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Ontario Dentist - December 2004
Landlord Tenant Relations:
Can They Affect the Sale of Your Practice? |
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by Timothy A. Brown, A.L.A.
The majority of Canadian dentists rent their office premises. The landlord and tenant relationship has a long-standing history of being "feudal" in nature due to the differing objectives of the two parties: one side seeks to pay less rent than the other side wishes to collect. However, keep in mind that a landlord may influence the day-to-day image of your practice. A landlord can have a significant impact on the sale of a successful dental practice and how a new purchaser continues this success. Why do some dentists enjoy less-than-favourable relations with their landlords? What issues can lead to the decline of the landlord/dentist relationship?
Dentists, as potential tenants, seek to negotiate the lowest possible rents (to minimize office overhead) when a lease is signed or renewed. This is prudent, business-owner behaviour. However, in the process, some tenants have been known to be combative, disrespectful and downright annoying while attempting to achieve their objectives. I have spoken with landlords who report this type of behaviour on many occasions.
Landlords want to maximize their investment in the property and one of the most important factors that determines the profitability and saleability of a rental property is the annual net rental income. Thus landlords seek to increase rent, usually with reason, at every opportunity. This is prudent, property-owner behaviour.
What causes the strained and sometimes "feudal" relation? Tenants often dread the lease negotiation or renewal process and some choose to hire a third party, usually for a fee, to perform the nasty business of the negotiations for them. My calculations indicate that this is a risky practice. The third party typically has no long-term interest in the process since they do not have to "live" with the landlord afterwards. Some have been reported to be very aggressive towards landlords and on occasion have requested terms and conditions that are, in my opinion, absurd. When a fee paid to a third party to negotiate on the tenant's behalf is factored into the potential rental rate savings that may have been achieved, and given that relations may have been damaged, what are the real savings? It may actually cost more, in terms of relationship capital, to use these third parties.
In other cases, the tenant is purposely late in paying rents, as a penalty for the perceived shortcomings of the landlord. This practice may actually put the tenant in default and it may be a cause for termination of the lease. Moving a dental practice is costly and should be avoided if at all possible. When we look at typical rent increases of two to five percent, they may appear high at first. But as a factor of total practice profits, these increases are often modest. Don't focus solely upon the increase, but the total increase in rent, in terms of dollars and cents, that you are being asked to pay. In hindsight, some tenants admit they were looking at the wrong numbers. Negotiate, yes, but do not allow yourself to be in default - the alternative is much more expensive.
One day in the future, your dental practice will be sold. When that time comes and you request an assignment of your lease, these previously strained relations may work against you, or even the purchaser. Some dental practice sales have been seriously delayed, and even prevented, due to a landlord's dislike for the departing or arriving tenant. This may be the last chance the landlord has to express his frustrations with a combative tenant, one who has badgered the landlord for years over what, in the landlord's perception, were minor issues. I have heard stories about ongoing battles over light bulbs not replaced, snow not shovelled, gardens not weeded, leaking roofs, air conditioning that is too cold, heating that is too hot or both not working at all, and the list goes on.
I am a tenant. Occasionally, I have issues with my landlord. However, I respect that he too is a business owner trying to earn a living and maximizing his return, much as I am.
I do not view my landlord as an adversary but consider him a valuable partner in the image and success of my business. We negotiate fairly and I remain a loyal tenant. This relationship is meant to last, not to be feudal. If I ever had to sell my business on short notice, I trust that he will be co-operative with the process. How's your relationship with your landlord?
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