Should I Sell the Real Estate With the Practice?
Almost every prospective practice buyer would like to own the real estate as well. It is a good investment because the buyer becomes both landlord and tenant. Even more so because many dentists have had bad experiences fighting with landlords over leases. There are many points of potential friction with a landlord. Not getting a renewal of the lease, or issues with assignment of the lease to another dentist, are just a couple. The landlord is also able to destroy the goodwill of your practice by invoking the demolition clause, or by forcing you to relocate to another part of the building.
Taking this into consideration, it will come as no surprise that a buyer will pay a premium for your practice if they are also able to own the real estate. If you own the property but don’t want to sell it to your practice buyer, and insist instead on leasing the space to them, you may find your buyer cold to the idea. Generally, buyers are not keen on becoming tenants of the seller. Why? If the seller was to cancel the lease for any reason or they simply don’t renew it, then the seller can take over the assets (e.g. leasehold improvements, fixtures and fittings, and goodwill attached to the clinic location) of the dental clinic without paying a dime.
Often the selling dentist is willing to sell the real estate with the practice. However, in many cases, the buyer does not have the borrowing power with their bank to finance both, the clinic and the real estate. As a result, a seller may grant an option to the buyer to purchase the real estate at some point in the future, when the bank is willing to finance the purchase.