Missing Terms in Your Dental Lease – Landlord Waiver/Subordination

Missing Terms in Your Dental Lease – Part I: Landlord Waiver/Subordination

Amanda Howard, Florida Healthcare Law Firm

Signing a commercial real estate lease for a dental practice and getting a loan for operating that dental practice often go hand-in-hand. A loan can assist dental professionals in covering the cost of the build-out of their new space or buying inventory and equipment to get up and running. Most commercial real estate leases give the landlord the priority right to take a tenant’s personal property in the space if they default under the lease.

To illustrate, if a tenant fails to pay rent, the landlord has the right to take all the tenant’s furniture or equipment in the space and resell such items to recoup its losses. Like leases, most loan agreements give the lender the priority right to take a tenant’s personal property in the space purchased using loan proceeds if they default under the loan agreement.

This is where an issue arises. Often, a dental professional isn’t defaulting just under one contract; they’re defaulting under all contracts. In such a case, the lender and landlord have competing interests, and the question is, who has priority? To avoid any issue, tenants should seek landlord signature of a “Landlord Waiver” or “Landlord Subordination,” a contract that has the effect of the landlord subordinating its priority right to the lender regarding tenant’s personal property in the space purchased with loan proceeds.

Without one, a domino effect ensues, you fail to get the landlord waiver  the lender refuses to issue the loan  you now don’t have the funds to lease the new space  you can’t sign the lease and open and operate your practice. Getting your landlord to agree may take some convincing and negotiating, but failing may be a roadblock of epic proportions.