LEASE IT AND LOVE IT
A starting point for negotiating a dental office space lease should be the ability to assign that lease to
another dentist. New and experienced professionals alike often overlook this factor, not foreseeing this
necessity. However, assignability and transfer issues can come up in many ways. Such concerns may arise
when a dentist takes on a partner, rents space to another dentist, goes on disability or dies, as well as upon
a normal practice sale. A dentist’s ability, or lack of ability, to assign their office lease to another dentist
often forms the cornerstone as to whether their entire practice will be financially viable.
The most common way assignability concerns arise is during a regular practice sale. In that many dentists
utilize their businesses as a significant portion of their retirement fund, this is a very important issue.
Obviously, the best time to negotiate these transfer is before you sign on the dotted line. However, a lease
renewal affords another opportunity to adapt this needed language.
Kendall v. Ernest Pestana, Inc. legally resolved the issue as to the necessity of a landlord’s consent for a
transfer and whether a landlord must act reasonably in granting or withholding consent for transfer. Kendall
was the end of a long line of legal cases on this point. In response to this case, the legislature enacted Civil
Code sections 1995.010 - 1995.340 to clarify assignment ambiguities. Before these civil codes, common
law restrictions on transferability governed the leasing world and no standard of reasonableness had to be
legally employed. However, the codes basically state that only reasonable restraints on transfer will be
Remember, landlords have different concerns than you do as a tenant. The landlord is primarily concerned
with the financial viability of his building while you are concerned with paying at or below market rent for your
space, and the ability to keep your options open in the event you want or need to move on in life.
By law, a landlord may absolutely prohibit any sort of transfer of your lease.
However, this must be explicitly spelled out in the lease so as to create no doubt in a potential tenant’s mind
as to this restriction. Should a landlord choose this inflexible position, the landlord loses his right to continue
the lease and to sue for rent as it becomes due. This can be substantial penalty to inflexible landlords.
If your lease or potential lease is unclear as to whether it is transferable, then courts must, by law, construe
the lease in favor of transferability. A ‘reasonable’ transfer is a broad term under the law, capable of many
interpretations, and it is best to spell out what this means to the parties involved.
Considerations on a new lease or a lease renewal as to assignability should include the following:
1. You want to be able to completely absolve yourself from any further liability or responsibility, financial or
otherwise, under the lease when the Landlord accepts assignment. You should be able to wind up your
business with the Landlord and the new tenant should not be subjected to any of your obligations or
responsibilities, nor you his.
2. Whether or not a Landlord consents to a transfer should be based on some sort of objective criteria. For
example, such criteria may include a financial net worth substantially the same or greater than yours at the
time you signed the lease, a financial net worth substantially the same or greater than other tenants the
landlord normally grants leases to, a financial worth of at least $100,000, or the possession of a
professional dental degree and the financial worth of at least $25,000, etc. Clauses that allow landlord to
disapprove a potential dentist buying your practice based on character and/or moral grounds are very
broad and elusive and should normally be struck from the lease.
3. You should also be able to assign the options you have remaining under your lease to a new dentist. A
dentist potentially purchasing your practice does not want to face the prospect the being forced to negotiate
a new lease or lose the lease completely in a short period of time.
4. The possibility that the landlord completely ignores your request to assign the lease should be
addressed. If the landlord ignores your request, how many additional written requests should you be
required to make in what time frame. If the requests are still ignored, does that mean you can go ahead with
the assignment, or does it mean that the landlord has unreasonably refused consent?
The ability to assign your lease will give you a lease you love, one that can meet the changes and demands
of your business.
© Bette Robin, DDS, JD 6/97
|Bette Robin 714-421-4407
Dentist, Attorney, Real Estate Broker
17482 Irvine Blvd., Ste. E
Tustin, CA 92780
SELECT PRACTICE SERVICES, INC.