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AUDIO - HSP #152 - George Vaill
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VIDEO - HSP #152 - George Vaill
Learn who to involve, and when, how to set a longterm plan, and if you need a lawyer (hint: the answer is yes).
As a 40 year commercial real estate veteran, George has spent the last 23 years specializing in negotiating and renegotiating the business elements - the letter of intent terms - of office leases for dentists throughout the USA, saving tens of millions of rental dollars in the aggregate during that period.
George Vaill Dental Office Lease Negotiations
34 Edward Drive
Winchester, MA 01890
Web: http://www.George Vaill.com
Howard: It is a huge honor today to be podcast interviewing literally a legend on Dentaltown. You’ve been a member since 2003, 12 years. You’ve posted 5,303 times. You're a saint in the fact that you literally answer every dentist’s question that ever comes up on dental office lease negotiations. I so wanted to do this because dentists want to learn about root canals, fillings and crowns. If you talk to a chef she wants a new recipe. Show me how to make something new, fun to eat.
Dentists only want to learn about root canals and bone grafting and all that stuff. It's our job to sit there and say that you don’t sign a lease very day, but some day you're going to have to sign a lease and then they have a problem that since they're a doctor they always forget they're a doctor of dentistry and they always think they're a doctor of everything. Then, when they have the big, old problem it's because they didn’t consult with an expert before they signed their lease. George I don’t even think I'm smart enough to actually ask you the questions. You’ve been on Dentaltown forever. What do dentists need to know about dental office lease negotiations?
George: You're giving me a great segue Howard and I appreciate the opportunity to chat with you and all of the Townies. The Dentaltown program I think is just the most wonderful business tool that I've ever seen anywhere. I encourage everyone who’s ever had anything to do with dentistry they should be part of the Dentaltown community. This is really a terrific resource.
You point out something, the lease is something that's done only once or once in a while and that raises a major problem. That's one of the reasons why the lease is so disrespected and its importance in the portfolio of the dental business. It is underestimated by most people who take on leasing office space. I've been thinking a lot about why it is that the lease doesn’t command more respect than it should. I've come to a few conclusions.
One is that most of us had an apartment lease at one time or another and that was probably not negotiable. Another is that the office lease is a one-time task or maybe a 2 to 3 time task over the course of a career as opposed to a recurring task; a one-time expense as opposed to a recurring expense. I think that dentists don’t really believe that it really has a very big bearing on their business, when in fact signing a lease is one of the biggest contracts they’ll ever sign in their business career. It has life altering implications and if it's not done well the entire business that the dentist works to develop can be in great jeopardy.
One of the things that I found many years ago in dealing with leases is that because the concepts are unusual, the legal concepts are unusual, many times the lawyers who are involved with negotiating leases don’t really have the right skill set to negotiate them. As I say over and over and again on the message board it's really, really important to have an attorney with the right skill set to negotiate the legal document.
There are 2 negotiations that take place in any lease negotiation. The first is negotiating the business terms the so called Letter of Intent elements that make up the skeleton of the lease. The second is negotiating the legal document that memorizes the terms that have been agreed upon. That’s where the landlord plugs in all kinds of other things he wants to use to protect himself.
I have lots of things that I could talk about with you today and if you have some particular questions I'm happy to address them. I can go through a laundry list of things, not issues in the lease necessarily to be addressed, but the concepts and the process, I think, is important for people to understand.
Howard: Take it away. You know more about this than anybody I know. Like I say, I'm not even smart enough to ask you the questions.
George: Okay, let's start with this. When a landlord crafts the lease and a lot of this ... For the Townies who read what I write this may be redundant. For those who haven’t had a chance to catch up on other things that I contribute I think this is pretty important stuff to understand what the lease is all about. When the landlord crafts the lease his job is to protect his asset by creating a lease that will give him maximum power and leverage and flexibility and profitability and deniability. He seeks to secure those advantages, but not for the tenant. He wants to have those advantages for himself and not offer the tenant.
There’re literally dozens and dozens of concepts that appear in most commercial leases that speak to the rights and obligations of the parties. In order for the landlord to secure the advantages I just listed he is very specific with the language in the lease describing his rights and the tenant’s obligations, but he's consciously very vague about describing the tenant’s rights and his obligations. That's what gives him maximum slip and slide room. That's why it's so very important that when the document is to be negotiated that one engage a lease lawyer with a specific skill set of lease negotiation. I don’t care how much real estate law a lawyer has done, if he hasn’t done 50 or 100 or 500 leases that's not the proper skill set to negotiate against the landlord’s lawyer who negotiates lease every day for a living.
Let's step back and see what leases are all about. To begin with everything in the contract, in most contracts, but particularly in leases, every element of a lease is either an asset or a liability to one party or the other and for every asset there's an equal and opposite liability. I’ll give you a couple of examples. When the tenant signs a lease for 5 years and the total rent over 5 years is $200,000 the minute the pen comes of the paper and the landlord hands the tenant the key the tenant owes the landlord $200,000 that's a liability. The landlord enjoys the equal and opposite asset which is the guaranteed $200,000 no matter what else happens. That's just an example.
When one gets the right to have a sign up on top of the building or a parking place or an exclusive use protection provision, those are assets. If the landlord grants those the landlord is then burdened by the equal and opposite liability to honor those obligations. When we sign a lease the greatest asset that we require is control over somebody else’s real estate for our operating purposes, so we can operate our business under predetermined terms and conditions that are spelled out in the lease up front that the landlord can't change or take away. We can operate as we envisioned over the long term.
