Many smaller dental practices are inseparable from the dentists themselves. The practice may be (and should be) a separate legal entity with its own license, but if the primary dentist ceases to practice, the practice will cease to be. This situation is fine if it is part of a planned and thoughtful transition or retirement. But it can be a catastrophe if the dentist becomes disabled or passes away unexpectedly.
Because even though the practice comes to a grinding halt, any obligations the dentist and practice have under a commercial lease will continue – unless the dentist prepared for such a possibility when negotiating the lease.
Standard Leases Don’t Care About Your Death or Disability
Most standard commercial leases, including those for professional practices, do not release the lessee from their rent or other ongoing obligations if they temporarily or permanently shut their doors due to the primary revenue generator's death or disability. This means that while a dentist is dealing with a life-changing medical crisis, or their family is mourning their loss, they will also face a landlord seeking its rent money for the remainder of the lease term.
The landlord won’t only look to the practice entity for its money. If the dentist signed a personal guarantee for the lease, the lessor could file a claim against the dentist’s estate seeking any remaining rental payments. This is money that the landlord is effectively taking out of the pockets of the dentist’s heirs.
Death and Disability Clauses
That is why many dentists request the inclusion of a death and disability clause when negotiating the terms of their lease. Such a provision allows the practice to be released from its obligations if the primary practitioner passes away or becomes disabled, even if there are months or years remaining on the lease term.
While commercial landlords are generally averse to such clauses, they are not uncommon in leases with professional service providers like dentists, who are the sole reason the practice is able to generate revenue and pay rent.
Often, a negotiated death or disability clause will still include a penalty of several months rent in the event the clause is triggered and the dentist or their estate elects to terminate the lease. This is usually preferable to the alternative if there is a long term left on the lease. Sometimes, the provision may allow a disabled dentist or the dentist’s estate to sell the practice and assign the lease agreement to the purchaser.
What If The Landlord Won’t Budge?
No matter how reasonable the request for a death and disability clause may be, there will always be landlords who won’t entertain the concept. This can be the case in lease arrangements where that landlord provides a significant tenant improvement allowance or performs costly and unique improvements to the leased space, a frequent occurrence in dental leases.
In such circumstances, the dentist should consider obtaining a “key person” or “key man” life insurance policy. The tenant would be the beneficiary under the policy and could use the proceeds to satisfy any outstanding obligations under the lease. Alternatively, the landlord may demand that the dentist add the landlord as an additional insured under the dentist’s death or disability insurance policy in an effort to mitigate its losses.
It is never fun to think about your own death or disability, whether you are engaged in estate planning or negotiating a lease for your dental practice. But in both cases, doing so can spare yourself, your family, and your practice from unnecessary and costly burdens during an already difficult time. Always consult with an experienced dental practice attorney before negotiating or entering into any lease for your practice.
We Focus on You So You Can Focus on Your Patients
At Grogan Hesse & Uditsky, P.C., we focus a substantial part of our practice on providing exceptional legal services for dentists and dental practices, as well as orthodontists, periodontists, endodontists, pediatric dentists, and oral surgeons. We bring unique insights and deep commitment to protecting the interests of dental professionals and their practices and welcome the opportunity to work with you.
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Jordan Uditsky, an accomplished businessman and seasoned attorney, combines his experience as a legal counselor and successful entrepreneur to advise dentists and other business owners in the Chicago area. Jordan grew up in a dental family, with his father, grandfather, and sister each owning their own dental practices. This blend of legal, business, and personal experience provides Jordan with unique insight into his clients’ needs, concerns, and goals.