Curb the Competition: Dental Use Exclusivity (Leases)

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Curb the Competition: Dental Use Exclusivity (Leases)

Your dental practice is a valuable asset and protecting it from competition to the extent possible is crucial. Another dentist opening a competing office next door or down the way can quickly undercut your future business and all that you’ve invested in establishing a successful practice. A competing dentist may capture would-be patients or steal your current patients. It may also undermine your investment, including the funds that you’ve put into demographic research to choose the location where you’ve opened your practice and the funds that you’ve used to build-out your practice space. The last thing you’ll want after years of building goodwill and investing in a customized office in just the right location is another dental practice opening next door, while your landlord grins and holds their hand out for more rent.

Long before you open the doors of your office for business, and even before you enter into a lease for your office space, you should be thinking about these issues and taking steps to protect yourself. As you begin your lease negotiations, an important point of the negotiations should involve trying to negotiate exclusivity provisions into your dental office lease.

An exclusivity provision is a type of “restrictive covenant” through which your future landlord promises not to lease space to a competitor. Specifically, your goal will be to get your landlord to agree not to rent space to other dental practice tenants. If your landlord refuses to limit their ability to lease space to other dentists generally, you may be able to be more specific and agree to a provision that restricts the ability to lease to a particular competing specialty such as pediatric dentists, orthodontists, etc.

Keep in mind that a promise is only as good as the consequences for breaking it. Just having the option of terminating your lease usually isn’t good enough, because you’ll effectively be displaced against your will after investing big money on improvements for your dental practice. Ideally, the restrictive covenant will have a severe consequence for your landlord if they fail to keep their promise, such as significantly reducing the amount of rent that you will pay (for example dropping rent to $1 per square foot) if your landlord brings in a competitor next door. This will let you stay where you are and continue your operations, while penalizing your landlord and giving them a major incentive to fix their broken promise. This puts the pressure of enforcing the exclusivity provision on your landlord instead of you, allowing you to focus on running you practice. As with other key lease provisions, this is one that we always recommend providing for in the lease proposal/letter of intent.

 

Categories: Dental Use Exclusivity, Letters of Intent, Office Leases, Real Estate, Transition Issues