Podcasts

The five lease clauses that decide what your practice is worth – here’s how most doctors read a 60-page commercial lease. They check that the suite number is right. They check that their name is spelled right. Then the eyes glaze, the pen comes out, and 58 pages of someone else’s language become binding for the next ten years.

Somewhere in those pages are a handful of clauses that will decide what happens when you sell your practice, when your landlord’s lender forecloses, and when your build-out runs four months late. Nobody reads them until one of those things is happening. By then the lease always wins.

We sat down on the Dentelligentsia podcast with DeLone Dawisha, principal and founder of Dawisha Law in Troy, a business, real estate, and construction attorney who cut his teeth doing mergers and acquisitions at Honigman before opening his own firm. His summary of commercial leases: “The devil’s really in the details. You want to know exactly what you’re agreeing to.”

So let’s read the details. These are the clauses we fight over on nearly every deal, with Dawisha’s view of how the fight actually goes.

The assignment clause — the one that touches your exit

Start with a fact most tenants don’t know. “Under Michigan law, contracts are freely assignable unless they state otherwise,” Dawisha told us. Your lease says otherwise — nearly every landlord writes in a clause requiring their prior written consent before you can hand the lease to anyone.

Why should you care? Because selling your practice IS assigning your lease. The buyer of your practice needs your space, your plumbing, your operatories. If the landlord can veto the transfer, the landlord holds a veto over your sale.

The standard tenant fix is adding that consent “may not be unreasonably withheld.” Better. Not enough. The next fight is what “reasonable” means, and the usual landlord answer — the assignee must have equal or greater financial strength — contains a trap. After 25 years, your financials are excellent. The associate buying your practice is strong for a young doctor and weak compared to you. Under an equal-or-greater standard, the landlord can reasonably reject the exact person most likely to buy your practice.

So we push to define reasonableness in advance: a licensed practitioner of the same specialty, with stated documentation — say, three years of financials — and no veto beyond that. This clause is routinely the last thing worked out before a practice sale. It should be one of the first things negotiated in the lease, a decade earlier, when you have leverage.

The personal guarantee — shrink it, don’t fight it

Nobody enjoys this conversation. The guarantee feels insulting and it is scary — stacked on student debt and equipment debt, it’s another personal promise against everything you own.

But look at it from the landlord’s chair, as Dawisha does: they’re contributing tenant improvements, free rent, and construction time — often $200,000 to $300,000 before commissions — to an LLC that may hold nothing but a lease and some chairs. No guarantee means no real recourse. So the guarantee is usually coming. The negotiation isn’t whether; it’s how much and how long.

The win is limiting the term. “If you’re dealing with a 10-year lease, limit the guarantee to two or three years,” Dawisha said. “If the tenant performs for the first three years, in all likelihood this is a good tenant going forward.” Rolling one-year structures and good-guy guarantees limited to possession are variations on the same idea. Landlords resist because a full-term guarantee makes their building easier to sell and refinance — which tells you the guarantee has real value. Trade for it accordingly.

CAM charges — the rate is not the rent

In a triple net lease you pay base rent plus your share of taxes, insurance, and common area maintenance. The mechanics are simple — 2,000 square feet of a 10,000-square-foot center means 20 percent of the costs, billed monthly and trued up in an annual reconciliation. The fight is over what counts as a cost.

Some leases pass through everything: roof work, parking lot replacement, capital expenditures, plus the one that makes every tenant want to throw up — a 15 percent administrative surcharge the landlord adds for managing the expenses you’re already paying. Over a 10- or 15-year term, the definition of CAM can move more money than a quarter of base rent.

Two protections. First, negotiate caps on annual increases for controllable expenses and push capital items out of the pass-throughs. Second — Dawisha’s favorite — put an audit right in the lease: if you audit the books and find a discrepancy above 3 or 4 percent, the landlord pays for the audit and refunds the difference. Most tenants never invoke it. That’s the point. “A landlord who knows the tenant can audit the books,” he said, “is less inclined to add costs they shouldn’t be adding to begin with.”

Non-disturbance — protection you have to ask for

You’re about to spend several hundred thousand dollars building out a space in a building you don’t own, secured by a mortgage you’ve never seen. If the landlord defaults and the lender forecloses, what happens to your lease?

Without protection, that’s an uncomfortable question. A non-disturbance agreement answers it: as long as you pay rent and honor the lease, the lender honors your right to stay. Its companion, the estoppel certificate, is a document you’ll be asked to sign when the building sells or refinances, confirming the facts of your lease. You’re usually contractually obligated to sign one — but as Dawisha put it, “you’re not obligated to sign off on something that isn’t accurate. Read every word.” Parties do sometimes slip a convenient sentence into an estoppel; lenders and buyers will rely on whatever you signed.

A candid note from our side of the table: lenders don’t always bother negotiating non-disturbance with a 2,000-square-foot tenant. Ask anyway. With this much of your money in the landlord’s walls — and a wave of commercial mortgages repricing — you want the answer in writing before it matters.

The construction contract — where the real fights live

Dawisha handles business, real estate, and construction disputes, and he’s unequivocal about where the trouble concentrates: “Out of everything I’ve handled, construction projects are where most of the issues come up.”

The recurring one is delay. Your lease clock and your loan payments don’t pause because a contractor is behind. So the construction contract has to answer the questions in advance: which delays are excusable and which aren’t, who pays for the ones that aren’t, whether there are liquidated damages when “12 months” becomes 24. Between landlord’s contractor and your own, the honest answer is that the contract matters more than the choice — a turnkey landlord build shifts cost risk to them; your own contractor gives you control and the risk that comes with it. Either way, interview builders who do healthcare space, visit their finished projects, and ask them directly how they handle it when things go wrong. Everything goes wrong somewhere.

Two footnotes that aren’t footnotes

The operating agreement. Before any of this, your entity needs its own paperwork — even a single-member LLC, even though Michigan doesn’t require it. Partners who never defined ownership percentages, contributions, and exit terms are Dawisha’s steadiest source of ugly disputes. “You never know what’s going to come up,” he said. “Spell the terms out in the beginning so there’s a game plan — and it’s fair for all of the owners.”

The right lawyer. Your cousin who passed the bar is not a commercial real estate attorney, any more than a podiatrist is an endodontist. Dawisha told us about an out-of-state attorney who brought his home state’s property tax proration assumptions to a Michigan closing — and his client wrote a large, avoidable check at the table. Licensed in your state, specialized in your issue, and yes, more expensive per hour. “Whatever you spend on an attorney upfront,” Dawisha said, “will save you a whole lot of headache and cost in the future.”

That’s the mindset shift the whole episode came down to: the professionals reviewing your lease aren’t a cost. They’re the cheapest insurance you’ll ever buy on a seven-figure decision. Our job is the market and the negotiation; the attorney’s job is the language that makes it stick. You need both, and you need them early.

The full conversation with DeLone Dawisha is on the Dentelligentsia podcast. And if there’s a 60-page lease sitting on your desk right now — before you check the suite number and sign, talk to us.