Real Property Acquisitions

For most veterinarians, the acquisition of the land and building where their practice is conducted may be the single most important business decision they will ever face. This is so for primarily two reasons, namely: (i) real property values historically increase over time at a greater rate than practice values, and (ii) after the practice is sold the receipt of rental payments from the new owner will provide a future stream of income to replace the lost practice income.

The acquisition of real property is a complicated process that usually requires the service of an attorney skilled in both negotiating and drafting documents. Although real estate brokers sometimes participate in the real property transaction process by providing valuable services, the lawyer is the only person authorized to practice law, draft legal documents, and advise the parties on the legal implications of a transaction.

The economic terms of a real property lease is critical to the overall success of a veterinary practice because of its potential impact on the cash flow of the practice. When negotiating a lease, it is important to understand the landlord's and tenant's perspectives.

The landlord's focus is on (i) preserving their net economic returns, and (ii) eliminating unforeseeable, unquantifiable, or uninsurable risks that could reduce their returns (especially risks that could affect payment of base rent or operating costs).

The tenant, on the other hand, will usually require some protection, limitation or flexibility to mitigate potential economic consequences. The tenant should be concerned about the following specific lease issues: (i) payment of the costs of hazardous material remediation, (ii) payment of repairs, maintenance, insurance and real property taxes, (iii) ability to transfer and assign all or part of the leased premises to another veterinarian, (iv) ability to make alterations to the premises, (v) allocation of risks of unforeseeable damage and destruction that could cause termination of the lease or that could cause the lease to remain in effect while repairs are made, (vi) options to extend the term of the lease, (vii) right of first refusal to acquire the leased premises if the owner receives a bonafide third party offer to purchase, and (viii) option to purchase the leased premises at a future date.

Each side should be mindful that nearly all lease provisions are negotiable. The chances for successful lease negotiations are greatest if the parties (and their faithful counsel) maintain consistent, well-reasoned positions that expedite compromises while simultaneously taking into account the financial needs of both landlord and tenant.