Lease Renewal – An Opportunity Not Always Taken

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HealthOne Realty

Opportunities present themselves in many forms. A lease renewal represents a perfect opportunity for a practice to analyze the operation of an office and to reduce occupancy costs, which generally represents the second largest practice expense next to personnel. Such a large number on your income and expense statement should be an inviting target but many practices do not take the time and they do they treat a lease renewal with the attention it deserves.

Like most practice managers and doctors, your time is precious. You may not feel that you have the time nor the requisite market knowledge to adequately address these issues on your own. Knowledge is key to any successful negotiation, and generally the side with the most knowledge wins the day.

For this reason, I would suggest that you engage a real estate professional who specializes in healthcare to assist with your office assessment and lease negotiation. Be sure to begin your assessment far enough ahead of the lease expiration so that you preserve all of your options. Depending on the size of your office, you should start thinking about the process at least twelve months prior to lease expiration. Remember, you can always slow down the process if it moves along too quickly, however you can’t create time if it moves along slower than expected.

Use the upcoming renewal as an opportunity to take a fresh look at your office space. It does not have to signal an intent to move. Rather it offers the chance to obtain the feedback necessary to make an objective assessment of that office prior to executing a long term lease commitment.

In your assessment, the following questions should be asked:

Does your current office space still efficiently accommodate your needs?
Efficiency has never been more important than it is in today’s healthcare environment. A physician can not be his or her most efficient if the space he or she occupies does not provide an efficient platform for patient flow. The fact that it may have been efficient at lease commencement does not mean it is still the case at the end of the lease.

Does your location still fit your patient base?
With a lease renewal you are looking at making a long term commitment. During the term of a new lease will the location continue to fit your patient base? Have the demographics of the area changed? Do you see signs or trends that will render the space geographically undesirable?

Is your current lease survivable?
The vast majority of any lease document describes events which may never occur during the lease term. Partial destruction, eminent domain and interruption of services, to name just a few, are landmines which lay dormant in leases. Many of these provisions have the same chance of occurrence as winning the lottery. But just like the lottery, someone is going to be a winner, despite the odds, or in this case the loser falling victim one or more of these lease provisions, with results that can be disastrous. These events are often detrimental to both landlord and tenant, but they need to be negotiated in such a way as to minimize their effect on your practice, allowing your practice to survive them.

Summary
If after careful review you can answer yes to the first two questions, then negotiate vigorously with your current landlord. Make sure that once you have negotiated good economic terms you address the other lease provisions with the intent of making them survivable.

If the answer is no to one or both of the first two questions you need to first determine if these issues can be addressed in the current space. If not you should begin a search for alternatives which will accommodate the needs of your practice.

Careful and informed negotiation in both instances will provide opportunities which will go straight to your bottom line.

Stan Sharp is president of HealthOne Realty Advisors.
He can be reached at 770-578-4996 or ssharp@healthonerealty.com

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