We would suggest the following wording:
The lease shall not have a right to relocate the Chiropractic Premises for the term of the lease or any renewals thereof.
If this is not something the landlord is willing to agree to, we would at least suggest exploring the answers to the following questions:
At what times during the lease is this applicable?
Who pays for the chiropractic office relocation costs and what are they?
What square footage range for the new chiropractic office lease is acceptable?
Does the tenant pay more rent if the new square footage is higher?
Can the chiropractor terminate the lease instead of being relocated?
Will the rental rate be reduced if the new chiropractor office location is inferior?
Can there be an agreed upon list of alternative relocation suites?
Says Jason Yakimshyn an Oakville Chiropractor at Foundation Oakville (specializing in Oakville Torticollis and Oakville numbness, "When we did the walkthrough back in March, it was still cold and frozen outside. We did not notice the the leak in the front window, rear door, and top ceiling cutout for the gas pipe. It is now June, and we still do not have it repaired. The management company is working on it (we just had more inspectors come by today) but overall it?s a very slow process. Luckily it is not too bad of a leak, and the other 6 units all have the same problem so we are all pushing the management company to get it done."
So be sure to be aware of some problems that may be latent due to the season, but will change with the weather.
Ensure that the lease has an exclusivity clause relating not only to a chiropractic office lease, but any ancillary services you may want to offer, such as massage services.
Ensure that you are as broad as possible - include wellness clinics, naturopathy, physiotherapy - any service you may want to offer at some point.
Real Estate Lawyers
While most commercial real estate lawyers are competent, they are also expensive and they bill tenants directly for their time, so they are a direct cost. Real estate lawyers also have an incentive to pad billable hours by over analyzing leases. Ask how many billable hours is typically required for a chiropractor office lease.
Real estate lawyers do not add much value when it comes to the market dynamics of a deal or the financial implications like rental rate, free rent and tenant improvement allowances, since they are not "in the market".
Real Estate Brokers
Real estate brokers are typically paid by landlords, so they are not a direct cost, but they are still a cost in the deal, so hypothetically they add a cost to the deal. A good broker will more than offset the value of their commission, and a bad broker may not. Ask prospective brokers what experience they have with a chiropractic office lease.
Be careful with the advice received by brokers as they are biased towards getting the deal done instead of providing the best advice. They get paid when the deal happens, not based on providing the best advice.
Do you know if your lease can be cancelled in the event of your death or disability? Although your insurance coverage should cover this, you may be able to successfully remove this from the lease anyway.
If you require any help, we are happy to provide a Chiropractic Office Lease Review with a 24 hour turn around time.