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This Dental Specific Podcast is dedicated to the Dental "Entrepreneur" Michael Dinsio, Founder of Next Level Consultants, delivers #TRUTH when starting up a dental practice. From the very first step to getting the keys of a dental practice, Michael shares his raw & unscripted playbook with you. Not only does this podcast provide you with "What To Do" but more importantly "What Not To Do". With over over 15 years of experience & over 150 past clients, Michael delivers an educational and informative program in a real and genuine way. Start w/ Episode 01 - as we go through a STEP by STEP process.
00:10
Startup Unscripted. The questions you have with the truths you need to hear.
00:21
help doctors get into practice the way they want to get into practice.
00:28
hashtag truth. That's why we put it out there. What we want to do is we want to bring truth to the startup game.
00:38
And now your host, Michael Dinsio. What's up, guys? Nice to see you. Welcome back to the show. This is Startup Unscripted. As you guys know, this is Michael Dinsio, founder of Next Level Consultants. And man, when I listen to that intro, that that that music just gets me going still after four years. So I think I chose the right the right song. Today, we have some special guests on the program, and I'm excited to interview you guys because
01:08
You've been in the business forever. Your name carries a lot of weight. And for that reason, you're on the program. And so I'm going to introduce you guys. got David Cohen and Liam. Oh, Liam. Craig. Craig. That's a lot easier than what that looks like. Liam Craig. So these guys are with Cohen Property Law Group. David owns and founded the group.
01:35
Liam basically manages and runs the whole show as the managing director. you know, we're just going to get into some leases today. So it's all about startups and leases and pitfalls. Folks, if you're just joining us and you didn't know about this podcast, like we have been working on all of this content for the last three years about how to do a startup. And I think in 2020, we started at the top and we worked our way all the way through interviewing great people.
02:05
And now, and now, you know, we were starting back at the top and working our way through. So so essentially, we've gone through on kind of like in the second edition of second season, we've gone through vision, we've gone through demographics and real estate. And now we're getting into the lease. And that's why these guys are on. So David and Liam, welcome to the show, guys. Tell me a little bit about your firm, just like quick and dirty. And then we'll get into some cool questions.
02:33
Yeah, thanks so much for having us. We feel privileged and honored to be part of this. You know, we've seen it quite often flowing through on on the LinkedIn and popping in as well. So we definitely appreciate being being a part of this. And we're excited today. As you mentioned, I'm David Cohen, and I'm the owner and founder of Cohen Property Law Group and also Cohen Law Firm, which many are familiar with. And it's our dental firm.
02:59
And as far as startups are concerned, we do over 100 startups per year nationwide. And so we have a really great perspective on different startups and in particular, the leasing side of it. And that's why I'm so excited to have Liam here as well with me, who is the managing director of our real estate group in the low leases.
03:25
Hey, how you doing? Thanks for having me. Glad to be here with you guys and to discuss leasing. That's awesome. Well, so the way I guys, the audience, the way I kind of set this up is it's just three dudes having a conversation in a coffee shop. And the joke was that Liam is literally sitting in a coffee shop. So he's guys, he's hot on the mute button right now. So he'll be in and out.
03:49
We'll we'll we'll fire off our questions. He can jump in from a coffee shop to and I'm drinking a super unhealthy Coca Cola. But you would think that I have like a corporate sponsor. But but I don't. For those of you watching on YouTube, which you should, if you can't, you can see us three jokers on there and we sometimes can be a little animated. So check us out on YouTube. But.
04:18
Guys, let's get into some stuff here. Let's get into some like nitty gritty. think that's why people listen to the program, because there's no, we just don't hold any bars back and we just get right into it. And the lease is honestly, in my opinion, the most valuable document of a dental practice. Without a lease, you got nothing. Literally, you got nothing. Like without a location to operate your company, what do you got? You got a bunch of patients and a great clinical team, a lot of.
04:46
really expensive equipment, but without the lease, what do you do? Relocate and then the patients can't find you. So let's go through like the first steps of the process and, you know, big picture, it starts with the LOI and David, why don't you like set the tone for like how you and the real estate broker and Liam jump in too, but how you guys interact on those first stages.
05:14
Or maybe you don't and they pass it once it gets to it, but just kind of paint the picture big, big picture. What are you inheriting? What's important about the LOI? And then we'll get into some of the other mechanics of the lease later. Sure. So whenever we approach a lease scenario, there's really three goals. We want to help the client save time, save money and save headaches.
