Arm your leases against inflation - DVM
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Arm your leases against inflation
Smart planning can ­protect your practice from steep rent increases down the road


Look ahead

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.

Final thoughts

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


Source: DVM360 MAGAZINE,
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