If the lease isn't done properly then clearly we're not going to be in a position to anticipate that we might have what I call long term occupancy security and that is the ability to operate the way we planned to without having the landlord monkey with us. The greatest asset we acquire is control of somebody else’s real estate. When we do that we want to secure that control for as long into the future as we can possibly get it under those terms that are already spelled out in order to forestall for as far into the future the date when the landlord can put us in a big squeeze. Whatever that last [inaudible 00:07:16] time is that's when the landlord has us.
Every time the lease is open for conversation and any renegotiation that's the time that we want to try and increase our base of assets and shed liabilities. Again, remember everything in lease is either an asset or it's a liability. If you hear the word right or option that's an asset. If you hear the word obligation or responsibility that's a liability. This is all about securing assets and shedding liabilities at every opportunity.
Now, having said that let me back up a little bit and let's talk briefly about the process. I'm not going to get into discussing the process of finding space or evaluating space that's a topic for another day. What is critical is that we have a plan for the lease negotiation, and again I'm going to continue to use term long term occupancy security which means control that you have over your destiny in that real estate and the absence of which you could be out of business of the landlord has the right to pull the plug on you.
Starting out it's very important that we establish a goal for what the occupancy needs are going to be. My sense is that best place to start is for the practice management professionals to guide the person seeking a lease in determining what that long term plan looks like and how much space they probably want to be seeking. How they want to structure the lease for future flexibility as they go forward down the road, whether they want to be able to expand or relocate as the need may arise. Basically, the practice management people I think are the best ones to help the dentist decide who much space to take, where to go with the aid of demography. Again, demography is a subject for another day perhaps in talking about searching for space.
Once the practitioner has decided how much space he or she seeks and determine where they want to be in the marketplace, then it's very important to figure out what kind of a facility, what kind of a location will best suit their needs based upon whether or not they're a general dentist or a specialist and whether or not they need signage; how much parking they need, things of that nature. Then, the search results obviously in making contact with the landlord’s agent who’s going to describe the property and the business terms the landlord has in mind. This is where it's most important for the tenant to be listening carefully and taking notes, but do no negotiating until such time as we have all of the landlord’s rental terms presented to us in detail and writing.
It's a huge mistake to make an offer on a lease space unless we know exactly what the landlord is looking for. That would be akin to going into the automobile dealership and you see the car on the floor that you wanted and it's got a sticker in the window, but there's no price on it and you make an offer. None of us would ever do that, but people turn right around and make offers on lease space without knowing what they're getting for their money every day. That's a big mistake, so clearly it makes sense to make sure you know what it is that you're negotiating for before you even open your mouth. There are plenty of people out there who can assist with the process and I don’t claim to be the expert. I have been doing it for quite a while and I know a lot of the pitfalls, but there are plenty of experts out there who can provide this service to dentists all over the country.
Negotiating the Letter of Intent is very different than negotiating the legal concepts that appear in the lease. We talked a little bit about that a minute ago. The Letter of Intent negotiation starts with interaction with the landlord’s agent. The tenant, him or herself, may have a real estate broker that they have engaged to search in the marketplace for space on their behalf. That person would be the conduit to the tenant. It would be the conduit to the landlord’s agent. Normally that broker is paid in shares in the commission with the landlord’s agent paid by the landlord’s agent. That means commonly that that broker’s allegiances to the party who is paying it.
This is one of the questions that I get very commonly is can I use an agent if I don’t pay him is he on my side of the table? Does he have my allegiance? The answer I frankly don’t see how that could work very well. I think it's difficult to try and serve 2 masters. There is commonly a broker involved in almost every transaction that I do and most of them are honorable people. They do what they're supposed to do. It’s certainly very helpful to have a broker in the marketplace helping you understand and evaluate opportunities so that you can decide which ones to pursue.
Once contact is made with the landlord’s agent and the landlord’s agent produces a description of the rental terms in writing that's when the first back and forth will start to take place. Generally speaking the tenant would make an offer in response to the landlord’s asking terms and they would commonly go back and forth 2 or 3 or 4 times over 3 or 4 weeks in writing with offers and counteroffers until either they come to agreement or they don’t. If they don’t come to agreement then they go on to the next property.
Howard: George, when should they have shown you the lease? Right now you're talking about they're talking to the landlord and would you want to see that before they even, at what point do you want to see what they're saying?
George: That's actually a good point, Howard, and I was actually wanting to just stay away from money involvement, but I’ll answer the question very directly. If one is going it hire an advisor to help with the process, any advisor in any capacity should be brought in very, very early in the process. The advisor should be the one guiding the tenant prospect as to when that person’s involvement is necessary. In an ideal world I don’t want my tenant prospects talking to the other side beyond the initial interview with the landlord’s agent and the quick look at the property. They can make sure that the property location site fits their location site and space criteria.
They do no negotiating at all and they come back to me and typically say I've found a property I'd like to pursue. Would you help me do that? I reach out to the landlord’s agent and introduce myself. I'm the one commonly that would secure the rental terms from the landlord’s agent in writing and pick up the ball at that point.
Howard: Can you so this at all 50 States? Can you do this in Canada? Where legally can you do this?
George: I do do it in all 50 States and I have done some in Canada. I don’t get that many calls from Canada, but I've done several deals in Hawaii. I think I've worked in every State except North Dakota and South Dakota. Although I'm based on the East Coast, one-third of my clients are actually in California. I think that the population follows the sun. The dentists follow the population and so that’s where one-third of my calls come from California. I do a lot in Texas. I do a lot in Florida. Where I'm located has no bearing whatsoever on my ability to do any of this.
Howard: You're in Winchester, Massachusetts. Is that a suburb of Boston?
George: That is correct about 10 minutes north of Boston and also …
Howard: What do you want them to do? Do you want them to call you first or scan the lease as a PDF and email it to you?