05:38
The best way to do that is to involve an attorney at the beginning stages when the LOI is commencing because actually I would say the majority of the time that we get involved, the client has already signed the LOI and we haven't had an opportunity to look at it.
05:56
And so I think step one is just is making sure that you involved. Yeah. A lot of intent gets, gets signed. I'm sorry. It gets, gets reviewed. Now there are great advisors out there like yourself, Mike. And so, you know, as long as you have somebody looking at it, I mean, we, you know, we're biased, but we would like to look at it as well. But you need to have somebody that's on your team. Team is critical. And when you embark on a startup.
06:25
You got to have someone on your team review it and you got to your team set up at the LOI stage. And I think that's really helpful. In addition, I will say that the LOIs that we're seeing are not always that thorough. And again, when you're trying to save time, money and headaches, you really want to get out in front of things from the beginning stage of the LOI. And there's sort of a delicate balance. You don't want the LOI to be so detailed that you have deal fatigue before you've been getting the deal.
06:53
parties don't like each other, landlord doesn't like the tenant, tenant doesn't like the landlord, you don't want that. You don't want to get way deep. But you also need to get into it a little bit, enough to the extent that you know what you're getting into when you get into the lease, because the LOI is the foundation and it sets the tone for the deal. So, you know, to summarize, I would say it's really important to get the LOI reviewed and it's important to make sure that it has at least the key components that are foundational in a lease.
07:21
when you enter into the transaction. And what we find is that in the startup, most of the time, the landlords are corporate sort of institutional landlords and they have tougher leases and tougher lease terms a lot of the time than, you know, for instance, if you were doing a lease back when you purchase a practice from the doctor who owns the building that is leasing it back to you, this is different a lot of the time. And so it's really important to really be on the ball.
07:51
And Liam, I'll kick it to Liam to see if he has anything to add to that. Yeah, no, you hit the nail on the head, David. Too often we see incomplete LOIs or LOIs that aren't fully hashed out, that don't address some of the more material terms. And all it does is create contention during the lease negotiations. It creates delays. It slows the process down.
08:21
You know, we're, David and I are different than most other attorneys. We'd like to work at a pretty fast pace. We, we, we understand time is, is money. We want to close transactions. We want to keep things moving. And the last thing we want to do is sit there and waste our time going back and forth over terms that a landlord's never going to agree to, but we could have addressed on day one, um, when we put an LOI together. Um, you know, the, other really important thing too, to consider,
08:49
is the type of space that's being occupied. Is it a first generation space? Is it a second generation or third generation? If it's a first generation space, there needs to be provisions in that ROI that set forth the construction and build out of that space. Too often we don't see that, and now you've lost all leverage, and maybe your intent is entirely different than somebody else.
09:13
your intent for that space is entirely different than what the landlord intended it be. Even though they expected the same use, and generally understanding of what it's going to be used for, it's just the construction on a dental space is complex, much more complex than a traditional retail space. And so, the landlord's not, it's not just the landlord reviewing it, it's the landlord's lender.
09:39
And so there are layers to this that need to get approved. And if you can get out in front of those, it makes things much easier once you get the actual lease document and can put those in there and memorialize those terms. me rewind that and unpack it because it's a very, very important key. You guys just jam packed a lot in that. just kind of rewinding a bit. I'll set the tone and I didn't tee it up.
10:08
good enough, but an LOI guys is not binding at all. However, it sets the expectations. And I think that's what these guys are really talking about is if you're setting an expectation that will need to be rewinded or re looked at once the actual lease gets formed up, you can start getting into some really big issues. so 100 % like David said, I'm an advisor and
10:36
Absolutely, I'm an advisor, but a good advisor knows when to jump in and not to. And yes, I see the same things over and over. However, you know, there's just pieces to a lease that I could never touch or things that I might not be able see because I'm not an attorney. And so I think it's really important to get an attorney involved just to set some of those expectations. But again,
11:03
There's got to be some pitfalls though that you guys might have about going in too heavy or too complex on an LOI too because there's something to be said for you know baking the cake too much before you even get into the lease I guess
11:26
I was trying to be witty, but I got nothing there. But I think you guys get what I'm to say here. Is there something to be said for that though? Like keep it simple, but also help me out here guys. Yeah. I think, I think the key to the letter of intent is you want to have, you want to outline the most material terms so that everybody is on the same page going in and you're not, as you said, Mike, rewinding. Right. And I think there's definitely a delicate balance there. And as we referenced before,
11:55
If you go in too heavy, might build a bad reputation or reputation, build a bad rapport with the landlord and they may be less likely to be flexible going into the deal because there's probably a lot of deal fatigue. The landlord has already spent a bunch of more legal fees than they wanted to on their LOI and they may just be a lot shorter with you on the actual lease if you go in way too heavy on the letter of intent.
