Yes, you should review the lease before buying a dental practice. The lease determines whether you can continue operating in the same location, under what terms, and for how long. Overlooking lease details can create financial and operational risks that affect the practice’s value after closing.
Why the Lease Matters in a Dental Practice Purchase
For most dental practices, the location is closely tied to patient retention and revenue. Patients expect continuity, and relocating a practice after purchase can disrupt scheduling, referrals, and long-term growth.
A lease is not just a background document. It is a binding agreement that can directly affect your ability to operate the practice. If the lease terms are unfavorable or the landlord does not approve the transfer, the entire transaction may be impacted.
In Los Angeles, where commercial real estate is competitive and expensive, lease terms often carry even greater weight. Rent increases, limited renewal options, or restrictive clauses can affect profitability over time.
What Lease Terms Should You Review Before Buying?
A careful lease review helps you understand both your rights and your obligations as the incoming practice owner. Buyers should look beyond basic rent and focus on the long-term structure of the agreement.
Key lease terms to evaluate include:
- Remaining lease term and whether it aligns with your long-term plans
- Renewal options and any deadlines or conditions attached
- Rent increases or escalation clauses over time
- Assignment provisions that determine whether the lease can transfer to you
- Use restrictions that could limit services or future expansion
These terms can affect not only your ability to operate but also the practice’s long-term value.
Can the Lease Be Transferred to a New Owner?
In most dental practice transactions, the buyer does not automatically assume the lease. Instead, the lease must be assigned, or a new lease must be negotiated with the landlord.
This process typically requires landlord approval. Some leases allow assignment with reasonable consent, while others give landlords broader discretion. Delays or denials at this stage can slow or complicate the transaction.
Buyers should confirm:
- Whether landlord consent is required
- What conditions must be met for the assignment
- Whether personal guarantees are required
- If the lease terms will change upon transfer
Understanding these requirements early helps avoid unexpected issues later in the deal.
How Lease Terms Affect Practice Value
Lease terms are often tied directly to the value of a dental practice. A practice with a stable, long-term lease may be more attractive than one with a limited remaining term or uncertain renewal rights.
Short leases or unfavorable terms can pose risks for buyers, especially if the practice relies heavily on its current location. In some cases, buyers may renegotiate lease terms as part of the transaction to improve stability.
In Los Angeles, where location plays a significant role in patient flow, lease security can be a key factor in determining whether a practice is a sound investment.
What Risks Can Arise From Not Reviewing the Lease?
Skipping or rushing through the lease review can lead to issues after closing. These risks may not be obvious at first, but can affect operations over time. Common risks include:
- Unexpected rent increases that reduce profitability
- Inability to renew the lease on favorable terms
- Restrictions on services or office use
- Disputes with landlords over assignment or compliance
Addressing these issues before closing gives buyers the opportunity to negotiate or reconsider the transaction if necessary.
When Should You Review the Lease?
Lease review should begin early in the acquisition process, typically during due diligence. Waiting until the final stages of the transaction can limit your ability to address unfavorable terms.
Buyers often review the lease alongside financial records and other contracts to understand how the practice operates as a whole. This approach allows for more informed decision-making before committing to the purchase.
Make Lease Review Part of Your Due Diligence Strategy
The lease is one of the most important documents in a dental practice purchase. It affects where you operate, how much you pay in rent, and whether you can maintain continuity after closing.
If you are considering buying a dental practice in Los Angeles, contact Polished Legal to review the lease and evaluate how it fits into your transaction. Clear guidance early in the process can help you move forward with greater confidence and avoid issues after closing.
