By Tal

 

LOCATION STRATEGY, SITE SELECTION AND LEASE NEGOTIATION

Our client, a healthcare professional starting up a high end clinic specialising in general and cosmetic dentistry, was looking for a site to set up a practice. We analysed several suburbs in the Sydney area and our patient analysis and research uncovered target areas in South Sydney. We sourced an empty site within a new shopping centre where no other dental clinics were present. Detailed below is the contract initially offered by the landlord and the revised contract we managed to negotiate for our client saving them around $280,000 over the life of their lease.

 

The Initial Deal

The site was a 250sqm shell so while it was connected to electricity, water and gas mains, the site was essentially a concrete block without any fittings or plumbing into the other ports or areas within the space.

The contract mandated use of the landlord’s tradespeople to do all the base works – such as electrical wiring, core hole drilling, plumbing and air conditioning – without going through a competitive tender process.

The landlord offered a maximum lease term of seven years without any options for renewal or negotiation at the end of the lease. These types of deals leave the tenant without any security at the end of the lease in an area where they may have spent years building up a client base.

In addition, the lease came with a ‘turnover clause’ meaning the landlord was entitled to take a percentage of the practice’s gross annual turnover before expenses.

The landlord was asking for $124K per annum with 5 per cent annual increases.

 

 

The Negotiated Deal

We were able to negotiate a far better deal for our client starting with the capital works required to bring the site to an acceptable level of tenancy. These works were capped at $30,000 meaning our client knew exactly how much they needed to spend and what they were paying for and we also included a six week rent free period while this work and subsequent fit out were carried out.

We also negotiated a six year tenancy with the option to renew for another six years at the end of the lease, making our client the only tenant in the whole shopping centre to have a 12 year lease.

We removed the turnover clause from the agreement and had an initial 12 month free rent period included.

The final rent we negotiated – not including any of the above modifications – was $110k per annum with a reduction of annual rent increases to 3.5 per cent.

 

We’re with you the whole way 

As the fit-out was nearing completion, NSW was hit with COVID-19 so we were able to further negotiate a start date on the lease after the state’s restrictions on dental services were lifted.

The negotiation process took three weeks and in that time we managed to save our client around 42 per cent off the original deal, or around $280,000. However, the biggest win was not necessarily the financial incentives but the protective measures we put in place to provide our client with certainty and security of setting up a long term practice. Whilst incentives are always nice, these should only ever be negotiated after you have secured favourable terms.