12:24
And so the key is to make sure you outline most material terms. And I think that's really kind of what we're getting at here. And I think that's a great point, Mike. What material terms would you guys like to outline? Is that where you're going, Liam? I see you quick on the draw. Yeah, I was going to say, mean, look, there's, you can have situations where, mean, we represent a lot of clients that are not best as well. And those,
12:51
In those LOIs, they could be seven to eight pages. And that's not unheard of. It depends on the complexity of the deal. It depends on where it's located. It depends on who you're dealing with on the other side from a landlord's perspective. But generally, the terms that you want to see in the LOI are, without a doubt, the length of the term, the amount of the rent, the obligation on a build out, so the construction, who's performing the work.
13:18
The structure of the lease, whether it's a triple net, it's a double net, or it's a single net, or it's a gross lease. You need to understand that. And if it's a gross lease, that changes things dramatically. But most of these leases we see are going to be net leases, which means that the expenses that the landlord has are passed through to the tenant, which includes not only just operating expenses for the property, but also taxes and insurance.
13:47
So what we'd like to do is not sit there and negotiate in detail or ad nauseam all of the nuances of those provisions, but we certainly like to hash out some of the exclusions that should not be passed through to the landlord or from the landlord to the tenant at that time. One other key piece would be to discuss any cash on those expenses. That's a really important thing. Again, you have limited leverage as a tenant oftentimes.
14:15
as a startup dentist, but there are certain things that you can't fight for and should be fighting for at the onset. And one of those would be these to try to fix or control some of those past year expenses. So that would be something in there you would want to do. Any assignment or transfer rights, that's a huge issue that we constantly see dentists, doctors, even non-dental, even non-doctors deal with. They want to have an exit strategy or they...
14:45
as part of their business model they want to sell and they want to they want to leave that space or they want to be able to exit. If you don't agree on that term, that could be a deal breaker. having that explained in the LOI is important. So Liam, I love that you brought up exclusions and you started getting into some definitions of triple net. want to I want to I want to hit some of some of these things later on the episode. Yeah. And I want to make sure that
15:13
We're super clear. Definitions of triple net and the exclusions. Do you have those in the LOI or or do you hit those later? We will put in typically if we get a chance. So if we have the luxury of being able to get and prepare an LOI or negotiate an LOI, I certainly will work at least a list of some exclusions. And again, it's not meant to try to over lawyer it. It's meant to just
15:42
Eliminate that as part of the lease negotiation. Perfect. Generally there are standard ones that most landlords will accept. And so it's good to just get those out in front because if the landlord is saying to at the last stage, no, we're not going to accept those. And it's probably something you got to look, you may want to look a different direction because that could be a pretty, significant deal. I like that you are really including kind of like the deal killers on the front end because because truly let's
16:12
Let's be honest. I excuse me. David said earlier on that you want to save time and money because any time an attorney is involved, you you don't want to just sit there and just beat the crap out of each other and rack up a huge bill. So so if the L.O.I. does outline some of the key things that Liam and David outlined, then that could potentially save you some money by exiting stage left quicker. Right. And so I.
16:41
I love that. I love setting the expectations, but then I guess it's an art, right? It's a dance of not getting too crazy, but at the same time, making sure that they're the deal killers are in there quickly so that you could exit stage left quick, right? And I love that. that's, those are awesome, awesome things on, on, on the LOI guys. Any, any last bit on that I don't expect you to do, but any last bit on LOIs before we move on to some of the complexity of the actualties.
17:10
Now, OK, cool. We're going to go. Yeah, that's perfect. I love it. So you may have already touched on this, but let's just build build on this now. So once you so so now the real estate guy or gal is passing this executed L.O.I. and the due diligence is happening. That's really we're next level and architects and different people are involved, construction people. So now due diligence is happening. Meanwhile, you guys are coming in and you're going to start
17:40
I hate to say it, put your boxing gloves on and the match begins, right? And so what are some like key or maybe three to five things that you find tend to be, you know, pitfalls or issues that maybe a non dental attorney or someone that doesn't have a lot of experience doing these dental leases, like what are some of the things that you guys are looking out for like quickly with all of your knowledge just in the least part of it?
