Bette Robin, DDS, JD 877 DrRobin
SELECT PRACTICE SERVICES, INC. / DENTAL PRACTICE SALES
SELECT PRACTICE SERVICES, INC. / DENTAL PRACTICE SALES
LEASE IT AND LOVE IT
A starting point for negotiating a dental office space lease should be
the ability to assign that lease to another dentist. New and experienced
professionals alike often overlook this factor, not foreseeing this
necessity. However, assignability and transfer issues can come up in
many ways. Such concerns may arise when a dentist takes on a
partner, rents space to another dentist, goes on disability or dies, as
well as upon a normal practice sale. A dentist’s ability, or lack of ability,
to assign their office lease to another dentist often forms the
cornerstone as to whether their entire practice will be financially viable.
The most common way assignability concerns arise is during a regular
practice sale. In that many dentists utilize their businesses as a
significant portion of their retirement fund, this is a very important issue.
Obviously, the best time to negotiate these transfer is before you sign
on the dotted line. However, a lease renewal affords another
opportunity to adapt this needed language.
Kendall v. Ernest Pestana, Inc. legally resolved the issue as to the
necessity of a landlord’s consent for a transfer and whether a landlord
must act reasonably in granting or withholding consent for transfer.
Kendall was the end of a long line of legal cases on this point. In
response to this case, the legislature enacted Civil Code sections
1995.010 - 1995.340 to clarify assignment ambiguities. Before these
civil codes, common law restrictions on transferability governed the
leasing world and no standard of reasonableness had to be legally
employed. However, the codes basically state that only reasonable
restraints on transfer will be allowed.
Remember, landlords have different concerns than you do as a tenant.
The landlord is primarily concerned with the financial viability of his
building while you are concerned with paying at or below market rent for
your space, and the ability to keep your options open in the event you
want or need to move on in life.
By law, a landlord may absolutely prohibit any sort of transfer of your
lease.
However, this must be explicitly spelled out in the lease so as to create
no doubt in a potential tenant’s mind as to this restriction. Should a
landlord choose this inflexible position, the landlord loses his right to
continue the lease and to sue for rent as it becomes due. This can be
substantial penalty to inflexible landlords.
If your lease or potential lease is unclear as to whether it is transferable,
then courts must, by law, construe the lease in favor of transferability. A
‘reasonable’ transfer is a broad term under the law, capable of many
interpretations, and it is best to spell out what this means to the parties
involved.
Considerations on a new lease or a lease renewal as to assignability
should include the following:
1. You want to be able to completely absolve yourself from any further
liability or responsibility, financial or otherwise, under the lease when
the Landlord accepts assignment. You should be able to wind up your
business with the Landlord and the new tenant should not be subjected
to any of your obligations or responsibilities, nor you his.
2. Whether or not a Landlord consents to a transfer should be based on
some sort of objective criteria. For example, such criteria may include a
financial net worth substantially the same or greater than yours at the
time you signed the lease, a financial net worth substantially the same
or greater than other tenants the landlord normally grants leases to, a
financial worth of at least $100,000, or the possession of a professional
dental degree and the financial worth of at least $25,000, etc. Clauses
that allow landlord to disapprove a potential dentist buying your practice
based on character and/or moral grounds are very broad and elusive
and should normally be struck from the lease.
3. You should also be able to assign the options you have remaining
under your lease to a new dentist. A dentist potentially purchasing your
practice does not want to face the prospect the being forced to
negotiate a new lease or lose the lease completely in a short period of
time.
4. The possibility that the landlord completely ignores your request to
assign the lease should be addressed. If the landlord ignores your
request, how many additional written requests should you be required
to make in what time frame. If the requests are still ignored, does that
mean you can go ahead with the assignment, or does it mean that the
landlord has unreasonably refused consent?
The ability to assign your lease will give you a lease you love, one that
can meet the changes and demands of your business.