George: Commonly they're not going to get the lease document until after the Letter of Intent negotiations have been complete. The Letter of Intent might be 2 to 3 pages and that's a 3 or 4 week process. Normally landlords don’t spend money to even create the 10 or 20 or 30 page lease form until after that negotiation has been completed. Yes, I would want to have all of that information sent to me in advance. This is about controlling the agenda, Howard. Frankly, I prefer that I be able to do the communicating with the other side in order to be able to control the [crosstalk 00:15:03].
Howard: How long have you been doing this for dentists?
George: Twenty-3 years, [crosstalk 00:15:08].
Howard: What percent of your business is dentists?
George: 99% of my business is dentists.
Howard: I know, so I'm telling these guys, dentists, that they've got big egos and you can't offend them because you're a nice guy, but I'm not. Dentists are arrogant. They think they have a doctorate in everything. What contact information will you give away? I know they can go to your website GeorgeVaill.com and Vaill is V-A-I-L-L, George V-A-I-L-L.com. You can email him George@GeorgeVaill.com. Will you give out your phone number?
George: Absolutely. I have a toll free number 24/7 that's 800-340-2701.
Howard: Why do you have a toll free number? Dentists email me and say I can't find your toll free number to call you. I'm like really? I'm just to help you and pay for the call. I already don’t like you and I don’t want to help you. I do not have a 1-800 number because I think it weeds out the insane ones.
George: I've had a toll free number for about 30 years and I just never have taken it off. I know most people have called free calling plans and things of that nature. It doesn’t matter to me. If they want to call the regular number it's 781-721-2 [crosstalk 00:16:24] 07.
Howard: I want to back you up just a little more if you don’t mind. What percent of dentists lease versus own their own building and what are your thought so that? I don’t want to ruin your business by telling everybody to own, but why do some dentists own and some dentists lease? Because like your car …
George: I'm able to [crosstalk 00:16:44]
Howard: I think a lot of dentists have a bad thinking of leasing because most dentists don’t want to lease their car. They’re going to buy it. What are your thoughts on why would a dentist lease and not just buy the building?
George: To begin with, Howard. I've had trouble over the years trying to figure out what percentage of them own instead of lease. If I had to take a guess I'd say maybe 25% own and the rest lease initially. At the risk of cutting my own throat I will tell you that if all things are equal it's always better to put one’s money into equity in owning property than putting it down the drain in rent. There's no question about it that that makes more sense. That's not right for everyone at every moment in time.
Howard: Can I argue that point with you though?
Howard: I have 2 different role models on that. Sam Walton wrote his autobiography and when he opened up his first store in Bentonville he almost went bankrupt because the landlord didn’t want to renew his lease because he opened up a competing discount store across the street. Scared the hell out of Sam Walton. He almost didn’t make that problem, so from that day forward, I think it was in 1962, he said I will always own my land and building. Wal-Mart always owns land and building.
In my church that I grew up with in Wichita, Kansas was Dan Carney, founder of Pizza Hut. He always told me. He says, “Put all of your money in the business.” He goes,” I don’t want land and buildings.” he says, “Why do I want to own the land and building under a Pizza Hut in Coffeyville, Kansas. He goes, “I'm not in real estate.” He says, “I'm a businessman and I can make far higher returns investing in the business of Pizza Hut.” Anyway, there's 2 great business legends who completely disagree, Sam Walton of Wal-Mart and Dan Carney of Pizza Hut.
George: Yes, competing philosophies. That's what I call it by saying it's not right for everyone at every moment in time. Some people have the capital resources and some don’t. Some are tuned to property ownership. It's an ego thing for lots of people. They want to own the property. Some people prefer to lease because it oftentimes offers more flexibility.
Owning and operating the real estate is something that many of my clients talk about doing, but I caution startups particularly against starting out by trying to own the real estate. Down the road if you have the stomach for it that might be a very good thing to do, but in addition to negotiating on behalf of dentist’s tenants I have 16 landlord clients spread out around the country for whom I so lease work. About half of them are dentists who own their own real estate and I would say half of them would say they would never do it again for all the money in the world and half would say I would never go any other way. It's a personal choice that people make. Generally speaking equity is better than non-equity, but beyond that flexibility is more likely to be had in a lease arrangement than a purchase arrangement.
Howard: Before you continue and I want you to continue what you're doing. It was perfect, but I just don’t want lose my track. When they go the demographics is so important. Do you also do that or can you consult on that? You said there's other experts?
George: Yes, the answer is I don’t search for space and I do not evaluate space from a demographic or competitive standpoint. That's not what I do. There are other experts who do that. I'd rather focus my energies on the lease and the lease negotiation process.
Howard: Who would be the demographic expert?
George: The ones that we are most familiar with on Dentaltown include RealSource. They include Scott McDonald Associates. They include Practice Cafe. These are the ones that we're all most familiar with on your wonderful resource.
Howard: Do you know those 3 people?
George: I know Scott McDonald. I know David James. I don’t know the people at Practice Cafe.
Howard: The 2 that you do know would you mind shooting them an email and telling them I want to podcast them too?
George: Absolutely, I'd be happy to do that.
Howard: That’d be a great one, 2, 3 punch category killer.
George: Absolutely, but demography is hugely, hugely improvement, Howard. I came out of the shopping center development industry 41 years ago when I was a shopping center leasing agent negotiating on behalf of the landlord with small tenants. Back then demography was hugely important and today, 41 years ago, given electronic technology and computerization it's such a science that anyone who attempts to open a business without plugging into the demography is making a real mistake.
Howard: If you build it they will come.
Howard: It's just very pixie dust.
George: That's like saying I make great lasagna I should open a restaurant.
Howard: I'm sorry to interrupt. You continue with what you were doing.
George: The issue of whether or not to buy or build or lease space. that's the least of the problem for most of the people who call me because probably 60% of my calls come from people who are looking to do their first startup and 40% are people who are either renegotiating an existing lease or who are renegotiating a lease that they hope to acquire or assume as part of a practice acquisition.