18:09
I guess maybe the deal killers is kind of where I'm going for going for. Yeah, but just one point. I just wanted to make one point on the due diligence side. That's that's as as important as not from from with the L.O.I. and all that free lease execution and negotiation as equally important as the L.O.I. And we provide our clients with a due diligence checklist that they can go through and provide and look at to make sure their things are are correct in that space.
18:37
It's not an absolute set of items, but it's certainly more material things that I think all people that whether you're a dentist or you're a retail center or you're an office space, you should be looking at and evaluating and getting prepared to understand. Look, you're going to be in there for five to 10 to 15 years. You need to understand the space and you need to understand how you're going to operate within that building. So I think that's as important, if not more important than the LOI.
19:05
You want, let's hit some of those things. Let's hit some of the due diligence checklist stuff. If you guys have it readily available, why not? My brain's going towards have a contractor walk the space, have a space planner, get in there and do a floor plan. Is that kind of, yeah. So yeah, those things. And again, it depends on the generation, the space. is there a first generation space? Is there a second generation space? If it's a second generation space, are you?
19:33
Is there an assumption that you're going to be using or assuming like an existing HVAC system? It would be great to get somebody in there to look at that because chances are you're going to be obligated to maintain, repair and replace that. To look at the actual, the structural elements of that space. To understand if you're going to be able to install, you one of the things that we get questions on with medical med gas, you know, can we install that in here?
20:00
that's often considered a hazardous substance. Are you going to be able to do that? Can you run the lines for that in the space? Is the landlord thinking about that when they're doing this? They may not have the ability to even do that. So those types of things, just really understanding from a construction and operational standpoint, are you going to be able to carry out your business operations in there? Again, it's not that if
20:30
You you find out three weeks later, you know, during the lease negotiations, the bad thing. No, obviously you could back out if you don't sign the lease. But the point is we're trying to eliminate that waste of time. And they're doing doing it on the on the onset instead of a week before you sign the lease. Yeah. Yeah. I love or, you know, forbid, later. I love those tips. I try to get ahead of that even during the L.O.I. when I'm involved. But.
20:56
But if you're behind the ball and, maybe you're listening to this and you're in the middle of it right now, I couldn't agree with you more, Liam, that the more professionals, the more team that you have around you to look out for you and your business and the situation that you're getting ready to sign, quite frankly, a million dollar liability on your name. Think about that, folks.
21:24
It's a million dollar liability over maybe 20 years of 10 years, but whatever, 15 years. And it's an obligation. And maybe we could get to that in the back end of this episode as well. How can you get out of the lease? And what's that look like? These guys are gonna tell you it's probably pretty difficult and what that looks like. But due diligence should start. I like to kind of get started with due diligence.
21:52
When I feel like I'm at like the last 10 yards or maybe the red zone of the LOI. So we know we're pretty, we're probably going to get this where there's a couple of little things that we're bickering about on the LOI, but it's going to happen. It's we're, we're, know, there, we're not going to die on the Hill over something. And then that way, a lot of that's out of the way. And then the attorneys can really get going, but
22:18
But yeah, it's expensive to walk away from a deal. It happens quite often, unfortunately. So anything else on due diligence, that's fantastic. Liam, thank you for making us do that. Yeah, absolutely. I mean, we could discuss it. Again, if anybody has any questions, feel free to reach out. We can provide more details about that. It's really site specific, but we do have some general ones that we can go through. So if anybody has any additional questions or concerns about that, feel free to reach out. Love it.
22:48
Love that. And I'll actually have below in the descriptions here. For those of you watching, there'll be just some descriptions and how you get a hold of these guys. And also in the recording of whatever you guys are using, whatever platform, Spotify, iTunes, and the whole thing. I'd love to give something to these guys. Maybe you guys have a...
