In today's economy, consider renegotiating your old contracts or entering into new ones. And carefully choose the specific
index cited, if one is used.
For instance, regionally based indices use a smaller sample size and thus may have increased variability. Consider specifying
use of the CPI for all items less food and energy. Another option is to establish CPI adjustments limited by a ceiling such
as a five-year adjustment not to exceed a set percentage that is made at the beginning of the sixth year of the contract.
Or consider, in the case of an annual CPI adjustment, a calculation that would be the lesser of the calculated change in the
CPI or an X percent ceiling.
Be aware that a landlord may ask for a floor when you ask for a ceiling. For example, the landlord may ask that in no case
would the rent be lower than last year's base rent. Ask whether it's possible for the CPI to go below a 0 percent change.
This recession has proven it can, with a decline of 2 percent in the most recent 12-month period. So in reviewing your contract,
does it allow for a negative adjustment or a reduction in payment?
For new practice owners
Despite the economy, the veterinary practice purchase market is relatively healthy. Potential buyers should examine real estate
occupancy requirements early on in the vetting process.
Ensure that your lease agreement extends for a long period of time. In general, I recommend a lease agreement of at least
10 years for a new practice owner, with two options for five-year renewals under terms as favorable as the original agreement.
Think about your strategy for guarding your practice's profitability and cash flow. Carefully study any agreement that includes
an adjustment based on CPI or another index. Negotiate ceilings and floors to protect all parties. And structure a fair rent
arrangement that protects both your and your landlord's interests, if possible. Ensure that your rent payments are made in
accord with the agreement.
As with all contracts, a lease is a legal document that should be written carefully. Contact your attorney to ensure preparation
of a rock-solid agreement.
Dr. Heinke is owner of Marsha L. Heinke, CPA, Inc. and can be reached at (440) 926-3800 or via e-mail at MHeinke@VPMP.net