There are a couple of different things that I’ll just throw out in general about those processes. In the latter where we're talking about a renegotiation in most cases the landlord never, ever has any obligation whatsoever to talk to us or to the tenant. He doesn’t have any obligation to do so unless the lease requires that which is why it's so very important that anyone who’s approaching lease renegotiation have a full understanding of what this contract is all about, what it does, what it doesn’t do and how important it is to properly position oneself every time the opportunity arises.
Whenever the door is open for renegotiating a lease or to try and establish new terms that's the time I think that every tenant should be looking at where have I been, where am I now, where do I want to be 5 or 10 or 15 years from now? For how long into the future will this particular property continue to serve my long term needs in all of its manifestations the size, the configuration of the space? Where it's located in the marketplace and the position of the property on the street and the signage and the parking and the cotenancies. Occupancy security is a critical element and I cannot stress enough how improvement it is that no one approach the whole process of lease negotiation without having a detailed, comprehensive plan that addresses their long term occupancy security needs.
Howard: Well said.
George: Again, Howard, there are lots of things that we can chat about. I'm not sure how much time we have.
Howard: We have one hour. You're one-third through. You're 23 minutes into it and the reason I go an hour I like to get the contact information out first in case they have a short commute or whatever. My brand is an hour and that's about the average commute. It's also the average workout time on a treadmill or whatever. I know you play tennis and I swim. It's very hard for me to listen to a podcast while I'm swimming.
George: It's hard for me to do it from the golf course also. Let's get into a couple of things here. I put together a few notes. I can [crosstalk 00:23:53].
Howard: I wanted to ask you after 5,300 posts Socrates said that humans only have 2 emotions, greed and fear. They don’t want to hire your service because a dentist’s brain things if I got an A in physics and I got an A in calculus and I know physics better than calculus, why do I need help with anything including directions on how find the restaurant.
Howard: I think what would be good for the dentist mind is if we switch over to fear and you talk about some of the disasters you’ve seen on the last 13 years by know it all dentists not getting any help on their lease? Have you ever seen a mistake?
George: Absolutely, I see mistakes all the time. I would say overall the biggest mistake is their assumption that they know everything, as you've already alluded to. They don’t know everything. This is a unique contract with unique concepts that they have no familiarity with whatsoever, but they think it's just about dollars and dates and it's about far more than just dollars and dates. It's about control either you have the control or the landlord has the control.
Over the years I've done 2,000 leases in 41 years and I've seen leases that …
Howard: 2,000 leases in what’d you say 2,000 leases?
George: 41 years.
Howard: You've been doing this 41 years?
George: Yes sir.
Howard: Damn you look good dude. 2,000 leases in 41, so you started when you were 12? How did that happen?
George: 11 and ½.
Howard: 11 and ½?
George: I think the people misunderstand what the lease is about and what it's purporting to do. It’s to control the landlord’s real estate. If it's negotiated poorly the landlord has the control and you don’t and that puts at jeopardy the business that you put so many dollars and hours and effort into developing. I see leases that come across my desk 5 or 6 a week are sent to me in the mail or by email for me to review. Most of these allegedly have been negotiated by an attorney on behalf of the tenant and I don’t see it.
I think the biggest failure in the legal industry is to properly teach lawyers about leases. Just because someone’s been to law school doesn’t mean he or she knows anything at all about leases. They've had a course called lease negotiation 101, but that's all they've had. They don’t know that there are dozens and dozens of concepts that are only negotiated to a safe middle if one knows the give and take where the safe middle ground lies. You only do that by experience. The biggest mistake I see is people not hiring the right expertise, people with the right skill set in order to negotiate on their behalf.
The inner workings of that, the result of that, the bad news result of that is that commonly people lose track of when their lease expires and how much time remains and they wait until the last minute to try and do something about it. They’ve lost all their leverage. Leverage is a function of time. When the tenant has one month to go and calls me up and says, “Gee, can you renegotiate my lease for me?” the answer is, “Sure, I'd be happy to have you pay me to try, but frankly we don’t have a lot of leverage because you’ve waited too long.”
Howard: That's because the landlord knows you can't pick up a dental office and move in 30 days.
George: Exactly, the landlord’s know that and they're going to use that to their advantage at every opportunity.
Howard: How much time would a dentist need for the landlord I better make George Vaill happy or he may just pick up and move down the street?
George: I would suggest that tenant should start planning at least one year before their lease term expires. If they have an option to renew the lease commonly an option to renew the lease has an advanced written notice requirement that says they have to give the landlord written notice 6 months before the option or a year before the option. In that case they should start planning one year before that notice date. It's far better to have the plan all developed and ready to plug in even if we delay implementation then to wait until the last minute. Most people wait until the last minute.
That's probably the biggest mistake that they make is they don’t understand the dynamics of the control that the landlord secures if one is not timely in acting on options to renew or renegotiation. It's very scary. That's the biggest problem that I see where people get into the most trouble. It's normally not about [crosstalk 00:28:15].
Howard: If someone wants a lease renew and they contact you 30 days before what is the fear because the landlord’s going to raise the rent?
George: The fear number 1 is the landlord has no obligation to talk to us. The bigger, not the fear so much that he's going to raise the rent, but he might just say goodbye. I don’t want you here anymore. Get out of my building. The number 1 goal for any renegotiation or any time the lease is open for conversation, the number 1 goal is to make sure that the end of that period of time you're not out on the street without a place to practice dentistry. That's got to be the number 1 goal.
