Law Office of
STUART J. OBERMAN
FEATURE ARTICLES
Stuart J. Oberman is a regular contributor in various publications.
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What Every Optometrist and Opthamologist Should Know About Lease Agreements
By Stuart J. Oberman, Esq.
You are starting your own optometry or opthamology practice, either by purchasing an existing practice or starting from scratch. During the process, you just finished negotiating the rent for your practice, which includes free rent, renewal options, tenant allowances. Now, you are excited and you just can not wait to sign the lease agreement.
The landlord presents you with a lease which appears to be a standard lease. Since "every other" tenant has signed the "same" lease, the landlord asks you to sign the lease, should you?
No. Not without consulting an attorney.
LEASE COMMENCEMENT DATE
Once your lease is signed, you and the landlord have opposite goals. The landlord wants the lease to start as soon as possible so that you can begin paying rent immediately.
If your landlord is building out your office space, it is extremely important that you give the landlord the most detailed plans that you can, specifying: carpet type; type of cabinetry; location of bathrooms, sinks, laboratory, built in desks, and reception area; and other details in an effort to guarantee that your office will meet your needs and expectations.
Most lease agreements provide that the build out will be deemed complete when the landlord or its contractor/architect certify that the build out has been "substantially completed". Usually this means that "punch list" items will be completed by the contractor after you are open for business, and this certainly is not the image that you want to present to your patients.
If you are building out the space, you should select the most qualified contractor you can and negotiate an appropriate build out period. You may also want to insert a liquidated damages clause in the construction contract, which states that if construction delays put you behind schedule, the contractor will pay your rent (rather than you) until the office is completed.
RENT INCREASES
Nearly all leases have rent escalation clauses. Escalation clauses may either be specifically outlined in the lease so that you know the exact amount of rent you will be paying or the escalation clause may be tied to an index, usually the Consumer Price Index ("C.P.I."). The best practice is to set an exact amount which will be paid over the term of the lease. This way there are no surprises. Indexes are too unpredictable and can hinder the cash flow of a practice.
RENT DURING OPTION PERIODS
When negotiating your lease, you should always include an option to renew your lease, which will specify the exact amount of rent you will pay during the option period. If you are using a "standard lease", you will usually find one of two methods which will be used in order to determine the amount of rent you will pay during the option period: (1) an increase tied to the C.P.I.; or (ii) the prevailing market rent in the area.
The term of the option period should be specifically stated (usually 5 to 10 years), and the rent for each option year should be specified.
DAMAGE TO OFFICE
What happens if your office building is damaged by fire, and you are forced to cease practicing for four (4) to six (6) months.
Most leases impose no real obligation on the landlord to rebuild. Unfortunately, most contracts give the landlord the greatest flexibility in determining when or if to rebuild. By contrast, the tenant is typically obligated to move back into the space within a short period of time after the building is repaired. Imagine the difficulty in retaining loyal patients when you move into interim office space only to be forced to move back to the old space. Therefore, every lease should include a provision where a tenant shall have the right to terminate the lease if the landlord has not commenced restoration or has not completed the work within a reasonable period of time [the term "reasonable period" should be specified].
Ideally, I would recommend that the damage section of the lease contain at least the following requirements: that the landlord carry full replacement cost insurance; that the landlord commence repairs within 60 days and complete the repairs within 120 days, and if not, the tenant may terminate the lease. In addition, a tenant should always carry full replacement cost insurance coverage.
LEASE ASSIGNMENT UPON SALE OF PRACTICE
The landlord always has the option to grant or deny an assignment of an existing lease. Imagine if you enter into a contract to sell your practice, and your landlord will not assign your lease to the Purchaser. All purchase and sale agreement should contain a clause that the sale is contingent upon the landlord assigning your lease to the Purchaser.
The growing trend in the rental market is to still hold the Seller liable for the terms of the lease [i.e., rent], even though the Purchaser is occupying the Seller’s space, after the sale of the practice has taken place.
I would strongly suggest that you try to incorporate the following language into each assignment clause: that the landlord cannot unreasonably withhold its consent to the assignment; that the landlord must consent if the buyer has substantially the same net worth and credit history as the seller at the time of signing the lease; that the landlord cannot deny an assignment based on tenant mix or tenant exclusives if the assignee is a dentist; that the selling dentist be released from liability at the expiration of the existing term; that the landlord have no right to adjust the rent to market price based upon an assignment; and that the landlord has no right to claim a part of the sale proceeds upon the sale of the business.
MISCELLANEOUS
What happens to the lease if an optometrist dies or becomes disabled? Generally, no standard lease will permit the optometrist or his/her estate from being released of liability. The optometrist or his/her estate must still pay rent. Therefore, you should always attempt to negotiate a release or termination of the lease, if the tenant (optometrist) dies or becomes disabled.