23:15
a due diligence checklist or something that you could give them just to give as a big give here of being on the program. Okay, so now let's go to the lease and thank you, Liam, again for the due diligence stuff. So now that you had a minute, David, I'm gonna put you on the spot because you haven't, you've been quiet. So what are some of those key things in your mind that you've seen in all the years that you've done this that might be deal breakers during the lease process and how to get
23:44
through those big, big things quickly and then can maybe work on some of the ancillary stuff. What are the big things? The walkaways, the no, this doesn't make sense, let's move on. Yeah, there have been a couple in particular that have popped up more recently that I would say are, can be complete deal breakers. One of which is a relocation clause. We've had,
24:09
You know, we've seen that a bunch, particularly with those that like didn't get their lease reviewed to begin with. And they're coming to us asking like if this is something that's allowed to be done and what a relocation clause is to the audience is and the listeners is a clause that essentially says the landlord can relocate you. for a dentist, that's a massive burden, particularly because the space is built out for you as a dentist. And also, you don't know
24:39
there are expenses in connection with being relocated and it's really important issue to negotiate who's paying for those expenses. If you're amenable to being relocated to begin with, and that's challenge number one, is if so, who's paying for it? And what we're seeing often, particularly in hot markets,
25:04
is that the landlord is not willing to pay for it or they're willing to pay for it to some extent, but it's not nearly enough. I I just recently saw a scenario where the landlord give a client like 25 grand as a retribution clause. And their new build out is like 400 grand or something like that. that doesn't work. And so that can be a big deal breaker. And number two, sadly, we are often seeing clients come to us
25:32
Again, that didn't get their lease reviewed to begin with. They're saying that the landlord is saying they get to profit from the sale of that client's dental practice business. What? Yeah. And this is not a one-off. We've seen this several times. And that is a major, major issue. And I think...
25:59
Where are we in Liam? You correct me if I'm wrong. We're seeing this a little more often in like the shopping centers. And, you know, I think those types of clauses are really built more for a retail type of lease. But our clients often are getting stuck with them that, you know, we're having to take on and see what their rights are. And it's really important. the other thing to understand is it doesn't always say in the lease in black and white. Landlord gets to, you know,
26:28
10 % of the sale proceeds of your sale. is very. Hidden. Very vague, very hidden. So then that just that means it's open for interpretation for some judge to figure it out. that's. I mean, that's. It's definitely open for interpretation, but the problem is like there has been a precedent set for that language being interpreted in the way that the client wouldn't want it to be interpreted. And so
26:58
I mean, that is massive. Like to all those out there, these are game changing clauses in leases. I kid you not, I mean, we have, we have seen many not get their leases reviewed at all. so, and we've had clients that we've pointed these things out to and believe it or not, have not taken one change, you know, item to the landlord and just said, well, I'm just going to sign it. Thanks. You know,
27:26
And so the point is, these are two big examples of potential deal breakers. That would be a deal breaker. Those two are there's no potential about my clients. That's a deal breaker. We're moving on. Right. It's called a profit. It's called a profit sharing interest. And really, you're seeing these, you see them come up and it's through cycles. And we saw them.
27:54
or 10 years or 15 years ago during a down cycle where rates are increasing and it's more attractive to sublease. The premise behind the clause is really meant to allow the landlord to participate in any additional rent that the tenant would achieve through subleasing to a third party. However- makes more sense. That doesn't make him sound so greedy. However,
28:22
However, though, there are definitely provisions we see that are structured that basically say, the logic behind this is, look, you are choosing to lease in our space. We are allowing you to occupy the space. So if you're going to sell your business, the business was grown and developed here within this space. And without us as landlords allowing you to do it, it technically wouldn't have happened.
28:50
or it may not have happened to me because then it did and so therefore we should be entitled to a certain profit as a result of your performance and your sales. does that mean that when you have a slow start they'll they'll chip in? That's true. Hey since they're taking it on the the on the gains I think we got to
29:09
I think we got to get a little bit more creative and get it on the losses too guys. Actually, you guys should do that. You should say you should counter on the next one and say if our projections aren't at least a million or 800 in the first year, you guys are chipping in 5 % back. That's deal. That's good deal. It's hysterical because like when I tell clients when we educate clients like especially on the dental side that
29:36
So we'll explain like, you know, this is triple net, this is what you have to pay. And they're surprised by hearing that because most people think it's a similar, like a gross lease, like a residential lease, if you haven't really gone through a commercial lease before. But then I explain, well, it's actually not that bad. If you're a retail tenant, you'd be paying what's percentage rent, which is typically attributed to retail tenant lease. And it's like eight
30:01
it's between 8 to 12 percent of your gross revenue derived from the space. So not only are you paying base rent, paying all additional rent, but you're paying percentage rent and then any potentially any any proceeds on the sales of your business. It's if you can get crazy. Can you guys can you guys go through some triple net stuff? Because I feel like it's such a wide range.
