How to get the most out of a landlord

Doctors are highly desirable tenants so don't settle for anything less than a great deal on your office

By Michael Citrome

Commercial landlords love doctors as tenants. Doctors are stable, earn decent money and — thanks to patient flow — attract hordes of clientele to nearby businesses. That's why you should never, ever, get anything less than a great deal from a landlord.

Landlords who rent to doctors come in two flavours: attached and non-attached. Non-attached landlords are purely in the business of renting out office space and managing the building. Attached landlords also own or have an interest in a business that's directly affected by the medical practice in the building. Generally that means a pharmacy, but it can also be an x-ray facility, an analysis lab or a physiotherapy clinic.

According to Annie, who manages a large family practice in Mississauga, dealing with these two types of proprietors can be like night and day.

LANDLORD TYPES
Non-attached landlords will generally try to squeeze prime rates out of doctor tenants. They'll justify the cost by providing services and facilities that MDs want, like elevators, access ramps, good parking, top-notch cleaning and a nice, professional-looking environment.

Attached landlords will often subsidize doctors' rents considerably or even completely — but it comes at a cost. They expect high productivity and keep tabs on your patient-loads because it so directly affects their business.

"If no pressure is displayed at the beginning of the doctor-landlord relationship, you can guarantee that pressure and tension will emerge as soon as the patient numbers are less than what the landlord wants," says Annie.

Dealing with an attached landlord can certainly make your day longer — but remember, you hold the power in the situation. It's your patients that are keeping your landlord in business.

TALKING TURKEY
How much room do you have to bargain when signing or renewing a lease? According to Annie, "a lot!" — And that goes for both types of landlords.

"From the point of view of commercial bankers, doctors are A1 tenants," she adds. "Buildings with doctors get the best financing. And the more doctors there are in the building, the more financing the landlord can obtain. Doctors need to know this."

Negotiate armed with this knowledge, says Annie, and be sure to emphasize your value to the building in terms of acquiring financing. Landlords will usually have to borrow money from the bank in order to pay for renovations, and having an established medical practice under their roof will make the loan cheaper. Let your landlord know that you know the score, and you'll be closer to the deal you want.

BONUSES
Landlords should also be willing to throw in 'extras' to get doctors on board.

They may offer an MD tenant an allowance for renovation and cabinetwork. Also, a free private parking space and three month's free rent when you move in shouldn't be a problem for landlords who are getting prime rates, says Annie, but don't be surprised if attached landlords already offering heavy subsidies draw the line at these types of incentives.

THE DOTTED LINE
A longer lease term is nearly always in a doctor's best interest if they've done their homework and know they've found the right office. Longer leases delay rent increases and provide a buffer against hot rental markets. Many landlords will use the end of a term to significantly jack up the rent for doctors, knowing how much of a hassle it will be to move their practice.

To nip this greed in the bud Annie suggests inserting a rent increase formula into a clause in the lease that predetermines the rent you'll pay, if you decide to renew. That way there will be no arguments or surprises.

However, you should always ask for a clause that makes the first year of the lease a trial period after which you can get out of the deal without penalties if the building or its management turn out to be inadequate or disappointing.

BEYOND RENT
The amount you pay in rent isn't the only consideration that makes an office a good value. You have to consider the included services and taxes, maintenance and insurance.

Some services that should be expected include twice-daily (at least) cleaning of public washrooms, immediate servicing of elevators when they break down, adequate security, proper snow and ice removal during the winter and gardening during the summer, and all doors should be equipped with high security commercial-grade locks.

Property management responsibilities and duties should be clearly outlined and written in the lease, so there will be no ambiguity as to who's responsible when there's a problem. It can be very helpful to consult with a lawyer before signing a commercial lease. The legal jargon in a lease can be impenetrable, but when you sign, you're bound to it.

Interior office cleaning isn't always included in a lease, but it's nice when it is. Try to get this service included, and be sure to raise a fuss if the service is lousy.

THE TMI VORTEX
TMI — Taxes, Maintenance and Insurance — is a well-known cause of acute cephalalgia in MD tenants. These are mandatory costs for property owners that are passed on to you as a portion of your rent, typically calculated based on what percentage of the building you occupy.

TMI is often expressed as a cost per square foot — so if your total rent is $17 per square foot, that can break down to $12 per square foot for net rent and $5 per square foot for TMI.

The trouble is that unlike your net rent, which is fixed for the term of your lease, TMI can increase at any time, based on the landlord's real costs — or oftentimes according to Annie, based on what the landlord thinks he can get away with.

If you suspect your landlord is fleecing you on exaggerated TMI costs, you should ask to see receipts and tax bills. The right to see receipts can be put into a clause in your lease. Talk to your accountant, be informed and you'll keep your landlord honest.