How many options to renew a commercial lease for a dental office?
I’m trying to lease a space for a dental office. I’m asking for a 5 year term and 5 options to renew. I’m I asking something outrageous? What’s the norm?
[{"id": "ghazv3q", "text": "10 + years. Usually dentists drop big $$ on build out. Your going to trade some $ for stability.", "replies": [{"id": "ghb1bfz", "text": "Thank you. Can you elaborate?", "replies": [{"id": "ghb1ry8", "text": "A dentist won't want the boot after 10 years alone (or be held hostage). You can write in 3 or 4, 5 year terms or w/e, but they want something longer term before dropping 100k+ on build out.", "replies": [{"id": "ghb1zip", "text": "That\u2019s what I\u2019m thinking. I\u2019m not going anywhere and you\u2019re paying a lot of money for the redesign. But the LL wants 5 years and one option to renew only.", "replies": [{"id": "ghb35sj", "text": "Most Dentists would balk unless your giving a credit for the build out.\n\n&amp;#x200B;\n\nUsually after 20 years they need to do a re-fresh, retirement, move, etc. They are good tenants, bring good foot traffic to the rest of the property, clean, normal hours. Would try to work with a dentist and not fight them.", "replies": [{"id": "ghb3glt", "text": "I am the dentist. The LL is being really difficult.", "replies": [{"id": "ghb3r9u", "text": "Ah! Annoying that he/she does not want to play ball.", "replies": [{"id": "ghb45el", "text": "Yeah I thought I was asking for something outrageous but if I get the boot after 10 years I would lose a lot of patients and since it\u2019s in a busy part of town I don\u2019t know if I\u2019ll find another space close to this one.", "replies": [], "depth": 8}], "depth": 7}, {"id": "ghb43g4", "text": "I agree with this post, 10 years with 2 or 3 five year options to renew. Also, could ask for build out credits. With office space in complete flux at the moment why don't you look at other properties,  if I were the landlord I'd be loving having a dentist in my space. \n\nI am a commercial lender btw so I finance these types or transactions on the investment side and we really like medical.", "replies": [], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ghb05cf", "text": "Usually what is common is 5 years and two or three 5 years renewals. Some people might like the five 5 year renewals because it says you want to stay there, others are afraid the market might go up and they would not be able to raise your rent. It depends on the market.\n\nAgain, that is in my market (Florida). In commercial real estate there not such thing as \"the norm.\" That is the reason I love it.", "replies": [{"id": "ghb1ed6", "text": "It\u2019s in an old part of the city that\u2019s been stable since forever. It has a steady uptrend.", "replies": [], "depth": 2}, {"id": "ghcriog", "text": "Agree with this I typically see a 5 year plus 2 5 year terms. Sometimes more if the franchise requires it", "replies": [], "depth": 2}], "depth": 1}, {"id": "ghb6oh3", "text": "I give total option terms equal to the base term. So 5 year term, one additional 5 year option. 10 year term with two 5 year options, etc. \n\nIf someone wants to tie up the property for decades then the initial guaranteed term should be reasonably long, not 5 years with another 25 years of options.", "replies": [{"id": "ghbaf0g", "text": "So that\u2019s why LL doesn\u2019t want 5 options", "replies": [{"id": "ghbjjhp", "text": "Yes, most likely. See if they will give you the options you're looking for if you give more base term than just 5 years.", "replies": [{"id": "ghbjz7d", "text": "Ah ok. Thank you for clarifying it to me.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ghb79wq", "text": "I am a commercial LL, and most of my portfolio is retail/service. My rule of thumb is to try to keep renewal options equal to the primary term. For example, if the primary term was five years, then I don\u2019t agree to more than five years of renewal options. If I have a tenant prospect intensive buildout requirements, like a dentist or restaurant, then it\u2019s common to see ten-year primary terms due to the need to amortize the expense of the buildout.  In that case, I would agree to a ten-year primary term and two, five-year options. However, like others said, every market is different, and the \u201cnorm\u201d varies greatly.", "replies": [{"id": "ghbaca6", "text": "Oh I see. Well thank you so much", "replies": [], "depth": 2}], "depth": 1}, {"id": "ghbb1eh", "text": "how long are the options?  5 sounds like a lot unless they are 5 1 year options maybe.  \n\nWhat about TI?  Dental buildouts sometimes cost more than the property.  Is it existing?  Does it need modified?  There is a big difference between base dental and surgery ready (mostly oxygen/etc piped). \n\nAre you leasing a type space or c?  Right now a type retail is trying to poach med office users from c type space as its one of the few things expanding and doing well.  \n\nDo you have a broker?  get one, there are a ton of landmines in dental offices.  