The number 2 goal is to secure control for as long into the future as possible under terms and conditions that are workable in the budget and otherwise. Number 1 is to make sure you're not bumped out the door and number 2 is securing control to continue into the future as far as you need it to operate and also to have some time remaining, so that when you go to transition and sell your practice to someone else they can secure a lease that gives them an opportunity to remain and have some control over their future.
Howard: Based on that how long do you like to see the average lease? You like 3 year leases, 5 year leases and then to secure into the future do you like, say it's a 5 year lease., do you like 2 5 year right of refusals so that at the end of 5 years of I don’t want it and they lease it to someone else. If I match that lease I get it for another 2?
George: Probably if you lease it …
Howard: I'm thinking expertise. I'm trying to ask an intelligent question.
George: Yeah, it's not so much a matter of right of first refusal. Let me back up. Commonly most landlords will not agree to commit their property to a tenant for more than about 20 years for a small space tenant like this. Most of the leases that I've done for dentists are a total of 20 years in some combination of primary term and renewal options. The primary term might be 5 years with 3 5 year renewal options. The primary term might be 10 years with 2 5 year renewal options.
Commonly the landlord’s goal is to get the longest, deepest hook into the tenant at the highest rent and the least expense to himself. When we go to sign a lease remember the minute the pen comes off the paper whatever number of years in that primary term that's the commitment we're making to the landlord and the landlord is making to us at the same time.
Renewal option periods are a little but different. They are totally a one way street. They are absolutely 100% in our interest, in our advantage and an asset to the tenant and 100% liability to the landlord because the landlord is stuck with us under predetermined terms and conditions that are spelled out in the lease up front that he can't change to take away. We have no obligation to stay. We choose whether or not to stay.
When you hear the word option that means choice an option to renew gives the tenant the choices of whether or not to stay under predetermined terms and conditions or leave. He can make the choice. The landlord is stuck with it, so for that reason most landlords don’t like to give out lots of options because it's a one way street. It's strictly a liability for them. They’re burdened with the obligation to allow us to remain under those terms provided that we play by the rules.
Twenty years is a very common amount of time. The shorter period of time we commit to the landlord up front commonly the fewer renewal options he's going to give us on the backside and commonly the fewer concessions we might get out of him because normally a landlord wants to use the lease as a collateral instrument against which to borrow money. The longer commitment we give the landlord the more valuable that is as a collateral instrument to the bank.
The length of lease term is a critical element, long term occupancy security. This is about control. I have to keep hammering that home. this is about control and anybody who negotiates a lease without thinking about developing long term occupancy security and focusing only on the dollars they're wasting their time because they're not going to establish the proper control to be able to operate their business for the long term future.
Howard: Then, go back to fear. In your 13 years on Dentaltown with 5,300 posts name cases without saying their names or if you're going to give an example and year-old want to make up a dentist’s name just say Mike Bar. Just say it was Mike Bar. We’ll just blame everything on Mike Bar. Going back to Socrates fear and greed, what disasters have you seen with that on Dentaltown that would make these dentists realize?
George: The kind of things that happen …
Howard: Do you not want to say that because you're afraid that dentists will know.
George: No, absolutely fear sells. What happens is that dentists don’t realize, not just dentists, small business people who don’t have experience with leases, don’t realize that the devil is in the details. If it ain't so, if it ain't in the lease it ain't so. Very, very simply you cannot rely upon verbal assurances by the broker or the landlord. If it’s not in writing it's so and if it's not in writing in detail it's not so.
The lease might say something like the landlord agrees that the tenant can have a sign, but if there's no specificity the landlord can way you can't have that kind of a sign. You can have a little sign letters 3 inches high next to your door, but you can't have a sign on the building. I thought it said I could have a sign. People make assumptions and assumptions come back to burn us. You can't rely upon anything that's not written in great detail in the lease. The landlord says you can park. How many places can I park in? You can only have one parking place. It says I have the right to park on the property. Yes, but it doesn’t say how many places you have the right to park in.
It's says that the landlord agrees to take care of the common areas, but that doesn’t mean that the landlord is going to refresh the plantings and landscape areas every year. Maybe he's going to let it go to seed or maybe he doesn’t come in to plow the snow until 3 weeks after the snowstorm. If you don’t have specificity in the lease you don’t have control. The devil is in the details. The biggest mistake that tenants make is not realizing how important it is to embed details in the document at every turn. That's a really, really critical aspect of it.
I would say beyond that the bigger mistake that people make when they're negotiating leases is to not push to secure as many renewal option periods at their election as they might be able to get in any negotiation. They think I've got a 5 and a 5, 5 years up front and a 5 year option that ought to be plenty for me. I’ll wait until I get to year number 9 to grab some more time. The time to grab it is now. Every time the door is open that’s the time to increase your base of assets and shed liabilities.
Howard: I want to talk about 2 things that I keep hearing. I'm a dentist reading Dentaltown so I'm seeing you as a lease negotiator. We might be emotionally anchored to different things. It seems like whenever I read anything about a dentist signing a lease they're number 1 regret is that they got too small of a space. Do you agree with that? they always want to go in there and say I'm just going to save money and get this little 1,000 square foot with 4 operatories and then 2 years down the road they're like damn I wish I would've got room for 6 operatories or7.
George: The answer is I do hear that a lot, Howard. Because I'm not a practice management specialist I tend to stay away from that conversation to some degree only because that's not my area of expertise. It's not my role to tell the dentist how many operatories he or she might have. I do commonly hear that that's probably the biggest complaint that I hear about space size that I took too little space mainly because I don’t have enough room for storage. I hear that very, very commonly.
Howard: I would say in my 28 years, you've been doing this 41 years. In my 28 years I think it's the number 1 complaint I hear on lease, I didn’t get enough. I want you to give us a historical perspective because a lot of these people that are devouring these podcasts are just right out of school. They’re not old enough to remember, its 2015, in 1980 remind them what it was like. When I was a freshman in college interest rates out of nowhere soared to what was it 21%?
