Hypothetical
situation….well not really.

Say you and your partner are expanding your office.  Say your partner owns
the building.  Say you are splitting the cost of the furnishing and
equipping of said office.

How would you split the cost of construction? 

It depends on the nature of the construction. The portion of the
construction that the landlord might generally incur will be paid 100% by
the landlord, improvements generally done by the tenant is paid 100% by the
practice.

Or, determine a reasonable landlord TI allowance for the area,
say $50/square foot and that’s the cost the landlord covers.

Or, a combination of both if the “construction” includes things like
cabinetry, etc.

How would you/wouldn’t you have this influence the new rent? (obviously it
will increase, but would you tie this to construction cost?)

It seems to me you’ve already established a fair rental rate when you
bought into the practice, so I wouldn’t expect it to deviate much from the
current “per square foot” rent you’re already paying. If you select a TI
allowance which the landlord pays I don’t think it impacts the construction
cost. If the landlord is funding 100% of all improvements above an allowance,
they’ll generally include the tenant financing on top of the base
rent so you, the tenant winds up paying for it anyway.

 When should rent increase?  When construction starts?  When you
occupy the space fully?

When the space is done and the tenant occupies it. Don’t forget that
sometimes the landlord will offer free rent for several months as an
incentive for the tenant signing a long-term lease. The tenant may also be
able to negotiate a lower rent “per square foot” for more space. Has the rental
market decreased in your area since you bought in?

Give me some advice.  I’m sure I will have more questions as we discuss.

Thanks!

If you can, see if
you can find a commercial real estate rental agent who you can consult with
either together with your practice partner or individually to represent you
more or less. George Vaill may also be able to assist you in what might
be “fair” (I know he hates that word) based on all the lease
negotiations he’s been involved with.

Good luck.

This first appeared on Dentaltown.