Three veterinary hospital construction nightmares-and how to avoid them

Veterinary practices are like people in certain ways—they have identities, personalities, peculiarities and even Facebook pages. And just as people often outgrow their dwellings, businesses outgrow their physical environments, too. But unlike a person, a business can't just move into a Hampton Inn if the lease expires. A veterinary practice can't just bunk up with relatives for a few weeks if the building it lives in sells faster than anticipated.

Therefore, it's vital that veterinary practice owners give due consideration to the logistics of moving to new facilities. Failure to plan for such a move can mean paying a steep price to landlords, banks, construction professionals and potential tenants.

There can also be a big financial sacrifice in lost revenue and lost clients, not to mention what you could spend on inadequate temporary facilities. And all that stress on the practice owner? That too is a price that can be incredibly high and impossible to quantify.

So let's look at some fixes to consider when faced with a nightmare situation.

Nightmare No. 1: Construction contracts

Ask most folks who've ever had a building project done and they'll likely tell you the same story: Builders almost always take longer to complete a project than they predict (or at least than they tell you to expect).

When a construction firm runs behind on your building project, it means you'll probably be paying interest and principal payments on your construction loan before you can use the space you're paying to have constructed. And the majority of each payment in the early stages of a typical building loan is interest you won't recover, even if you pay your loan off early.

In the meantime, you'll have to continue operating out of your existing facility. If you're renting, that means making continued rent payments along with construction loan payments, as well as a land mortgage in some cases.

The fix: Although it's a long shot, you might be able to do what schools, municipalities and other large organizations do, which is require the builder to post a surety bond. Such bonds are like insurance policies that guarantee the timing and quality of the construction work. Unfortunately, they're expensive and can cause the price of the project to rise dramatically. But it's worth checking with your architect about the possibility.

A more realistic option is to insist that your construction contract include a clause indicating that "time is of the essence." It could be drafted to state that the builder will forego a certain portion of his payment for each day or month the project runs over the promised completion date.

Nightmare No. 2: The end of the lease

Obviously, no veterinarian wants to pay rent on an old place after moving his or her practice to a gleaming new facility. So generally veterinarians try to correlate the end of their old practice lease—or the closing of sale on their old building—with the completion of the new practice digs.

But consider this scenario: The builder isn't quite finished with the new building, but the old building is sold or has a new tenant effective on the date when the new building was supposed to be finished. The result? Rented trailers on your new building lot, office calls for surgery that you have to refer to other hospitals, zero income on radiology and so on. Oh yeah, and then there are the Port-a-Johns.

The fix: For renters, try to amend your lease before signing on the dotted line to provide an option to convert to month-to-month tenancy around the time your new office is supposed to be finished.

For property owners, negotiate a flexible occupancy from the buyer of your old space. If you draft in a right to rent the old place back for a few months, you'll have a cushion that will prevent sleepless nights as the construction deadline approaches.

If you're really clever, you can use the same lease-back figure included in your sale contract to establish the late-completion penalty clause you demand from your builder. That way your tardy contractor can pay the economic consequences of his slow work instead of you.

Nightmare No. 3: Underestimating bureaucracy

I have a client in Southern California who had to wait three years for her locality to issue all the zoning, environmental and public hearing approvals she needed to allow her new animal hospital to open its doors. The fact is, government red tape can be a business-killer.

The problem is that local government has so much autonomy that it has no incentive to be fair or expeditious. Therefore, it's highly unpredictable whether or not bureaucratic delays will affect you. If a delay should occur, your goal is to minimize the amount of delay.

The fix: First, do your due diligence before getting started. Find out what time frame others in the area have encountered working through city, town and village obstacles.

Second, hire an attorney with experience in obtaining construction permits in the jurisdiction you want to build. Keep in mind that in municipal law, it's often better to have a local lawyer than a brilliant lawyer.

Third, pay your architect a few extra bucks to help represent you before the zoning and other local boards—she has more experience than you do. And just as importantly, she has experience behaving calmly and rationally in the face of irrational words and deeds generated by government agencies.

While the idea of growing into a new facility may not initially sound like a nightmarish endeavor, it can quickly become one. But with some good planning and wise safeguards, you can minimize your growing pains and focus on the opportunities your new facility will bring your way.

Dr. Christopher Allen is president of Associates in Veterinary Law PC, which provides legal and consulting services to veterinarians. Call (607) 754-1510 or e-mail info@veterinarylaw.com.