George: Twenty-one, 22, 23%.
Howard: Some of these dentists and business owners and farmers didn’t have ceilings on the interest rates on their debt. I had 2 personal friends whose family farms had been in the family for 100 years had a Dad go out into the barn and blow his head off because they lost the 100 year old family farm because they borrowed a bunch of money for equipment and all this.
When you're in 2015 when we're taping this and interest rates are what they are, no one knows what interest rates will be in 5 years and 10 years and 20 years. You just saw the China Stock Market lose 30% of its value in 6 weeks. Greece could derail the euro because the European Union doesn’t realize that the United States has ran Alabama, Mississippi and Kentucky at a loss ever since they've been in the State. We would never go to Mississippi, Alabama and Kentucky and say you know all that money we gave you? You're going to need to pay it back and we're going to need to negotiate. You just realize that rich States like California and Connecticut are going to have weight tax surplus and some States are going to run at a loss. Brussels, The EU is not a country. They don’t get it. They don’t get it that Greece is only 8 million people and it could derail the whole euro and cause more pain and suffering than the amount of welfare that they need.
Give these kids some historical perspectives that they never know what's around the corner. They don’t know what the economy can do. You and I don’t know what it is, so how do they protect themselves on a lease renewal in 5 years? Is the rate negotiated? Is it anchored to an interest rate? Is there an interest rate barometer? Is this interest rate as like published in the Wall Street Journal? Can you talk about that? What would happen to every dentist that has a lease right now if in 5 years interest rates went back to 1980 level of 21%?
George: The interest rate that … Lease rental rates are not commonly directly related to the interest rate itself. Every landlord has a unique operating philosophy. They have their chosen mechanism for establishing rent increases. Some landlords say I want a dollar a square foot more each year and some landlords say I want 3% increase each year in the base rent or the minimum rents. Some landlords say I want a cost of living increase in no event less than 3% a year. Some landlords say I want the rent to go to market rate.
Market rates are clearly driven to some degree by interest rates and cost of living is as well. The interest rate mechanisms are generally not something that are reflected in establishment of rental rate increase mechanisms. Typically many landlords don’t like to lock in to a fixed rate of increase over a very, very long period of time. Maybe 40% of the landlords we deal with, maybe 35% will agree to a fixed rate of increase such as 3% a year for years 2 through 20 in a lease, but 60% or 65% of them will not. They want to have some ability to bring the rent up in the event that the economy justifies an increase in those numbers. They want to have the right to bring the rent up in keeping with what else is going on in the marketplace.
The idea of market rents is an elusive one in the world of commercial real estate. In the world of residential real estate where market forces come into play, if one goes to buy a house for instance. You find a house for sale and its $300,000 and you ask the broker to do comps in the market place to see whether or not this is a good a price. It’s easy to find a comp for a 2 bedroom house on a cul de sac in a certain demographic area of a certain square footage.
Commercial buildings are not cookie cutter the way residential houses are and therefore to find a comparable building and comparable space and comparable size, comparable setting is much more difficult in order to establish that this snowflake is the same as that snowflake. Market break mechanisms, although they are commonly used by landlords for increasing rent structures, I think it's a hollow concept.
My clients ask me all of time how do you know what the rate is out here in Peoria? How could you negotiate for me if you're in Boston? My answer very simply is that I don’t use market rate comparisons. That's not what I do. I don’t need to do that. I know how the landlord thinks. I spent 15 years on his side of the table doing negotiating on behalf of the landlord. I know how he values the various elements and what he's willing to trade for what and how hard to push and when to pull back.
Most landlords, every landlord has a unique economic model, but it has to satisfy this moment in time and irrespective of what else is going on in the marketplace the landlord is going it negotiate to satisfy his peculiar needs on that particular day. Interest rates, absolutely, they bear on what markets do. They bear on consumer price indexes, but when it comes down to establishing rent increase structures there's rarely any reference to interest rates.
Howard: George, if I send you my lease how much does that cost? If I make a PDF, do you preferred the lease scanned and emailed to George@GeirgeVaill.com? Do you prefer it overnighted and FedEx? How do you prefer?
George: No, email or fax are both fine. Commonly, Howard, let me make the distinction. This is a distinction that is a little bit self-serving, but many of the Counties. I guess I haven’t done a very good job of educating them as to exactly what my role is. My role is to negotiate the Letter of Intent elements. Lots of times people call me and say I've finished negotiating the Letter of Intent will you look at the lease for me? It's too late because I'm not an attorney. I played one at the Holiday Inn once, but I'm not a lawyer. Although, I built my business negotiating 80 page leases and I do them in my sleep.
I run circles around lawyers all over this country doing it, but my business is negotiating the Letter of Intent. Once we have completed that process then the lease document is negotiated by the lawyer with the right skill set. However, having said that, when it comes to renegotiation, which again is a good part of my business probably 40% of it, the answer is yes send me that lease document, every page. The cover page, the riders, the amendments, the exhibits and I do review that document. I'm focusing on the business elements; although, I'm not an attorney I'm also going to look for and at lots of things that I know to look for and at because I've done so many of these things. There is no charge whatsoever for me to review anyone’s lease and talk with them about what I see and talk with them about their challenges and their goals. There's no charge for any of that.
If instead they engage me to work with them to renegotiate the lease I have 2 different pricing policies. One is with respect to negotiating the Letter of Intent for space that is not built out as a dental office. That’s $200 plus 10% of any money that I can squeeze out of the landlord. If I save the tenant money we do a comparison between the landlord’s written starting point and what the final signed lease says. If I can show them plainly, transparently on a spreadsheet that I saved them money I get 10% of the savings in addition to my $200. If they never sign the lease all I get is $200 no matter what I've done or how long it takes. There’s only one $200 charge for ever and ever no matter how many different leases we ever chase.
