Imagine you have developed the dental practice of your dreams. You have a loyal group of patients, a constant influx of new patients, and a team you trust. Things couldn’t be going any better. Then suddenly, you get a notice from your landlord that you have to move your practice to another location. What will this mean for the practice you have worked so hard to nurture? Welcome to the relocation clause.
Sometimes known as the substitution space clause, the relocation clause is extremely common in commercial rental contracts. In essence, it gives your landlord the right to insist that you move to another space within the same building or commercial center. Landlords may invoke this clause for many reasons, but it is often used to combine a small rental space with another space next door to accommodate a larger tenant. The relocation clause typically gives you a short window, such as 30 days, to move to the designated space of the landlord’s choosing.
Dental practices are generally expensive to maintain, and they often require highly specialized build-outs. There are many potential pitfalls to a sudden relocation that all dental practice owners should consider. These include, but are not limited to:
Relocation expenses: Some leases require the tenant to cover all costs of relocation, from building out the new space to reprinting all marketing materials and hiring movers.
Increased rent: If you are moved to a larger or more “favorable” location, you may be responsible for paying higher rent on the new space.
Size and usability: You might be downgraded to a smaller or less usable space. That could require you to reconfigure your entire setup, or even lose valuable accessibility that is essential for many patients. You might even be relocated to a hard-to-find space with no foot traffic, reducing the potential for walk-ins.
Competition: Odds are, you carefully selected your existing space for many reasons, including sufficient distance from any competitors. A relocation could put you in close proximity to other dental offices, making it tougher to gain and retain new patients.
Downtime: Building out a dental practice takes time. If you are relocated, you may face extensive downtime while you wait for your new office to be prepared. Every day with your doors closed is a day without revenue or the ability to care for your patients.
Loss of patients: From accessibility concerns to an inability to wait through your downtime, there are many reasons patients may choose not to make the move with you.
It is highly unlikely that, as a small tenant, you will be able to have the relocation clause removed from your rental contract. However, there are many ways to make the clause more favorable for you as a tenant. Some of these ideas are relatively common in commercial rental agreements, and they may even exist in the first draft. Others are a bit rarer. Either way, it is worth negotiating up front for as many of these terms as you can get.
Landlord is responsible for all relocation expenses: This term is actually fairly common, but by no means guaranteed unless you ask for it. In this case, if the landlord makes you relocate, he or she will pick up all of the associated expenses, from build-out to moving expenses to printing new marketing materials.
Rent freeze: This ensures that if you are moved to a bigger or more favorable location at the landlord’s discretion, your rent will remain the same.
Comparable location: You can add language that ensures the new space with be comparable to your existing location in everything from size and configuration to view and level of foot traffic.
Notice period: Ask for a reasonable notice period that gives you time to build out the new space and prepare your patients and staff. The exact length depends on your needs, but many dentists find that a period of 120 days is sufficient.
One relocation per rental period: Relocating is hard work, so try to include language in your contract that will limit your landlord to relocating your practice only once per rental contract term.
Right to terminate: If possible, include language that allows you to terminate the lease without penalty if the landlord is unable or unwilling to find you a suitable space that meets all the terms specified in the clause.
Although it is certainly exciting to start a new dental practice or take over an existing one, it is vital to read through the fine print on every document you sign. A bit of negotiation up front can save you hundreds of thousands of dollars and innumerable headaches in the long run.
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If you are interested in learning how to take your dental practice to the next level, please contact Ascent Dental Solutions today at (800) 983-4126 to learn how Dr. Coughlin can help.