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How Much Does it Cost to Rent a Clinic Space When You are Purchasing a Practice?

Posted by Joe Hughes on July 22, 2019
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Location, amenities, the grade of the clinic building, as well as external factors such as market forces of supply and demand, population growth, lease terms and vacancy rates, are among the broad mix of factors which determine how much it costs to rent a clinic when you are purchasing the practice (encompassing goodwill and equipment).

The cost to rent a clinic space is more than the essential monthly repayment; as it includes both the total costs of purchasing the goodwill and equipment and some hidden expenses, such as fit-out, agency and legal fees, plus other costs to get you up and running in your clinic space once you buy a practice.

Factors that affect a clinic’s rent are:
• Location
• Whether it is an A-grade, B-grade, etc. building)
• Size
• Lease term, deal offered and whether a new or partial fit-out is required

How is a clinic space rent calculated?
Clinic lease rents are usually advertised as a dollar-per-square-metre figure. This can be advertised per annum or per month and is typically exclusive of GST. For example, say a 50sqm Physiotherapy shop-front style practice is advertised at $65 per square metre per month. The annual cost to rent – excluding GST – would be: $65 x 50 x 12 = $39,000. GST can be worked out by adding 10 per cent to the rental figure. Therefore, the annual rent inclusive of GST would be: $39,000 x (1.1) = $42,900.

Gross rents are an all-inclusive figure that includes all building outgoings. Under a net lease, outgoings are separated from the outset and clearly outlined as an additional cost to the tenant.

Outgoings, which are passed on to a tenant, include
• Rates
• Land tax
• Building insurance
• Repairs and cleaning costs (excluding capital costs)
• Management fees

Incentives are typically applied in addition to gross rent and can comprise a rent-free period, a fit-out contribution, or a combination of such incentives. This is more common when you lease a new clinic space that was previously vacant when you buy a clinic an existing lease will most likely be in place and this will be assigned to the new owner. Either way, the lease is finalised by negotiation between the landlord and the clinic buyer.

Commercial lease rates per square metre in Sydney are the highest in Australia (followed by Melbourne, Brisbane, etc.), the same applies to a clinic.

How do I know if I’m paying too much for the lease if I’m going to buy an existing clinic?
There are many variables to consider when it comes to a commercial clinic property price per square metre and determining if you are paying too much rent for the clinic you will buy.

Make sure you allow enough time to research the right deal for your practice especially if you are entering into a new lease with the landlord and not just an assignment of the lease.

Compare similar rents and deals of other practices to the premises you are interested in renting.

It is always recommended that you familiarise yourself with the complex nuances of commercial leasing or seek professional assistance through a solicitor.

Buying vs leasing your clinic space after you have purchased your clinic                                                                                  

When buying the goodwill and equipment of a clinic sometimes the seller also owns the clinic building, in this case, there may be an option to either lease or sell the clinic building, sometimes the clinic premises must be sold with the goodwill and equipment.

Benefits of leasing the clinic space are:
• Flexibility
• Ability to expand and contract your clinic. If things go well you can move into a bigger and better location up the road, on the other side of things you can also downsize into a smaller space.
• More freedom to take up good leasing opportunities when they come up at a cheaper rate.
• Less equity and cash tied up in your clinic

Benefits of buying the clinic space are:
• It is your property and you can change it as you see fit
• Management decisions are your responsibility
• You can receive rental income by acquiring other healthcare practitioners and have them as tenants of yours
• Capital growth potential
• Tax advantages

On the flip side; if you are looking to sell your clinic and also own the clinic space and are open to leasing or selling it is best to give the prospective clinic buyers the option to either lease or buy as this will attract a bigger buyer pool.

If you would like more advice when it comes to leasing or buying a clinic or if you are looking to sell your clinic, please do not hesitate to contact us as this is our area of expertise.

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