Expert: John Smiley - 3/11/2008

Question
I am currently negotiating a triple net lease for a dental practice which has a 3% rent escalation each year.  Is this escalation normal/fair for a lease of this type.

Answer
Hi Steve,

The amount that rent increases is a direct function of the market rates in the area in which you're located.  For example, in the market in which I live, the rate for one particular dental office was $14 psf NNN in 2001.  That rate is now $28 upon renewal.  That reflects a compounded escalation of about 10% per year!

As a specialist in dental lease negotiation, I recommend to you that you also evaluate your other lease provisions.  If the 3% escalation can be managed in your business plan, then, in my opinion, the rate that you actually pay should take a secondary consideration to other protections in your lease.

Do visit www.staubachpsg.com to find some ideas on the kinds of things you want to ensure you are protecting yourself from.

Hope this helps,
John