30:29
of kind of like what's common and what's not. And even I get a little confused sometimes when I see this stuff and talk about this stuff almost every day. So can we just have a minute with triple net and and and what does it mean? How is it defined? What's fair market? What's not? Can we just break down and then real quick? Sure. Do you want to take it, David? So just
30:59
I think big picture, our lease has multiple, there's different cost categories. And what I mean by that is expenses to the tenant, what the tenant's obligated to pay. And generally speaking, you have base rent. Base rent is the amount of monthly rent that you're paying to occupy and use that space. In addition to base rent, depending upon the structure of the lease, but let's, we're talking about triple net right now. So what that means is that in addition to that,
31:28
Unlike an apartment lease, you pay a percentage, it's often times defined as a pro rata share or percentage share, of the landlord's operating expenses. That's one N. So when you say N and N, there's three N's. N stands for a cost category that's being passed through. One is operating expenses, or sometimes you might hear the term capital,
31:58
capital expenses or not capital, uh, uh, cam costs, cam costs, excuse me. Um, the other one is insurance. And then the third one is, uh, taxes, estate taxes. And so the tenant in a traditional triple net lease would pay all three of those, um, in addition to base rent, there are a variety of different structures of that.
32:24
and how in the type of might hear the term absolute triple net. That would mean all three of those plus all of the maintenance, repair and replacement costs. So when you think of like an absolute triple net, that'd be like a CVS or Walgreens, single tenant, corner parcel. They are obligated to maintain everything. It's a mailbox check for the landlord. It's all hands off. They're obligated to do everything. In a traditional office or retail, shopping center lease, triple net, it's not that
32:53
it's not that comprehensive. tenant has its repair and replacement obligations. The landlord has their replacement obligations. Then it becomes a question of can the landlord pass through those repair and replacement obligations? Oftentimes, this is where lawyers step in, will try to exclude some of those pass through costs. And the reason they're excluding them are because as a tenant, you should not be paying to improve
33:21
the landlord's property. You're paying to maintain your, to an extent repair it for your usage of it. you're not meant, you're really not, the goal is not to enhance or make the landlord in a better position by essentially occupying and using the space. Well said, That's perfect. That's just the general concept of I love it. You did a great job. Anything to add to that, David? That's fantastic. That's No, I think that was great.
33:50
Yeah, that was fantastic. so essentially, help me guys. So basically the operating costs, the insurance, and then the taxes. And those are the three, essentially the three ends. Correct. Yes. Where's the end? When you say insurance, when you say insurance, I just want to clarify, it's usually the, the, the, the landlord's property and commercial general liability insurance. They have four, yeah, for the whole entire space.
34:18
And what's up with the end? Why is it ends? What is that? Someone just made that up a long time ago. It's just good. Like, well, it stands for net to the landlord. it's net like your net net net net net net net net net net net net net net net net net net net net net net
34:47
So digging in a little bit deeper on one of those ends, I feel like insurance is pretty standard and taxes, that's pretty standard. The operating expenses, which Liam, you were getting into a little bit, that one's not so standard. And I do have a, even I have a trouble looking at that and saying, well, what are the guard rails here? Is this the landlord's brother?
35:13
that's overcharging the building for clearing the snow every week and or maybe the landlord owns this other company that also does roofing and he just slammed us with a crazy roof bill like there's some shady stuff out there. So like the operating expenses in my mind has a lot of loose holes in it. Can you guys send me feedback or anything there like are there gar
35:42
I think you said caps. You can do caps and stuff like, or do you define what that one? yeah, thank you. Yeah. So just to, just to, there's a variety of ways you can do this. And the first, the first approach to this, and we look at it more hierarchically, like how you can attack it. Um, and you have to appreciate it. You're not going to always get this. So it really depends on your leverage.
