How To Negotiate Your Lease For A Physical Therapy, Chiropractic, Or Massage Clinic

How do you get more new patients or hire more clinicians at your clinic and yet still remain profitable? This is the question, and I'm on a journey to get you the answer. I'm going to interview the best marketers and clinic owners across the world to give you access to their winning strategies from recruitment, marketing, operations, finance, and more. So you can easily take action on the secrets to grow your clinic. I'm Rick Lau. Welcome to Clinic Boss Secrets. Hey, everybody, it's Rick Lau here. You're gonna love this episode. I talked to Paul Moon and we talk about how do you negotiate your lease for your clinic? It's great. Whether you're a startup or you're renewing your lease. Check it out.

What's the most you actually got from tenant improvement from your landlord? You know, like 20 bucks a square foot? Feet. 30 bucks a square feet, 40 bucks a square feet. Like, what's the most that you've. You've got from your landlord? I just want to see what numbers are out.

And just for the people that don't know what tenant improvements are, basically you can actually negotiate with your landlord to get a certain amount of money that they will put towards renovating your business. Right. So for, in this example, $20 a square foot, if you have a 2,000 square foot facility, you may get $40,000 from your landlord to put towards renovation. And that really is just like a nice benefit and entices people to come in and sign the lease, Right?

Yeah. Yeah. Darrell, what are some of the numbers you've seen?

Yeah, we usually sort of hover between 20 to 30 bucks a square foot.

Okay, So a good example is like, if you get $30 a square foot and your clinic is, say 2,000 square feet, then the landlord will give you $60,000 to help you with building out your clinic.

Right.

Cool.

All right.

And then what about Paul? Like, what's the range? Have you seen?

Yeah, it's about 20 to $30. I've seen as high as $70 a square foot. That is very, very rare. But then I've also seen scenarios where the landlord says, no, I'm not giving you any money. Right. It really depends on where the location is, how much demand there is, and how desperate the landlord is to fill the. Fill the building.

Let's see what people are putting. They're putting 25 bucks a square feet, 25, 60 bucks. Someone has six months free base rent. They got a brand new 3,000 square feet, you know. Oh, Samantha, Peter says, can you repeat what tenant improvement means for audio?

So yeah. So tenant improvement is basically, it's like an allowance that your landlord will give as an incentive for a potential lease leaser to come in for their clinic. So in this example for, you know, we have $20 a square foot. The landlord's saying, hey, for, if you, if you sign this lease, I'll give you $20 a square foot towards your, your renovations to entice you to sign the lease. So if you have a 2,000 square foot facility and you're getting $20 a square foot, you'll get $40,000 to put towards your renovations, right? Yeah.

Yeah.

There's a catch too, because if someone that's gonna give you 70 bucks a square foot, they're just gonna make your base rent more expensive, right?

Yeah.

So whatever they're gonna give you, they're actually gonna blend it back into your rate. You know, like, in essence, I would look at your tenant improvements as almost like a loan from the bank.

Right.

You know?

Yeah.

And this is why it's really important not to actually sign your first lease. Like, I know people get really excited and they're like, you know, this is my first clinic and blah, blah, and you know, you know, it's really important to at least take a look anywhere between eight and 10 different locations. And I would even start a spreadsheet and just compare apples to apples. This way you'll get a good sense of, you know, what's fair, what's a good deal, what's a rip off, so on and so forth.

Yeah, that's a good tip. I made many mistakes on my first couple leases, Paul, and you'll remember those. I think the only other piece, though, to that last slide, Rick, that I would say is that sometimes when you and I know. We'll talk about it in a sec, where we go into the option to renew your lease. I've negotiated tenant improvements at a renewal period as well, just because the clinic needs a refresher.

I like that one. That's a good one.

Yeah.

Yeah, that's a good one. So on here we put about like eight or seven. Seven or eight points. These are things that like, you should actually consider when you start negotiating your lease. Like, we could spend a whole hour on this, but like, I'm going to whip through this and then this way, but we can spend more time on the floor plan. Okay, so the first one is negotiating extended fixture period.

Right.

Paul, can you explain in human language what does that mean?