© Bette Robin, DDS, JD 6/97
the ability to assign that lease to another dentist. New and experienced
professionals alike often overlook this factor, not foreseeing this
necessity. However, assignability and transfer issues can come up in
many ways. Such concerns may arise when a dentist takes on a
partner, rents space to another dentist, goes on disability or dies, as
well as upon a normal practice sale. A dentist’s ability, or lack of ability,
to assign their office lease to another dentist often forms the
cornerstone as to whether their entire practice will be financially viable.
The most common way assignability concerns arise is during a regular
practice sale. In that many dentists utilize their businesses as a
significant portion of their retirement fund, this is a very important issue.
Obviously, the best time to negotiate these transfer is before you sign
on the dotted line. However, a lease renewal affords another
opportunity to adapt this needed language.
Kendall v. Ernest Pestana, Inc. legally resolved the issue as to the
necessity of a landlord’s consent for a transfer and whether a landlord
must act reasonably in granting or withholding consent for transfer.
Kendall was the end of a long line of legal cases on this point. In
response to this case, the legislature enacted Civil Code sections
1995.010 - 1995.340 to clarify assignment ambiguities. Before these
civil codes, common law restrictions on transferability governed the
leasing world and no standard of reasonableness had to be legally
employed. However, the codes basically state that only reasonable
restraints on transfer will be allowed.
Remember, landlords have different concerns than you do as a tenant.
The landlord is primarily concerned with the financial viability of his
building while you are concerned with paying at or below market rent for
your space, and the ability to keep your options open in the event you
want or need to move on in life.
By law, a landlord may absolutely prohibit any sort of transfer of your
lease.
However, this must be explicitly spelled out in the lease so as to create
no doubt in a potential tenant’s mind as to this restriction. Should a
landlord choose this inflexible position, the landlord loses his right to
continue the lease and to sue for rent as it becomes due. This can be
substantial penalty to inflexible landlords.
If your lease or potential lease is unclear as to whether it is transferable,
then courts must, by law, construe the lease in favor of transferability. A
‘reasonable’ transfer is a broad term under the law, capable of many
interpretations, and it is best to spell out what this means to the parties
involved.
Considerations on a new lease or a lease renewal as to assignability
should include the following:
1. You want to be able to completely absolve yourself from any further
liability or responsibility, financial or otherwise, under the lease when
the Landlord accepts assignment. You should be able to wind up your
business with the Landlord and the new tenant should not be subjected
to any of your obligations or responsibilities, nor you his.
2. Whether or not a Landlord consents to a transfer should be based on
some sort of objective criteria. For example, such criteria may include a
financial net worth substantially the same or greater than yours at the
time you signed the lease, a financial net worth substantially the same
or greater than other tenants the landlord normally grants leases to, a
financial worth of at least $100,000, or the possession of a professional
dental degree and the financial worth of at least $25,000, etc. Clauses
that allow landlord to disapprove a potential dentist buying your practice
based on character and/or moral grounds are very broad and elusive
and should normally be struck from the lease.
3. You should also be able to assign the options you have remaining
under your lease to a new dentist. A dentist potentially purchasing your
practice does not want to face the prospect the being forced to
negotiate a new lease or lose the lease completely in a short period of
time.
4. The possibility that the landlord completely ignores your request to
assign the lease should be addressed. If the landlord ignores your
request, how many additional written requests should you be required
to make in what time frame. If the requests are still ignored, does that
mean you can go ahead with the assignment, or does it mean that the
landlord has unreasonably refused consent?
The ability to assign your lease will give you a lease you love, one that
can meet the changes and demands of your business.
© Bette Robin, DDS, JD 6/97
DrRobin@BetteRobin.com
17482 Irvine Blvd., Suite E
Tustin, CA 92780
Tustin, CA 92780
Tele:
877 DrRobin
714.421.4407
Fax:
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DrRobin@BetteRobin.com
17482 Irvine Blvd., Suite E
Tustin, CA 92780
Tustin, CA 92780
877 DrRobin
Tele:
714.421.4407
Fax:
714.398.8808