When you’re preparing to sell your veterinary practice, your real estate plays a pivotal role in both your financial strategy and the smooth transition of ownership. Whether you rent or own your facility, understanding how to navigate real estate matters can significantly impact the success of your sale. Here’s a comprehensive guide to the critical issues to evaluate in either scenarios before proceeding with the sale.
For Those Renting Their Veterinary Property from a Third-Party Landlord
In about 25 to 35 percent of transactions brokered by Ackerman Group, the seller does not own the real estate. In those cases, you’ll want to ensure that your landlord won’t create any problems and hinder the sale of your practice. Both buyers and sellers like you want to have the lease assigned to the new legal entity that will own the hospital. This sounds simple, but there are a few significant hurdles to jump through. Not to mention, some landlords are just difficult!
of sellers who partner with Ackerman Group own their practice’s real estate
1. Term of the Lease
The term of the lease is crucial because most buyers want control of the property for at least five years in any transaction. Even if you have only three years left on the lease with two five-year renewal options, you still maintain control over the property. Sometimes long-term control of the facility matters, especially in certain expensive geographies . Places where real estate is scarce, or build-out costs are high, like New York City or Los Angeles, longer term control matters more than in a suburb. If the seller owns the building, the lease term becomes a key point in the transaction, and a third-party lease should be at least five years in length, including renewal options.
2. Guarantee
In most instances you, the practice owner, have personally guaranteed your third-party lease. Landlords loathe releasing tenants from guarantees, even if a larger and more financially secure corporation is your buyer. At Ackerman Group, we typically help you navigate this situation with both the buyer and the landlord to find a proper solution.
3. Fees
Check your lease to see if there are any set assignment fees (Note: if terms are ambiguous, some landlords can make it costly!). Our team is happy to provide guidance, but it’s ultimately up to you, your attorney, and the buyer to ensure that the buyer’s requests for lease assignment, along with any lease changes, are reasonable. If not, there could be delays or problems with obtaining the lease assignment and closing the transaction.
In this process, unfortunately you and your buyer will have minimal leverage with your existing landlord, regardless of the buyer’s good credit. If the buyer is adding duration to the lease, or a significant enhancement to the credit worthiness of the guarantor, it does add significant value to the landlord’s building and can be used to your advantage.
For Those Owning Their Veterinary Practice Facility
If you own your facility—as do approximately 65% to 75% of the owners we work with—the building’s value and the lease terms become central to your sale strategy.
In most situations, the building is a single-use property where the veterinary practice is the only tenant. Single-use buildings, especially veterinary hospital buildings with custom build outs that have limited alternative uses, are usually valued based on the key terms in the lease (annual rent, escalation and length of lease, etc.). The right lease terms will give you options regarding the question of whether to sell or hold the property, and strong lease terms create enhanced value regardless of your choice.
4. Key Lease Terms
Ackerman Group, along with your attorney, will guide you through lease negotiations with the buyer to maximize the value of real estate for you. The must-have items to negotiate include the following:
5. Rental Rate
Buyers want to pay fair market rent for the property, this much is true. But with a single-use, specialized building like a veterinary practice, it’s challenging to settle on a fair rate. In reality, market rent is a range and not a certain dollar amount. Remember that every dollar of higher rent you get from the buyer means one less dollar towards your EBITDA. The question then becomes: Does the practice trade at a higher multiple than the real estate [1]?
6. Term of Lease
The term is critical to obtaining maximum valuation for your property. Securing a five-year lease is common, while getting the buyer to agree to a 10-year lease is attainable if the property is in decent shape. With certain geographies, property owners have been able to secure 15-year leases. It’s worthwhile to note that older buildings that haven’t been remodeled for decades generally receive 5-year leases. Quality of the space matters a lot in negotiating the lease term.
7. Rent Escalator
While many commercial leases use a Consumer Price Index (CPI) escalator, using a fixed percentage escalator is the norm in the veterinary industry. However, rent escalators are evolving because of the recent inflation spike that started in late 2021 and has continued through 2025 – making the fixed rent escalators higher in practices that have sold in 2022 to 2025.
8. Landlord vs. Tenant Responsibilities
In a true triple net lease (NNN), the landlord has no responsibility, and the rent is essentially a ‘bond payment’ with no costs. True triple net leases are uncommon in veterinary properties. In veterinary facilities, the landlord may have replacement (not maintenance) responsibility for the foundation, structural walls, roof, HVAC, and potentially the parking lot. Our team helps you and your attorney on these issues. The more the landlord is responsible for, the more ‘reserves’ you need to maintain.
In a lease, a fixed percentage rent escalator means that the rent will increase by a specific, agreed-upon percentage at regular intervals (i.e. annually).
As easy example: if the rent is $100,000 and the increase is 3%, the rent will go up by $3,000 each year.
Tenant or Guarantor
Understanding who your tenant is and their financial viability is crucial. The tenant or a guarantor of the lease should be the right entity within the buyer’s corporate structure to protect against default risks.
While there are other terms in a NNN lease, these are the most important ones. At Ackerman Group, we work with you and your attorney to negotiate favorable terms and make certain you understand all the details of your lease. We cannot emphasize this enough: A strong lease is the key to securing full value for your real estate, regardless of your decision to sell or to hold!
Case Study:
Dr. LeeAnn DuMars
- Sold as part of a “Group” with other practices
- Included their key Associate Veterinarians
- Achieved long-term ease and eventual property sale
We’re here to help guide you through the transition process, and that includes equipping you with the knowledge to make thoughtful and educated decisions. If you’re interested in learning more about how Ackerman Group helps you find the best price, terms, and fit for your practice, learn more and contact us.
[1] Real estate typically trades based on a capitalization rate (cap rate) which is the inverse of a multiple. For example, a practice may trade at 10x EBITDA which is a 10% cap rate. A 12.5x multiple is an 8% cap rate. The cap rate is essentially the cash-on-cash return assuming there is no debt on the property. So, if the rent is $100,000 and it sells for a 5% cap rate (20x) or $2.0 million, there would be a pre-tax cash on cash return of 5%.