How Real Estate Decisions Can Shape Your Veterinary Practice Sale

Most veterinarians aren’t thinking yet about selling their practice when they sign their first lease. They're focused on exam room count, whether there's space for a surgical suite and imaging equipment, and whether or not the location will draw in clients. 

But the real estate decisions a veterinary practice owner makes early on have a direct and lasting impact on what that practice will be worth at the time of sale. Negotiating a lease or purchasing a space without an eye toward eventual transition can slow a deal (or kill it outright.)

In this article, we outline real estate considerations for veterinarians. 

The Lease is a Crucial Document in a Veterinary Practice Sale

If you’re planning to retire or sell your practice in the future, you need to treat your lease as a document that will one day be underwritten by someone else's lender, not just your own landlord. 

In negotiations, push for a term that runs at least as long as a typical practice loan, generally 10 years, plus renewal options. A short remaining term or a lease with no renewal rights will make your practice harder to finance by a buyer when you go to sell.

Review your assignment clause before you're under deal pressure, ideally six to twelve months ahead of any sale. If it gives your landlord sole discretion to withhold consent, renegotiate it now. Aim for language that requires "reasonable consent" or states consent "will not be unreasonably withheld," so a landlord can't unilaterally block a qualified buyer later.

And, if possible, keep rent at or below 5%-10% of revenue (obviously, the lower the better). Since practice value is typically based on a multiple of profit, and rent is one of your largest fixed expenses, an above-market lease rate can cap what your practice is worth in a sale, regardless of how strong its patient volume is.

What Sets Veterinary Real Estate Apart

Veterinary spaces have demands that a standard commercial lease doesn't anticipate. The use clause needs to explicitly permit your full scope of veterinary services, including overnight boarding, surgery, and specialty or emergency care. A narrow use clause can block a provider from adding revenue lines later, or complicate a sale to a buyer who wants to expand services.

Zoning and code issues follow the same pattern. Landlords and municipalities frequently scrutinize:

• Kennels and outdoor relief areas, which often require specific zoning approval

• Imaging equipment, which may trigger additional building or radiation-safety requirements

• Soundproofing and parking capacity, which factor into both landlord approval and local code compliance

  
  

Because a veterinary buildout, surgical suites, treatment area plumbing and electrical, imaging infrastructure, boarding runs, is purpose-built and has limited alternative uses, landlords weigh tenant improvement allowances and lease length accordingly. These specifics should be negotiated into the lease itself, not handled informally.

If You Own the Real Estate, Decide Early Whether You'll Sell 

If you own your building, you're holding two separate assets: your practice and your property. Decide early how you want to handle the second one.

There are three possible paths:

• Sell the real estate along with the practice in a single transaction.

• Retain the real estate and sign a long-term lease with the buyer, known as a sale-leaseback, so you keep collecting rental income after the sale closes.

• Sell the real estate separately, potentially to a real estate investor rather than your practice buyer.

  
  

If you want to keep an income-generating asset and preserve certain tax advantages, since lease payments are ordinarily deductible for the buyer as a business expense, consider a sale-leaseback. Many corporate and consolidator buyers will prefer this route too, since it lets them acquire your practice without tying up their capital in a specialized building. 

If you'd rather take a lump sum, know that selling the real estate outright triggers capital gains tax on the property, separate from the tax treatment of your practice sale. Ask your tax or financial advisor whether a 1031 exchange makes sense for deferring that gain by reinvesting the proceeds into another qualifying property.

If you're not selling the real estate with the practice, insist that your appraisal accounts for fair market rent as a genuine operating expense, even if you've historically paid yourself little or no rent. Get an independent appraisal of the real estate itself, separate from your practice's goodwill and revenue, so you're working from a fair number. Raise this with your legal and financial advisors early, well before a letter of intent, since it affects your retirement planning and future income.

Your Landlords is Part of the Deal

Landlords vary widely in how cooperative they are during a transition, and some will use your sale as leverage to demand a new lease or a personal guarantee from you. 

Build your advisor team before a transition to help you prepare for a sale. Bring your real estate specialist, appraiser, and legal counsel into alignment from the start, working from the same set of parameters, so your decisions about space, buildout, and cost are made in context. Keep that team organized throughout the life of your practice, and you'll arrive at closing with cleaner documentation and fewer surprises during diligence.

Set Your Practice Up for Success

We advise veterinary clients to make real estate decisions with a sale in mind from the start. If you're starting a veterinary practice, expanding into a new space, or weighing what to do with real estate you already own, reach out to our team to discuss how we can help you get the most value throughout the life of your practice.