Many leases contain relocation clauses whereby the landlord may move a tenant to another location within the building. As a result, special care must be given so that your practice is not moved in to a smaller space within the building.
Nearly all leases protect the landlord from liability for their action or inaction. At a minimum, the landlord should be liable for their own actions, such as when they fail to properly maintain the building, which in turn causes water damage to your office space.
SUMMARY
A prospective tenant should always remember that the lease has been drafted by the landlord or their attorney. The prospective tenant should use a qualified attorney to review the lease and make necessary changes. Otherwise, you will end up with a one-sided lease, which will solely benefit the landlord.
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Optometrist Associate Contracts
By Stuart J. Oberman, Esq.
Optometrists associating with owner-optometrists has become more prevalent in recent years. However, as associate optometrist relationships continue to flourish, so do unfortunate and unnecessary legal disputes related to such associate relationships.
The following list sets forth those points that should be addressed in any properly drafted associate agreement. The optometrist addressing each of these issues in their agreement will help prevent later disputes.
1. Status of Associate Optometrist. Internal Revenue Service rulings have made it increasingly difficult to characterize associate optometrists as independent contractors rather than as employees. Proper documentation is needed by the owner to be successful in establishing a legitimate independent contractor relationship with the associate.
2. Schedule and Location of Services. The agreement should explicitly state the number of days per week of work, the hours that the optometrist office is open and the associate’s responsibilities, if any, for weekday and weekend emergency coverage. The agreement should also indicate if the associate has any responsibility to render dental services at any satellite office locations.
3. Malpractice Insurance. The agreement should explicitly state the obligation by both optometrists to maintain malpractice insurance, the limits of such coverage, and unusual or special provisions.
4. Duties by Owner and Associate. The agreement should specify the associate's duties with regard to the rendering of optometry services as well as the associate's duty, if any, to become involved in administration and management concerns.
5. Compensation to Associate. The agreement should carefully define the method by which the associate is to be paid. There are numerous variations of compensation including a flat per-day salary, a percentage of the associate's monthly collections, or production.
6. Business Related Expenses. The agreement should detail what business related expenses are the sole responsibility of the associate and which expenses are to be paid for or reimbursed to the associate by the owner. Professional license fees and association membership fees, automobile expenses, entertainment and promotion expenses, continuing education expenses, malpractice insurance, health, disability income and life insurance are expenses which should be addressed in the agreement.
7. Patients’ Charts and Records. The agreement should clearly state that all patient information is confidential and may not be used by the associate for any purpose inconsistent with or in breach of any of the provisions of the agreement.
Covenants Not To Compete. Associate agreements should have clauses in them stating that the associate may not compete with the owner subsequent to termination of employment for a particular period of time and within a certain geographic area. The length of time and geographic area must be reasonable.
Confidentiality and Trade Secrets. The agreement should address what information in the optometrist practice is deemed to be confidential, trade secrets or proprietary to the owner and may not, therefore, be appropriated by the associate for his or her own benefit and the owner's detriment.
10. Associate's Right to Buy In. The agreement must clearly state whether the associate's right to buy in constitutes an option to purchase or a first right of refusal.
11. Indemnification. The agreement should address each optometrist's responsibility to the other should one party be held responsible for (i) any malpractice liability resulting from the treatment of patients by the other dentist or (ii) any non-malpractice liability resulting from negligent acts by the other dentist.
Conclusion. Written agreements of any kind (and especially written associateship agreements) always create a "win-win" opportunity for the parties involved.