So a fixturing period is the amount of time where your landlord will not charge you rent so you can use that time to renovate your space. Right. So a typical fixed sharing period is let's say, three months. Let's say you sign the lease January 1, but then March 30 is when your fixing period would end. And so for that first three months, you could spend that time to renovate, work with your contractors, so on and so forth before the landlord starts charging you rent. Right.

And what's the most that you negotiated, Paul, over the years?

The most is six months. But that's so rare. That's very, very rare. It's average, about two to three months. That's the average.

What about you, Darrell?

Yeah, the most ever got was six on. On one click.

Okay. What were your last one?

It was six, but it was a full. It was. It was a full build out from a shell. So we certainly needed it. As opposed to just.

That's a good point. It's very different depending. It's a shell, whether you're just going in to do like, like minor renovations.

Right. So.

Okay, cool. That's a good one. All right, so what's the next point?

The only other thing, the only other piece that I would say on that though is if you're starting to see delays in their landlord related. That's often the point where I'll go back to that and I'll ask for an extended fixturing period because something's been delayed due to their end, especially if it's a newer build for some individuals, especially if you're in a growing community. So just something to think about.

Yeah.

And once again, these are like everything we're giving here. Like, you know, like these are like tools that you use to negotiate to get more. Like.

So the other thing that you kind of gotta watch out for is if the landlord demands that you use their renovators or their contractors, I would really just not accept that with a grain of salt and do. I would still get quotes from other renovators. Okay. Even if you have to use their renovators, Because I've seen this before and it's not common, but I've seen scenarios where the landlord will use a renovator but get a kickback on the charges that they charge the tenant for those renovation costs. So you do want two or three quotes so that you can tell the landlord, hey, your prices seem a little bit high. Let's negotiate this down. Right.

Okay, Next one, assignment to lease. So we talked about this last night, Paul. How would you explain this to someone who doesn't know very much about business?

So an assignment to leases, It's a clause in the agreement where it will allow you to assign the lease. Let's say you're done with the business. Let's say you have a five year lease. After that fifth year, you know, you're going to either sell or you're going to give it to your grandparents, you know, your grandson, whatever it is. Right. Like, you know, you want to get out of the business. You want the ability to be able to assign the lease to that new owner. Right. And there might be stipulations in that. That landlord wants the ability to vet that new owner, make sure that they're financially capable of running this business or they have the experience to operate this business. But sometimes the landlords put such restrictive clauses on the assignment to lease where you it would be impossible to assign it and you'd always be a guarantor on the lease, that it puts you at a lot of risk. Right. So you want to really make sure that the assignment to lease allows you to assign to a new owner. Yeah.

And then personal guarantees that kind of flows in.

Right. So a personal guarantee is essentially if, let's say something happens in your business where you are the, you know, you're the cause of a fire or the cause of a, of, you know, let's say flooding and it causes damage to the entire building, they want you to actually put a personal guarantee down that you're going to be responsible for X number of dollars. Or some landlords unfortunately will say it's an open guarantee, meaning you are liable for any amount of money. You really got to watch for this one. And what I suggest is always cap if you are, if you do have to provide a guarantee, cap the maximum amount that you'll be guaranteeing. So for example, I've seen anywhere between 50,000 or 100,000 and I think that's somewhat reasonable. But watch for those clauses and make sure it's not too onerous on yourselves.

This might be a little heavy, guys, but I think we just want to quickly go through this so that when you start negotiating your lease and you get lawyers involved, I would just pay attention to these parts just to make sure that you kind of protect yourself. But these are just kind of a few yellow flags that you should be careful. There's another clause called restore your premises. So if you take on the space and you change it up and you decide you want to move on to another location, if this clause is in here, you have to actually restore that clinic, restore your space back to its original into his Original condition, which might require renovations. Right. So this rarely happens. But regardless, like, I would hate to have this clause in there, right?

So yeah, it's happened to me once before.

Massive.

Yeah.

Especially if you have some massive renovations and you know, when you leave, you have to spend renovations or renovated back to like its old, like condition like that would suck.

It's, it's really insult to injury. Right. Because you're trying to move on to your next phase of your life and now you have to pay another like 10,000, $20,000 to restore that space. Right. So you do, you do want to watch for this one.

Okay, what's the next one? Obviously the option of renew. Right, that makes sense.

