Footing the bill when adding on to a leased veterinary practice
Q: I opened a new practice three years ago in a leased building. I love how the design turned out, but we're rapidly growing and I'd like to put on a small addition. My landlord doesn't have the funds for it; I'm willing to cover the costs, but is it too risky to do it on my own, especially since I don't own the building? How should I handle this situation?
Generally, when one party (landlord or tenant) is unable to provide money or labor to remodel or add on, the other party must go forward with labor and/or money and get a concession or upcharge from the other party in the future rents. This happens when a tenant does not have build-out money, and then the landlord will provide the money and/or labor and add some extra rent costs to amortize the build-out expense over the next five years or more.
In this case, if the landlord is the one that does not have money or labor to do a build-out, then the tenant will have to step up to the plate with the money and labor to do the job. Of course, then the tenant will have to negotiate with the landlord before doing any expenditures in order to get concessions in future rent on the new-and possibly the current-rent to allow the landlord's new gain in property improvements to be amortized out by the tenant (for a return on investment from his providing money and labor) over the next five or 10 years.
This may require that the landlord has some say in the design and outward appearance, so after the tenant leaves, the premises will have an added facility value to the landlord. The numbers will require cost estimates, and maybe even an after-built appraisal to establish the added value that must be credited to future reduced rents.