____________________________________ In the past few years, the Wage and Hour Division of the U.S. Department of Labor (DOL) has collected millions of dollars in back wages, as a result of overtime and minimum-wage violations. Wage and hour claims include the repayment of back wages, as well as penalties and interest. This article will address some of the most common wage and hourly issues that cause a problem for dentists. Employee classification and overtime: Every employee should have a correct classification. Employees can be either "exempt" or "nonexempt" under the FLSA. An "exempt" employee is not subject to minimum wage and overtime requirements, but a "nonexempt" employee is. The criteria for classifying an employee as "exempt" under the FLSA guidelines includes such items as salary amount, managerial control, and the ability to exercise independent judgment. In just about every optometry office, optometry employees are considered "nonexempt" and must be paid overtime. Independent contractor: Another employee classification issue that can lead optometrists into trouble is mistakenly labeling an employee as an independent contractor. Classifying an "employee" as an independent contractor could land an optometrist in big trouble with the Internal Revenue Service. For a worker to qualify as an independent contractor for tax purposes, a company must follow Internal Revenue Service guidelines. As a general rule, a worker is an independent contractor if they and only they control the time, place and manner as to how the work is performed. In reality, very few optometry employees, and associate doctors, qualify as independent contractors. However, it should be noted that in documented cases, a person may very well qualify as an independent contractor. Continuing education: A common problem is the area of compensation requirements for continuing-education ("CE") events. Many optometrists believe that paying for CE is potentially an option and really has no impact on overtime compensation. The failure to handle an employees CE compensation correctly can be a costly mistake. The FLSA mandates that time spent at a training/seminar/meeting for continuing education should be compensated when any of the following guidelines are mandated: attendance is mandatory; attendance is during the employee’s work hours; productive work is performed; and the CE event is directly related to the employee’s current job. Payroll deductions: In most cases, employee payroll deductions that are required by federal or state law are handled correctly. However, some employers take unlawful deductions out of an employees paycheck. Each state imposes restrictions as to what is and is not permissible to deduct from an employee’s regular and final paycheck. Every employer should make sure that they are fully aware as to what can and can not be deducted from an employees paycheck [and this includes final paychecks for former employees]. Comp time: "Compensatory time" is time an employee is allowed to take off with pay in lieu of monetary compensation for overtime worked. While "comp time" is a fantastic employee benefit, every optometry practice should make sure that they have an office policy regarding "comp time" and that they are in compliance with federal and state law. Final paycheck: Optometry practices face a common problem regarding a former employees final paycheck. It is very important that a former employees final paycheck is paid quickly, to the former employee and any "deductions" should be carefully examined. A dispute regarding an unauthorized deduction could be very time consuming and costly. In summary, wage and salary issues are complicated, and if not dealt with quickly and throughly, the problems can cause an optometrist practice substantial financial hardship. It is very important that every optometrist understand the essential elements of labor law in order to avoid costly errors.
Paying Employees Incorrectly Can Be Costly
By Stuart J. Oberman, Esq.
Wage and hourly related labor issues are becoming more and more of a problem for optometrists. The Federal Fair Labor Standards Act (FLSA) sets the standard for most wage and hour regulations. However, individual states may impose stricter regulations that in some cases supersede federal law. Unfortunately, if an employer does not fully understand what regulations they are required to follow, the failure to pay an employee correctly can be financially devastating.
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Success in Buying or Selling Your Practice
By Stuart J. Oberman, Esq.
The purchase and sale of an optometry practice are two extremely significant events in an optometrist's career. Finding the perfect practice to purchase or the perfect buyer is very important. However, the failure to property draft a purchase and sale agreement has detrimental consequences.
LETTER OF INTENT
In general, just about every optometry transaction (with or without a broker) should start with a signed letter of intent. The letter of intent memorializes the agreement between the parties regarding the purchase price, date of the proposed sale of the practice, account receivables, as well as lease issues. The letter of intent should also be nonbinding.
The seller and buyer of an optometry practice should keep the letter of intent confidential, regardless of the outcome - whether or not the sale of the optometry practice takes place. The seller of an optometry practice should also have a potential buyer sign a nondisclosure agreement, which will keep the seller's financial and practice information confidential.
ALLOCATION OF PURCHASE PRICE
As a general rule, most optometry practice transactions involve the sale of optometry practice assets (equipment, supplies, patients' charts and records, seller's telephone number). It is extremely important that the seller and buyer establish a purchase price allocation for: (1) equipment that is being sold; (2) account receivables that are being purchased; (3) goodwill of the practice; and (4) noncompete stipulations. From a tax standpoint, expensing, depreciating, or amortizing the assets are important to the seller and buyer. Certain tax rules apply regarding what can and cannot be depreciated over time.
CONTINGENCIES
For the protection of the seller and buyer, a contract for the purchase of an optometry practice should have an outline of events that must occur before the sale takes place. For example, the buyer must agree to the terms of the seller's lease agreement (which the buyer will probably be assuming), or the buyer's accountant should approve the seller's financial data, and the sale should be contingent upon the buyer's approval of a loan. The buyer should also make sure that any liens (i.e., UCC-1) that are attached to the seller's assets will be paid at closing.
NONCOMPETE CLAUSE
Just about every practice-sale agreement should have a noncompete clause that applies to the seller. The noncompete clause restricts the seller from practicing optometry for a reasonable period of time and within a reasonable geographic radius of the seller's practice.
Careful consideration should be taken when including a noncompete clause. The noncompete clause should take into account that the seller may become a part-time associate optometrist, partner, shareholder, director, officer, consultant, employee or independent contractor of another optometry practice.
If the optometry practice sale contemplates that the seller will work part time for the buyer, the buyer should require that the seller enter into some sort of host-provider agreement (i.e., independent contractor agreement), which should become effective the date the seller's practice is sold.
The sale of an optometry practice can be extremely rewarding for the seller and buyer. However, if the terms and conditions of the practice sale are not clearly outlined, t hen it can be a very frustrating transaction for all parties involved. Before entering into a contract for the sale of a practice, the seller and buyer should seek the assistance of professionals who are experienced in the area of optometry transactions.