So the option to renew is really simple. It's usually leases go in five year terms or ten year terms. Right. And let's use a five year term as an example. Once your five years are up, you really do want the option. Let's say your business is doing really well. You want to have the option to renew for let's say another five years or another 10 years. And you want those sort of rates set in stone in the lease itself. Otherwise if you don't have this and you go to negotiate with your landlord and let's say all of a sudden that neighborhood has really blossomed and it's a really hot market, hot neighborhood, they can charge you whatever they want. Right. So you're just really saying, hey, maybe I don't want to sign this lease, or maybe you do, but if I do, then I'll have these rates set in still.

And I find, Paul, that's one that we spend quite a bit of time negotiating back and forth because they see that as that opportunity is that if your business does, we kind of have you in the up against a wall. But I do spend a lot of time to make sure that I really had some thought into what those future rates would be. And the options were new.

Absolutely.

So, Darrel, what about. You want to talk about the exclusivity clause?

Exclusivity, sure. So really what that means is, you know what, what services are going to be exclusive to me, so only my business can actually deliver them within, within the actual medical building or within the plaza or whatever it may be. So the things that I obviously would go for in many cases as a pt, but opening a multidisciplinary clinic is, I would want exclusivity to physio, chiral massage, you know, podiatry, if I want to do orthotics and things like that. The other one that we tend to struggle with, especially running a medical facility, is I often want exclusivity to product sales as much as possible. So it often becomes, it becomes a little bit of a dialogue, especially if there's a pharmacy in the location. But we're often still able to get exclusivity on compression socks and custom braces.

Yeah. So the reason why this call is really important is like the last thing I want to do is like drop $200,000 to build a clinic right in this complex. And then the landlords, three months later, another physiotherapy clinic opens up in the same premise.

Yeah. The one that I would say I find is becoming more and more complex for us is, you know, opening a clinic in some of these more developed, the newer developments where they actually have commercial on the bottom or medical and then residential above. There's this need to bring in the spa and it's really, it becomes a little bit confusing because if you want to bring in massage into your practice, but it's registered massage therapy, you're at times competing because they may bring in a non regulated massage service and you're competing against that. So those are the ones that I find are a little bit more, you know, do your due diligence to make sure that there's no real flags coming up when you are negotiating your exclusivity.

Yeah, and we talked about this, guys. The last two points is like make sure you get signage. Signage, signage, signage. You want visibility. And then also parking spots, you know, negotiate parking spots for employees and also for clients.

Right.

Especially for the employees. Because if you don't do it like you're going to be, you're going to be footing a 500 bucks or $1,000 bill just to pay for park on top of your rent.

Sorry. And just a quick thing on signage. Signage is so important to me that if I have to pay an extra $100 a month just for signage, I will do that and I will add that to the lease. And you're starting to see that a little bit more for sure.

The just a piece that I would say as a forewarning that I've always kind of had an error is that the landlord will say, yeah, you can have whatever signage is approved by the city. You don't really know what permits are required. So you have this idea for awesome signage, but in the city restricts that. So I would just go before you get into that nitty gritty of that final signature, just find out what you can get quickly from a science Perspective, because I agree with Paul. It's certainly worth its weight in gold, but you have to make sure you're not restricted by the city.

That's a great point.

And here's a tip. My suggestion for most of you is.

That.

I would buy the real estate for your first location, then open up your second location, if you could do that. This way, you don't have to deal with, not only do you own an asset, but then you also don't have to deal with a lot of all this landlord stuff that we just talked about as well.

Yeah. Just make sure the numbers make sense. If your mortgage is more than your rent or significantly more than your rent, it may not make sense, but Rick and I had this situation where we wanted to buy the. We opened up this clinic, we spent a lot of money opening the clinic. We had the option to buy the real estate and we didn't. And that was a huge mistake because the new landlord that came in charged us about $13,000 a month, which is about double what we would have paid in a more in a mortgage payment. Right. So make sure the math makes sense. For sure. Yeah.

Well, also, like, if you're going to be. If you're going to be owning that clinic for the next 15, 20 years, like, you would. You would pay off your place anyways.

Right.

So the numbers make sense. Like, the number may likely make sense, you know, if you don't want to grow that space.

Right.

So if you found this helpful and.

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