36:11
If you're a major shopping center and you're a leasing space and you're major shopping center and you're the anchor tenant, you're going to have much more leverage than you would be if you're a 1200 square foot retail or dental office space. So you have to take all of this kind of with a grain of salt. All landlords are different. Some have different approaches to this. But generally the best option would be to try to advocate for a cap. Some caps
36:41
or some limit on how much these expenses can be passed through. One little tip on this, if I'm representing a lot of landlords and non-dental landlords, shopping center or retail tenant, I define operating expenses as operating expenses. I don't define them as CAM if I'm representing a landlord. And the reason is because you can get more in there if they're defined as operating expenses. CAM is a component of operating expenses. People don't often think that or realize that, it's true.
37:11
And so it's how it's termed, first of all, you have to understand how it's termed in the lease and defined. But then one way to kind of capture all of it is to say any item, regardless of how it's defined, whether it's cam or operating expenses, one way to kind of control this as a whole is to cap that cost category. So what I mean by that is saying that year over year, those expenses that the landlord incurs and tries to then roll through to you, pass through to you,
37:41
cannot increase by more than a certain percentage each year. And that percentage is typically based on whatever inflation is, but it's usually fixed in the lease. And so we, a year and a half ago, were fighting for five caps and six caps. Now it's eight and a half to nine percent caps. The lower the better, obviously, for the tenant, but you have to be realistic. if the cost of construction's increasing every year and the cost of
38:10
certain things are, know, just general operating expenses for that landlord are increasing each year. They're not going to agree to a 4 % cap. It's just not going to happen. So you have to be realistic when you approach that, but that's one way to try to fix all of this. love that. counters to this that are happy mediums and we can get into that if you would like in more detail, but that's one way. There's others and I'll get into those. I'll turn it back over to you. Yeah.
38:39
That's fantastic. That was well said and hopefully that helps the audience. Guys, I'm glad Liam said this because it kind of goes without saying, but we got to say it. And that is everybody's situation is unique, is different. Someone in New York versus someone in Kansas versus someone in Seattle and SoCal.
39:05
Dude, there's so many variables to all of this. California's got its own set of rules. I mean, that's a crazy market, right? You're in the middle of Ohio, it's probably not gonna be that bad. so, owned versus privately owned, maybe the dentist owns it and is leasing back to you. I that's why you guys need solid folks.
39:32
like these guys to really comb through everything and decide, you know, if if things are good or not. And again, I'm an advisor. I'm not on that level. These guys are ninjas when it comes to leases. So and we let them be that we let them be ninjas. Mike, there's one other quick expense that I just wanted to talk about that sort of that's a bigger picture expense. So it's important to focus on to the doctors and that's.
40:00
You know, upon termination of the lease, whose financial responsibility is it to return the premises back to its original condition? And that can be a very big expense for the doctor. And so sometimes you'll see in leases, you know, sometimes it's referenced as like white box condition, but it talks about who's responsible for returning the premises back to its original condition. And when you talk about a dental office that's been built out specifically for dentistry,
40:30
costs can be significant. So that's another thing, sort of like a big picture thing to make sure you're looking out for. Yikes. Yeah. Guys, like one of these sentences could cost you literally a hundred thousand, two hundred, three hundred thousand dollars. It's wild. It's absolutely wild. Attorney fees. I'm sorry. Nobody loves paying attorney fees, guys. But like the best way you could say is like it literally is the cheapest insurance of your entire deal.
40:58
of having attorneys look at stuff. mean, I've got it. Everybody's got an attorney or if you don't, you need to get one. So thank you for that, David. Any last bit on the NNN? looks like Liam's chomping at the bit on something else. I just I just want to say one other thing. mean, so if you don't, if you can't get a cab, one of the next best options would be to to actually go through. I mean, we would redo it for both. Even if we have a cap, we still try to exclude out.
41:27
It's a pretty comprehensive list, but it's it's items that are not, that should not be passed through to the landlord, or by the landlord to the tenant. And the reason they're not being passed through, because they're just, they would be viewed as giving the landlord a greater benefit for the bargain, for what they're getting. And they're either putting the landlord in a better position, they're improving the asset, or they're not meant to be that,
41:58
There is not costs that are affiliated with maintaining and operating the space. They're ownership costs. That's best way to understand it. I love it. love that. Yeah. So that's a judicial protection. And the last thing I would just want to say is an audit right. Really important thing. We don't see tenants exercising too much. It's mainly just meant to be a check against the landlord. But the fact of the matter is that when you get this expense statement from a landlord,
42:25
you're really relying on them that that's that that that expense for your operating expenses is true and correct. And so you should have the right to be able to look at those books and records and to if you feel that, you know, those expenses are inaccurate and it's it's market to have that in a lease. And we always will include that. And what happens when you do an audit and you find brother is shoveling snow for twenty thousand a year?