Once we get involved in the document negotiation that's when I step aside and the lease lawyer steps in. In a renegotiation however or if negotiating for a space from start that is built as a dental office I have a fixed fee it's $5,000. Unfortunately, I can't guarantee any specific result because I have no idea what the extant will find acceptable or what the landlord with find acceptable. I can only guarantee that I will perform to the same degree of efficiency that I have for all of my references who will speak to what I have done for them.
There's a caveat however is that when we’re renegotiating a lease we don’t whether or not that negotiation will result in amendment to the existing lease or the landlord may chose to throw out the existing lease and put a whole new lease form in front us. There's a distinction there on my pricing policy as to whether or not I continue or whether or not a lease lawyer needs to be retained at an additional charge to go ahead and negotiate that new lease document.
Howard: Is there any lease lawyer that you like and work with that can cover all 50 States?
George: There actually is. This is a difficult subject simply because I've worked with lawyers for 41 years. Every day of my career I've worked with lawyers. For many years I would give the names of lawyers in various States who could do leases for my clients. That worked very well until about 7 or 8 years ago and I gave out the name of a guy who did a great job one year and then the next time I gave out his name he did a poor job. My client laid into me like a ton of bricks.
There's only one lawyer that I ever recommend now and he happens to be the guy that the negotiated against 35 years ago. He’s a personal friend. The only thing I get in exchange for sending business to him is a dinner certificate once a year and the thrill that knowing my client is extremely well protected by one of the most honorable and honest and nicest guys in the world. I would trust him with my grandmother’s money. He’s an expert. He's done 300 CVS drug store leases around the country. He’s a one man band and he lives on the work that I give him, so when I snap my fingers he jumps. He is excellent at what he does and he's as honest as the day is long. I'm happy to give …
Howard: has he ever gone to Dentaltown or has he ever posted on Dentaltown?
George: No, he's not.
Howard: Do you think he'd do a podcast?
George: I think he's a very reticent individual. I don’t think that he would do well with a podcast. I'm right out there. I have lots to say. This is not his style. I don’t think he would really work well. I could certainly ask him.
Howard: I've always wondered why you never made a Dentaltown CE course on this because we've put up 537 courses and they’ve been viewed 550,000 times. I've seen this my whole life. You go into a town and you lecture and a certain percentage of dentists like a lecture, but on that same flyer you could sell your book or your audiocassette or your DVD. Dentists just like different formats. Some like to only read the magazine. Some like to go to message board. Some like the online Ce’s. Some like the podcasts, but I wish you would make an online CE course on this.
George: I appreciate that, Howard, and frankly I've just never. There are lots of opportunities that I haven’t pursued and that certainly is one of them with CE. I've done lots of speaking. I did for many years, right after 9/11, I did seminars with Patterson Dental Supply and Masco Financial a forerunner to Wells Fargo. We did 2 seminars a month for 2 years running. I've done them all over the New England area, so I've done hundreds of seminars for sure. I've done a lot of writing, but I've never put it together to do a CE course, Frankly, I wouldn’t know how to make it happen.
Howard: You know Howard Goldstein.
Howard: He's in charge. You just call Hogo. He's email is Hogo@Dentaltown.com. He goes by Hogo because there was already a Howard, me. Howard@Dentaltown, so he's Howard Goldstein, so he went Hogo@Dentaltown.com. I would do that because there's just a majority of dentists who have never listened to a podcast and never will. Then, there's this big group that just every time you put up an online CE course they’ll just watch it and that's Wallypopper. Do you think that lawyer maybe his format might be an online CR course or maybe.
George: It might be. This is a guy who he's very, very smart. He’s not an abrasive lawyer as most of them are. He’s the most unassuming guy you’ve seen. He’s just an expert and really, really smart at this. Most importantly he's just as honest as the day is long. I say that frequently I’ll say, “Tony, how much time did you have in with that client?” he, “Well, I had 12 hours in on that lase.” “Did you charge your client for 12 hours’ worth of work?” “No, I couldn’t do that. The landlord’s lawyer was a jerk. He had me on the phone for extra time. I didn’t feel right I couldn’t charge my client for that.” How many times have you ever heard a lawyer say that? This is this guy all around.
Howard: Who do you think has the worse reputation, lawyers or dentists?
George: Lawyers for sure.
Howard: Even though we just had one shoot a lion?
George: Yeah, I saw that. There was one really funny comment. I can't remember. Somebody made a really funny comment about the dentist that …
Howard: You know what's the weirdest thing about Cecil the Lion? The deal is this year, in the same 2015, 2 dentists have shot, killed, murdered their wife and that's not big news.
George: There's no outrage.
Howard: Yeah, but you shoot a lion. Shouldn’t it just be a much bigger outrage if you shoot your wife? It's pretty sad.
George: One would think.
Howard: It's pretty sad to tell a dentist you'd be a lot better off shooting your wife than you would shooting your husband anyway.
George: One would think.
Howard: I'm only down to 10 minutes. How do you want to spend the last 10 minutes edumicating these dentists on lease negotiations?
George: Let's do this. I think the first thing that every smart person wants to be able to do is to control his or her own destiny. Having the lease structured properly is what leads to controlling ones destiny and, again, what I call long term occupancy security that starts with understanding our limitations.
Put your ego aside and admit that you don’t know everything. Ask around and see if you can find out who does know more than you about whatever the subject matter is and enlist the help of that person rather than trying to do it yourself. Lots of times dentists try and do lease negotiation themselves because their ego says they think they know how to do it. Lots of times they do it because they don’t want to spend the money. Lots of times they do it because they think the lease is not negotiable. Lots of times they do it because they think that I’ll just have my lawyer do it and many times the lawyer really doesn’t know what he or she is doing either.
