Every shared dental-space arrangement needs a shared agreement

February 9, 2023
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Quick Summary:
Space sharing may be a viable option for dentists in various stages of their career if the terms are carefully considered by both parties and all proper steps are taken. Every space-sharing arrangement can be complex — involving insurance costs, use of employees and equipment and other factors — and only a legal, written space-sharing agreement can address those complex considerations. Learn who might benefit from a space-sharing agreement.

Buying or selling a dental practice, forming a partnership or hiring an associate: For dentists looking to make a transition, those four options typically come to mind.

But space sharing — that is, sharing space or renting an operatory in an established dental office — may be a viable fifth option for dentists in various stages of their career if the terms are carefully considered by both parties and all proper steps are taken.

If not carefully considered, one or both dentists may find themselves in a challenging position. Every space-sharing arrangement can be complex — involving insurance costs, use of employees and equipment and other factors — and only a legal, written space-sharing agreement can address those complex considerations.

But first: Who would potentially benefit from sharing a dental office space over all other options? 

Retiring, unable to sell, just starting out, seeking part-time schedule

For practice owners, the reasons to share or rent operatory space are many. Here are a few:

  • You have your eye on retirement but want to practice part time and would like to retain full-time roles for dental staff.
  • You want to sell but are not currently well-positioned to sell the practice financially.
  • You have had your practice up for sale, but the practice has not sold and you need to consider an alternative.
  • You want to continue in your practice and mentor but without the pressure of “employing” an associate dentist.
  • You have unused operatories in your practice and would like another source of income.
  • Your patient base has declined since the pandemic, and you need to offset overhead expenses.

For the renter or lessee, the scenarios are equally diverse:

  • You have been working as an associate employee and want more autonomy but are not ready to be a practice owner.
  • You desire a flexible or part-time schedule; for example, you are late in your career and sold your practice but would still like to see patients one or two days a week.
  • You are a new dentist or want to own a practice, but the timing is currently not right to buy and you want another option.
  • You are a specialist who wants to space-share from a few general practitioners and provide your services outside of an associateship.

Are the dentist and space the right fit?

Katie Fornelli, director of early career dentist engagement at CDA, says that whatever the reason to consider space sharing, both parties should have and follow a “checklist” to protect themselves and to better ensure a good outcome.

For example, the cost of sharing a space is a major consideration, but before even researching the cost, dentists should conduct some basic background checks — on the space or lease requirements and the other dentist.

“Although the two dentists are not establishing a legal partnership, both should approach the space-sharing arrangement a little bit like a partnership in that patients and the public see dentists practicing at the same address and may therefore conclude that the dentists are in business with each other,” Fornelli cautioned. “Potential for reputational spillover is possible.”  

Each party can start by confirming that the other dentist has a license in good standing and no disciplinary actions or insurance audits in progress. Spending sufficient time with the other dentist may also allow early discovery of issues that could present a problem or liability later.

If the practice owner does not own the building, the dentists should also find out what the terms of the lease allow.

Tricia McCarroll, advisor at SVN Vanguard, says most standard leases allow for subleasing with the property owner’s consent but advises dentists to analyze the lease to understand all the terms.

“The landlord's consent must be obtained, and oftentimes there is a small fee associated with the processing of that request,” McCarroll said. “Beware of triggering a Recapture Right by the landlord, which allows the landlord to terminate the lease when the tenant requests the landlord's consent to sublease, which is not an uncommon provision in a lease agreement.”

She added that the property owner typically will ensure that a tenant cannot profit from a sublease by charging an amount that exceeds the current rent and will have a clause in the lease that any excess amounts be refunded to them, while in other situations a lease will state that the tenant and the property owner will split any profits from a sublease agreement.

Defining terms and definitions in a written agreement

Once the dentists determine that the lease and the other dentist are a good fit, they need to figure out the shared arrangement that is mutually beneficial and put those terms into a structured legal agreement. 

Will the dentist who is sharing or subleasing from a practice owner be sharing equipment, tools and services? Will the dentists share staff, or will each dentist retain their own staff? If they share staff, will their roles, hours and duties differ? What will the weekly schedule be? The terms will be different for a dentist who is only looking to pick up work on Fridays, when the owner is not working, than for a dentist who is subleasing an operatory four or five days a week, for example.

The written agreement should specify these terms, and if the dentists are sharing staff, it should also specify which dentist will be the primary point of contact for supervision, discipline, reporting, performance issues, schedule changes, paid time off requests and hiring, firing and paying employees.

“Ensure that you and the other dentist communicate any feedback with each other about employees’ performance, especially if your experience differs,” Fornelli said. 

Having a current employee manual with clear workplace policies, discussing with an employment attorney and checking the insurance policy can head off potential risk and liabilities.

But as separate entities, the dentists will not share everything. 

“Importantly, patient records should not be shared,” Fornelli says. “HIPAA and other privacy practices and controls must be maintained. You want to operate as separate entities beyond the sharing of space and any equipment, services and staff. This means having separate insurance and legal representation, too.”

Fornelli says identifying the practices as separate entities through separate phone numbers, business cards, websites, billing and signage will help toward that goal.

Both parties should consult with an attorney for help drafting a written space-sharing agreement that contains the essential terms, conditions and clauses, such as whether the sublease term is at-will or designated to end on a certain date.

Adding it all up: What will it cost to space-share?

Of course, any discussion of a mutually beneficial arrangement must include the cost. 

Although there are a lot of variables and no standard cost per chair or operatory, the dentist can strive to meet two goals:

  • Apply the same overhead percentages whether you are sharing the space as your own business entity or you own the entire practice.
  • If space-sharing, your total overhead should be under the industry benchmark.

On average, the overhead in a general dental practice will be 60-62%, says J. Haden Werhan, CPA, principal at Thomas Doll Advisors. 

“With COVID, the difficulty in attracting and retaining staff, plus inflation, we have seen overhead increase significantly,” Werhan said. “Looking at 2022 numbers for our clients, we are seeing overhead at 64-66% or higher when revenues have decreased due to more time-consuming protocols and the absence of hygienists in many practices.”

When determining if cost-sharing will be a financially beneficial option, Werhan advises dentists to factor all the costs of space-sharing, such as: 

  • Amount of space or number of operatories utilized.
  • Staff overhead.
  • Lab and supply costs.
  • Practice management or scheduling software costs.
  • Office supplies.
  • Insurance costs.

“Practice owners contemplating the sharing or rental of operatory space should determine whether doing so will actually help their bottom line,” Werhan stressed.

Fornelli agrees that dentists should carefully evaluate if space-sharing is their best option.

“Space-sharing really may be a great choice for some dentists who are just starting out, winding down or needing a shorter-term transition; however, it usually is a temporary arrangement and doesn’t outweigh the long-term benefits of other practice transitions,” Fornelli said. “As with any practice transition, invest some time in the needed research, follow the appropriate steps and draft, with the help of an attorney, a written space-sharing agreement that will serve your needs and produce no surprises.”

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