Leasing a Building? Know Your Lease Terms and Negotiations
There are many things that need to be established in the first phases of practice and by far the most important is your location. Once you have finalized the area that you want to practice in, the next key is to find a space that will be suitable for you to lease. As a new practitioner money is tight and we want to get the best lease that we possibly can. There are two types of locations that we can look at that will vary significantly. Retail spaces are more expensive but prove to be more visible and have a higher concentration of activity because of all the other types of businesses. Professional centers are slightly less expensive, because of other professionals competing for patients and patients coming specifically to see their doctors. Professional centers have limited signage and that is a limiting factor for walk-in patients and the potential for new patients. Beyond picking out your location, the lease that will be provided by the owner of the building may be written in another language. This language may be foreign to you but it is the common everyday communication between leasing agents and real estate brokers. Whether or not you use an agent or a broker and I highly suggest that you do, you need to understand their language. Let’s start with price per square foot, that is the asking amount by the lesser or owner of the building for the amount of square footage that you want to lease. For instance we will use round numbers, an example of this is if you want to rent 1000 sq ft, @ a $1.00 a foot the price for rent is 1200.00 a month. This is based on the square footage usage per month otherwise it is considered 12.00 a foot based on the annual use of the building. Confused? This is just the beginning of your negotiations with the owner. You will be considered the lessee in any contracts that pertain to the lease and this will be spelled out at the vary beginning of the lease. After figuring out the amount for the square footage there are extra fees for various expenses associated with the building. The term triple net will add increased costs to the lease. Triple net takes into consideration the services and overhead of managing the entire building and that piece of overhead based upon your square footage. It might include the taxes, garbage disposal expenses, common areas that all of the tenants use (i.e. Hallways, foyers, elevators, landscaping, air conditioning units or any thing that may require maintenance. Triple net may have a cap or maximum that is added to the square foot price of your lease. For example you have 1000sq. ft. @ $1.00 a ft with a triple net of 50 cents a sq. ft. would cost an additional $600.00 per month making it a grand total of $1800.00 per month. These figures vary and are only used as examples to show you how these numbers and formulas work. There is a term in leasing that reflects the future cost of the lease based on the CPI in your region the CPI is the consumer price index that is the index based upon the increased cost of living in your area. If the lease is attached to the CPI make sure that it does not exceed 3%, usually the index is under 3% per year. Another point of contention in dealing with leases is the lease hold or tenant improvements. This area of the lease is unpredictable in the sense of supply and demand. Where there are high areas of growth or in more populated areas the price and concession of the tenant improvements may vary. Leasehold improvements are all of the construction costs to the interior of the rented space. It may include but is not limited to all the walls, electrical outlets, 220 direct current circuit outlet for the use of x-ray equipment, paint, insulation and carpet. In many cases the landlord will make concessions to the lessee concerning free rent or leasehold improvements depending on the length of the lease or any additional expenses. The law of supply and demand is instrumental in your ability to work with the landlord in your area. If there are lots of vacancies to choose from your ability to negotiate will be higher. This is not an all inclusive list for leasing. Here are some simple tips to use. 1) Make sure that your location that you are looking at has a high visibility.2) The agent that you work with on securing your lease has your best interest in mind. Sometimes the agent will work for both sides of the contract.3) Work the best deal that you can with the landlord and then work it one more time. 4) Don’t go to the school of hard knocks, take some classes or use professionals to help you learn more about real estate and transactions. These tips and terms should help you on your way to creating a solid lease and a great future for your practice.
