Dentists Don’t Sell Their Practices, They Sell Their Leases By Lewis Gelmon Dentists are often shocked when I say “you don’t really sell your practice; you sell your lease.” This simple but disturbing reality has become clear to me through the thousands of leases I have reviewed for clinicians since 1994. Dentists spend decades building good will and providing excellent dental care. They spend hundreds of thousands of dollars on marketing, state-of-the-art equipment, and creating a comfortable environment for patients and staff. Unfortunately, all the money, time and effort spent on these initiatives do not necessarily translate into a high sale price. How can a dentist avoid this unfortunate fate? With a proper lease agreement that has been carefully crafted for a dentist planning to sell his or her practice. More and more dentists are finding themselves caught in a classic landlord trap. I receive at least one phone call each week from a dentist who is in the process of selling a practice and has run into problems with their landlord. These calls tend to sound the same. The dentist explains that he or she has tentatively sold the practice. When approached to transfer the lease, the landlord asked for a letter formally requesting the transfer. A few days after receipt of the letter the landlord determined that, according to the provisions in the lease, he or she now has the right to terminate the lease and
remove the practice from the premises. The landlord goes on to explain the dentist’s choices. The space can be vacated in accordance with the lease or the clinician can pay the landlord a fee for agreeing to waive the right to exercise their option to terminate, allowing the practice to be sold and remain on the premises. Depending on location and the value of the sale, this fee is typically somewhere between $75,000 and $250,000. Take a moment to process that. It can cost a dentist up to a quarter of a million dollars to transfer their lease. Property owners often understand the business of dentistry better than dentists themselves. Buried deep in the lease agreement is an “Assignment Provision” that governs the details of how to transfer the lease (change of control) when selling the practice. These provisions are often extensive and hard to understand. Most allow the landlord overwhelming control over who can purchase the practice, as well as the opportunity to prevent the sale or terminate the lease. In my opinion, the purpose of these onerous sections is simply to provide property owners with the opportunity to share in the sale proceeds of their most valuable tenants. The solution is simple. I like the overused but very true axiom—“An ounce of prevention is worth a pound of cure.” If you ever plan to sell your practice, you need to make sure you can sell your lease. This requires knowing where the risks are before putting your practice up for Continued on back…
2015 Seattle Study Club® Symposium
DENTIST AS CEO The Science Behind Financial Success The 22nd Annual Seattle Study Club® Symposium will deliver education that isn’t offered anywhere else in dentistry today. In four intense days, you will learn the skills necessary to become the CEO of your practice and secure your financial future. This meeting will immerse you in expert knowledge on everything from understanding the implications of your balance sheet to laying out a strategic plan. It’s Financial Intelligence for the Clinical Mind™. This special issue of Broadcast Views highlights just a few of the 30 presenters who will be sharing their insights January 21-24, 2015 at the Ritz-Carlton, Amelia Island, Florida. See you there!