42:54
Well, there has to be there has to be a reconciliation of that and that's part of that. So without that, you don't have the right to seek that reconciliation. You really have no right to find that out, but you would certainly not have a right to get a reconciliation. So without it, you're basically just taking the landlord's money. So asking for an audit and having the right for an audit, but then you also warrant you some.
43:20
some privileges that if you find some nonsense that you could retro and normalize a market expense, it sounds like on those certain things. Yeah. Yeah. And a DSO might, you know, this is kind of in the context of the dental space, a DSO, you know, they're coming in and buying a practice and they don't, they feel that the operating expenses exceed what they should be for that space. We have actually seen them exercise audits.
43:49
They made the tenant actually saw the audit to confirm that they're in fact, you're incorrect. And the DSO, so let me guess, they bought the practice from the dentist. know, dentist holds the property. now they're associate. Well, it's before that. It's before that. So as part of their due diligence. they'll want to see, because they're taking over the space. They're looking at these expenses and they're saying, well, these seem to be a little bit higher than
44:18
Typically should be I want to see these but if you don't have in your lease that might cost you the deal You might not be able to close the deal without it. So I'm going to consider well guys I Usually excuse me. I'm having a cough attack today usually get into like Three or four four things we got so deep into some of these Categories, I really appreciate you guys just really drilling in and getting
44:44
getting deep on some of this stuff and not and not being too high level. It's all that's all about the three guys in a coffee shop thing is that you guys didn't hold back and you really gave us a lot to think about. I just thank you so much for giving that and and providing us that that information. Clearly, folks, these guys know what they're doing. And and and you know, there's probably
45:12
I don't even know 75 % more of a lease that we could get into today. But unfortunately the time is money. guess we got to jump. But any last minute, any last things that you really wanted to impart on the audience, and it's okay if there's nothing, but like anything else on the lease topic that you got to get off your chest. And if not, then I need one story. It's a story time.
45:38
Give me a story guys of all the deals you've been on. Give me a story of like the craziest situation that you've seen on a lease if you have it. So one last thing or story time. Go one of you. I'll defer to David on that one. He's got some good ones. Well, I mean, story time. mean, I would say that, you know, we had a doctor in Hawaii that the landlord was asking for between one to two million dollars.
46:07
of their sale price. know we talked about this already, but I mean, it's a story. It's a real story. And frankly, the lease probably granted them that and they weren't backing off it. they had, so it was definitely, the bottom line is this, if you're going to get a legal document reviewed, you should have a lawyer review your legal document. Just like if you're go,
46:33
get a haircut, you know, you're not gonna do it yourself. You're go get a haircut from someone who does haircuts typically. So, you know, think ultimately that it's really the basics and we see way too often doctors not take the lease or, you know, real estate components as seriously as the practice side, which makes sense. I mean, it's understandable. You're dentist, you're excited about the practice, but don't neglect the lease because as Mike said so brilliantly earlier, this is like a million dollar commitment that you're making.
47:02
sometimes more, depending on the term of the lease. So, you know, that's the final thing I'll say. And also, too, we really meant it. If you have any questions, feel free to reach out. We're also happy to share the due diligence checklist, you know, per Mike's question about that. So feel free to reach out. That's awesome, guys. That's a that's a big give. I'll add to that, David, that your CPA, your consultant, your banker.
47:31
Even your real estate broker are not attorneys. Don't send me the lease to review. I'm going to tell you I can't do that. Sure, I might find something, but I'm not an attorney. Your CPA is not an attorney. Your banker is not an attorney. Get the team that get the right people around you. by the way,
47:54
If a consultant ever does say I'll review it, that's not a good consultant. I'm just staying away from that, man. That's not my scope. just again, it takes a village, as I say, and hopefully you guys reach out to me or the Cohen Property Law Group as maybe someone that could be in your village. with that being said, guys, I really appreciate your time and your knowledge and
48:22
Thank you again for being on the show. Huge gratitude for having us. As I said, I feel like we might be famous now, now that we're on your podcast. It'll be funny to see it. I don't know about that, but I'll sign off on that note, guys. Thanks so much. From the coffee shop. We'll talk to you guys soon.