It is super easy to make a 6 figure mistake.", "replies": [], "depth": 1}, {"id": "ghbbw20", "text": "OP, what state are you in?", "replies": [{"id": "ghbguge", "text": "Florida", "replies": [{"id": "ghbjs17", "text": "I\u2019m a Florida attorney if you have questions. Are you working with a broker ?", "replies": [{"id": "ghbkt3x", "text": "Yes and the broker is LL\u2019s friend so I don\u2019t know of there\u2019s conflict of interest", "replies": [{"id": "ghbnut5", "text": "OP if you know the market really well and are comfortable you are getting a fair deal then great. But your broker isn\u2019t trying to get the best deal and terms for you if he is also friends with the landlord.", "replies": [{"id": "ghbod1b", "text": "Can I get another one note that I signed with this one?", "replies": [{"id": "ghbohx1", "text": "Depends on your listing agreement. But if it\u2019s a legit conflict you should be able to.", "replies": [{"id": "ghbojqa", "text": "Ok thank you", "replies": [], "depth": 8}], "depth": 7}, {"id": "ghboyxl", "text": "I\u2019m not sure what you signed or what your relationship is with this broker. You are in the drivers seat right now so if your broker isn\u2019t conducting negotiations with that in mind then I would look to terminate whatever agreement you signed and find a tenant rep broker. What part of Florida are you in?", "replies": [], "depth": 7}, {"id": "ghbyz6o", "text": "This guy is a snake in the grass. Of course the broker is friends with the LL, he\u2019s friends with every land lord.   5 options is outrageous, and makes things overly complicated. Up the initial term, commit to the space, and try to get a better rate.", "replies": [], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ghbusp9", "text": "Too many options. I would do 5 years of plus 1 or 2 5-year options", "replies": [], "depth": 1}, {"id": "ghbuwax", "text": "I\u2019ve seen a 10year with 5 year option as well", "replies": [], "depth": 1}, {"id": "ghcd903", "text": "If you want that long a lease why aren't you thinking of buying your own property?", "replies": [{"id": "ghceix3", "text": "Short on liquidity", "replies": [], "depth": 2}], "depth": 1}, {"id": "ghd80xk", "text": "I'd ask begin for a 15 yr term w agreed rent increases established. You should be able to lower your p sqft costs bellow market. \n\nBe aware of the landlord maintaining the rights to refusal and any language speaking on subletting. With 15 years, they'd concede on TI, further reducing your expenses. \n\nWhenever you sell the practice, the remaining lease term will add to the multiple at which the prescribe can be sold. \n\nOne of the bigger forces at play is whether the unit is ground level retail with parking and street visibility, in an office building, or medical complex/office.", "replies": [], "depth": 1}, {"id": "ghe2l16", "text": "I'd go for 10 off the bat, given your initial investment... if concerned about that term then ask for a termination right year 5 by paying Landlord's unamortized TI and commissions. The 10 will serve you well, given when it's time to renew the LL knows you're unlikely to leave (leverage) 10 could even get you a couple more 5 year renewals. Besides, the termination right could be positioned to LL as leaving him/her with a build out space which would be highly marketable to other dentists.\n\nAnother consideration is assignment language. Hypothetically, if you bring in a partner year 5 and decide to retire year 8, it'd be handy to be able to assign the lease to the new partner without too many crazy hoops.", "replies": [{"id": "ghe3i1h", "text": "Thank you. The LL wants 5 years and 5 or 7 years and 7 or 10 years and 10. Can the termination right be applied to the renewal term? How is the unamortized TI calculated?", "replies": [{"id": "ghe4gdh", "text": "Not totally following the 5 7 10 combo there... but termination rights are typically during the initial term. Not to say it couldn't be applied to a renewal, in that case the \"termination fee\" would likely be months of rent (IE 3 months rent, 6 months rent, etc)\n\nUnamortized costs are typical in early terminations- but only for the initial term. Example as follows: 10 year lease, Landlord pays $400K in improvement allowance and $100K in commissions. This totals $500K in capital, which the LL is looking to recoup over the 10 year term. If you were to early terminate year 5, then LL would only recoup half of the investment- ergo require you to pay back the other half. As a sidebar, Landlords will typically also add in an interest factor which isn't a horrible idea so long as it's a reasonable rate. The whole advantage to having an early term is to give you the flexibility- generally w/ these arrangements the Tenant doesn't get a big \"win\" beyond having the right (b/c they have to pay back LL's unrecouped investment) nor is it a big \"win\" for the LL (they lose the tenant, but at least they didn't lose the 2nd half of their investment and they do have a somewhat marketable space... albeit could take 6-18 months to retenant plus refurbishment at minimum)", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}]