Check the fine print when signing a building lease
By Sarah Nichols, contributing writer
Q. I'm preparing to sign my first building lease but worry I might miss important details. What should I know before committing?
A. Leases usually favor the landlord, warns Dr. Jim Wilson, JD, president of Priority Veterinary Consultants in Yardley, Pa., and a Veterinary Economics Editorial Advisory Board member. That means you must protect your interests.
First, investigate the lease term. Dr. Wilson suggests a minimum of five years with several options to renew for three to five years. "Don't build a practice and then be forced to move because of a restrictive lease," he says. "You'll risk losing clients."
Second, determine rental cost. Does the rate fit your current or projected income? Rent should be 4 percent to 7 percent of annual gross income, excluding the first two start-up years. To avoid confusing terms and hidden traps, have an attorney experienced in real-estate law review the lease before you sign, Dr. Wilson says.
If you're leasing space in a strip mall, watch for common area maintenance fees, says Gary I. Glassman, CPA, a partner with Burzenski & Co. P.C. in East Haven, Conn., and a Veterinary Economics Editorial Advisory Board member. These often hidden costs--charged in addition to rent--cover trash removal, common lighting, lawn and garden care, and snow removal.
Also avoid a ballooning lease, advises Mark Opperman, CVPM, president of VMC Inc. in Indianapolis and Evergreen, Colo. Some leases seem appealing at first, but after two years the cost skyrockets, says the Veterinary Economics Hospital Management Editor. Look for exclusivity if you're leasing in a shopping center so another animal-related business can't rent space while you're there or a year or two after you leave. Also ask about maintenance fees, and repairs to heating and cooling units. And investigate your rights to make interior and exterior improvements.
Finally, decide how to sign the lease. Glassman recommends practice owners avoid signing personally. Sign as a representative of the practice entity if the hospital is corporately owned, and offer a lien on your equipment.
"If you must vacate, the worst that can happen is the landlord gets a lot of veterinary equipment," Glassman says.
January 1999 Veterinary Economics