10 Money-Saving Provisions that Can Save You Stress, or Cause It If You Overlook Them
You’ve found the perfect location for your next clinic startup or perhaps you're renewing an existing lease, now what?
You need to learn how to negotiate the most favourable lease possible for your clinic. You want a lease that protects you from getting run over by the landlord, should certain conditions arise, and one that saves you money.
Before you sign on the dotted line, here are 10 provisions you need to look at when negotiating your commercial lease for your physical therapy, chiropractic or massage clinic.
Note: If you prefer videos to reading, you can also watch a video that explains these same 10 lease provisions.
1. Negotiate an Extended Fixturing Period
A fixturing period gives you time to renovate your new space before you have to start paying rent. No one wants to pay rent for a place they can’t use yet. So, if you can convince your landlord to see how great and reliable your clinic will be, use that leverage to get as many months of fixturing as possible.
A good goal is three months, but I have seen some clinic owners negotiate as many as six. What’s so great about that is, if you can complete the renovations within the first month, you now get to operate the remaining months of your fixturing period rent free. Gives you a great start while you focus on attracting new patients.
One thing to look out for: If your landlord demands that you use their pre-screened renovators, he may be getting a kickback. So get quotes from other contractors, and if you see huge differences in the prices, push for lower prices from the pre-screened ones.
2. Push for a Tenant Improvement Allowance
This can work in tandem with a fixturing period, or you can negotiate for one if they balk at the other.
A tenant improvement allowance essentially means the landlord fronts you some cash to pay for your initial renovations. A good rate to push for is $20 to $30 per square foot. On a 1500 square foot unit, that’s $30,000. That will go a long way toward paying for your contractors.
Will this result in a higher rent so the landlord can recover their costs? Almost certainly. But it’s worth it, because it drastically reduces your startup costs. Once your physiotherapy or chiropractic clinic starts producing revenue, you’ll be able to afford the higher rent.
3. Watch Out for a Rigid ‘Assignment to Lease’ Clause
You want this to be flexible, not rigid. Here’s how this works:
Say you have a 10-year lease. After that, you may be planning to get out of the business by selling it or passing it off to someone else. You want to be able to assign your lease to the new owner without the landlord causing you (or the new owner) lots of grief. Sure, the landlord will want to vet the new owner, as they should.
But you want this transfer to be possible, not forbidden in the lease. And you want it to be as flexible as possible. It seems like a minor clause, and it is. But if you end up in that situation, it can cause you and the new owner massive headaches if this clause isn’t working in your favour.
4. Negotiate a Cap on Any Personal Guarantees
If you don't pay your rent, your landlord has the right to go after your personal assets.
Some landlords include a clause that requires you to pledge a certain amount of financial responsibility, if you are at fault. While this is reasonable in principle, you don’t want this pledge to be unlimited, or open. That could be a business-killer if something goes wrong. Plus, they have insurance, so a cap is totally reasonable.
You want to negotiate a cap on this pledge, which limits your liability and protects you in case.
5. Beware the ‘Restore the Premises’ Clause
This is a poison pill buried in some lease agreements. Scour your full agreement for this one before signing it.
If you end up moving your physical therapy or chiropractic clinic business at some point in the future, but made any changes to your unit like the renovations discussed earlier, this clause requires you to restore the unit to its original condition.
This could cost you tens of thousands of dollars, just to fix up a place you won’t even be using anymore. It is highly probable that you will make changes to the unit on the front end. You’ll probably add rooms, desks, fixtures, perhaps water or electricity, or maybe even new rooms or walls. That last thing you want is to have to undo all that in the event that you relocate.
Do everything you can to negotiate this clause out of your lease agreement.
6. Try to Win an ‘Option to Renew’ Clause
Most commercial leases for clinics use five or ten year terms. One of the worst things that can happen to any business is to be bumped out by another tenant who offers the landlord a higher monthly rent than you’re paying.
You have an established business and you invested a lot of time customizing the unit and marketing its location across many channels. Being forced to move when you aren’t ready can be crippling. Never mind the huge frustration and the feeling of being disrespected.
You want to negotiate up front for an Option to Renew for another five or ten years, with the rates pre-determined. Even if the landlord doesn’t try to bump you, if the market in your area heats up during your first term, the landlord might impose a huge rent increase. You don’t want to get hammered by massive increase out of nowhere.
The Option to Renew gives you security. It ensures a predictable rent payment. And it provides you the ‘first right of refusal’ if the landlord tries to bump you out in favor of someone else.
7. Insist on an ‘Exclusive Use’ Clause
If you set up a physiotherapy (or chiropractic or massage) clinic in a large complex, the last thing you want to see is another clinic opening in the same lot.
This one should be easy, as any landlord ought to understand the motive behind it. If they don’t, I’d recommend finding a new location, because your landlord doesn’t appear to be reasonable. Specify the types of businesses you want to exclude from the complex, and define them all in your lease.
If you intend to run a multi-disciplinary clinic, make sure to include all the services you offer in this clause.
8. Signage Is King
Signage is so important, I would be willing to pay extra per month in rent if that was the only way to get the landlord to let me have it. You want the visibility. There’s simply no substitute for it.
Just be sure that whatever sign concept you have in mind is also allowed by city regulations. You can’t expect the landlord to know about that, so you might find yourself happy to win this agreement in your lease, only to be told later that the city rejects your sign for some reason.
9. Include Parking – for Clients and Employees
The importance of this one cannot be overstated. You do not want your landlord to decide to turn the lot into a pay lot halfway through your lease. Customers hate paying for parking, and you will lose business if this happens. So, put a guarantee of continued free parking in your lease.
But more than that, you also want your employees to have places to park without you having to cover the new cost. That could end up being hundreds per month for something that used to be free.
Whether you’re opening a brand new clinic, relocating, or expanding into a new location, every new clinic startup requires smart decision-making, careful timing, and a bit of luck to maximize the profitability of your new clinic business.
In this free pre-recorded webinar, you can learn much more about how to negotiate the lease for a physiotherapy, chiropractic, or massage clinic. But you’ll also learn about:
- Designing the perfect floor plan layout
- The only 3 factors that matter when choosing the ideal location
- The equipment that pleases patients more than anything else (and doesn’t break the bank)
- Q&A, and much more
Led by five experts who have worked with hundreds of clinics, if you want to start up a clinic and avoid the costly pitfalls and stress-inducing missteps that so many before you have taken, watching this free webinar is the easiest business decision you have ever made.
I’m Rick Lau, and I learned the hard way how to do much of what you’ll learn in this webinar. I started from just one clinic, grew to five, and eventually to over 127 clinics. I’ve owned rural clinics, niche practices, and franchises, and I eventually sold my biggest network at a 10x multiple.
Today, I am mentoring hundreds of clinic owners in my #clinicboss community, where I teach them everything I know about running a successful clinic. What you already read today, and what you will see on the webinar, is just a tiny sample of what you can learn from me.
Click below to watch the free webinar, and learn the nuts and bolts of how to start a multidisciplinary, physical therapy, chiropractic, or massage clinic.