I think we start with acknowledging our limitations; finding the right help to guide us in the process, paying attention to the professionals who are giving us advice and making sure that we have our eye on the long term plan and develop a negotiation strategy that speaks to our long term occupancy goals.
Howard: I think Harvard Business Review just they're always running articles on humility. I think they're trying to remind all their readers because when they go and look at most successful CEOs to the least successful CEOs humility is the number 1 variable that they keep finding. It's humility that makes dentists great dentists because if you're a humble dentist you're lab man feels safe to say, ‘You know what? You really need to reimpress this” and “I can't read this margin.” Whereas if you’re an arrogant he's like you're going to say, “George, I'm going to get a new lab. It’s you. It’s not me.”
George: Absolutely right.
Howard: “I went to Boston. You're an idiot.” and blah, blah. I have so many staff members over the 1,500 lectures I've given since 1990. They’ll come up to me and say, “Would you talk about this because out doctor does this?” I’ll say, “What does the doctor say when you ask him about that?” “Oh, my God, we would never say that. He'd …”
George: Who was [crosstalk 00:52:02] approaching?
Howard: “Oh, my God he'd fire us. He'd go off the handle. He'd throw an instrument.” It's like you’ve got to be humble to listen to your patients. You’ve got to be humble to listen to your staff. You've got to be humble to realize that an A in calculus and physics and geometry does not translate to lease negotiation. I just think life is so much easier when you're humble. With 7 billion people on Earth you want a team of people.
Howard: To get through this the hardest thing you're ever going it get through is life, so why not have a bunch of friends and family and Townies? That's what is so romantic about you is you just endlessly share and share. I've seen you posting on Thanksgiving before, on Easter, on Christmas. Is there any day if the week that you have never posted on?
George: No, probably not. I enjoy tis thoroughly. One of the things, speaking of the humility, is I get calls from people who say, “Why do I need you to negotiate my lease. Educate me here. Why can't I do it myself?” I say, “I’ll tell you that when I have a toothache I do not stand in front of the bathroom mirror and poke around in there with a lobster pick. Would you advise that I do that?” They say, “No, no, of course not. You should go to a dentist.” “Well, you should go to somebody and get some help where you are lacking the knowledge or the resources.”
Humility, you’re actually right. It's right on the money. It’s a critical element of understanding our limitations so that we can better serve ourselves and our community down the road by allowing other to help us achieve success.
Howard: In your 41 year career, 23 just dental only, who is more straightforward and easier for you to deal with, the landlord or the dentist? Who’s more easy, straightforward, predictable? Who’s more emotional?
George: The landlord.
Howard: The landlord.
George: The landlord is far more predictable.
Howard: Because he's dealing in his expertise.
George: I spent 15 years on his side of the table so I know exactly what's in his head. The landlords are far more predictable. In a heartbeat I'd rather deal with an international landlord with 40 lawyers ganging up on me at one time than the little old man sitting in his basement who inherited the building from his sister. The people who don’t have the knowledge are the ones who are most difficult to deal with. If you combine the lack of knowledge with the hubris that some dentists bring it the table in thinking they know. They try and tell me how to negotiate the lease for them. There comes a time when I say, “Thank you very much. Perhaps we're not as good a fit as we had both hoped. This is way I go about it. This is the way you go about it. You can either do it yourself or I could do it my way, but I'm not going to do it your way. “That’s one of the things. I've learned that if I can't control the agenda it makes no sense for me to be involved.
Howard: You’ve got 5 minutes. What’s your 5 minute close? First of all what are they going to find when they go to GeorgeVaill.com? If they go it GeorgeVaill.com what are they going to see? Are they going to see … Walk us through the website.
George: They will see a description of mu background. They’ll see a description of what lease negotiation is about. They’ll find a glossary of commercial real estate terms and lease terms. They’ll find testimonials. They’ll find letters of recommendation. They’ll find about 25 articles that I have written that I've authored that re all posted on the website that they can access. There’s a lot of information and clearly the website is my sales tool. It's designed to get people to call me on the phone. I think it is very effective in doing that.
Howard: What is that phone number again? That toll free number? 800-340-2701?
George: That's correct, 800-340-2701. That's correct.
Howard: Yeah, that's fantastic. George, I think seriously I have massive humility that I'm talking to a guy that's has shared 5,300 poste on Dentaltown helping everybody that's asking everything from a straight and arrow question where you just nail it to where they're asking 27 questions in 3 run-on paragraphs and you're just looking at this tornado. I like the way you do that. You cut and paste and then you start typing in red. You're just editing through this conscious flow of thought craziness. You just always handle it with poise. I just love you death. I just think you're a hell of a guy.
George: Thank you very much. I appreciate the opportunity that you have provided to all of us to participate and be part of a larger community. I've having a great time with it and I hope we continue this together.
Howard: We owe both of Dentaltown success only to Al Gore.
Howard: Who invented the Internet.
George: Yes, sir.
Howard: Is there anything else you need to close or anything else that you want to say? Anything you missed?
George: I’ll leave with one parting note. Pay it forward whatever you do in life. People help us. Pay it forward every chance you get. Do a random act of kindness. Pay it forward.
Howard: On that note thank you so much for spending an hour of your time with me today George. I will see you the message boards. I hope someday, like I say, some dentists wasn’t to read a book. Some want to listen to a podcast. Some want to take an online CE course. If you ever got the time we’d love to have an online CE course from you because there's just dentists that take every one that we put up.
George: Real fine, Howard, thank you so much. I appreciate your time. Have a great day today.
Howard: All right, you too buddy.
George: Take care, bye-bye.