The Professional Advisory November/2010

The

47 Professional

Advisory For Dental Professionals

IN THIS ISSUE DIFFERENTIATE YOUR PRACTICE IN AN INCREASINGLY CROWDED LANDSCAPE Dr. Ron Weintraub

HAVE YOU HAD YOUR CHECKUP LATELY? David Chong Yen CFP, CA

SELLING YOUR PRACTICE IN STAGES

A GREAT STOCK MARKET TRADE Mark McNulty BA, CFP, CIM

A GUIDE ON HOW TRAVELING WILL IMPACT YOUR INSURANCE PLANNING Dr. Ian Wexler

TENANCY COST INCREASES Ian Toms B.Sc. (Hons)

David Lind

LEGAL MATTERS WHEN PURCHASING A DENTAL PRACTICE David E. Rosenthal BA., LL.B.

plus A KEY TO SUCCESS NOTES FROM THE EDITOR

VOL. 47 : NOVEMBER 2010

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The Professional Advisory consists of a group of seven independent professionals who provide services to the dental profession, each of who specializes in a different eld. They have gathered to keep each other informed of the latest developments relating to the profession, and to produce this publication which is designed to provide expert information and advice solely for dentists and their advisors.

A Key To Success RALPH CRAWFORD BA., DMD One of the highlights of a wonderful summer was being spectators to our grandson participating in a tennis lesson program for four to six year olds. Sponsored by the local parks department and headed by the community tennis pro the program spread over four mornings and had about 20 eager youngsters all set to become masters at the game. It was a delight to watch the pro teach these little people how to stand, hold a racquet and return a ball.

On the last morning we were surprised to see how far they had advanced when taking turns returning the ball coming over the net from the automatic ball projector.

Of course, we thought our grandson was the champ!

And there was another important aspect to the event.

On the printed program announcing the lessons and explaining dates, times, etc., was a quotation from Arthur Ashe: Success is a journey, not a destination. Always fascinated by success and quotations I delved further into the life of Arthur Ashe and was overwhelmed by what he accomplished. Learning the game early in life he was awarded a tennis scholarship to the University of California in 1963 and in the same year he was the first black player ever selected to the United States Davis Cup team. He went on to win three Grand Slam titles putting him among the best ever from the U.S.A., and in 1985 he was elected to the International Tennis Hall of Fame. Ashe was an active civil right supporter throughout his career which tragically was cut short with heart surgery in his late 30s. Even after contacting HIV from a blood transfusion he became an advocate for AIDS suffers worldwide. He died in 1993 at the age of 50.

Still curious about his quotation appearing on the youngsters’ tennis program I discovered that Arthur Ashe left us a legacy of wise and useful quotations. A

particular one caught my attention: One important key to success is self-confidence. An important key to self-confidence is preparation.

There can be little doubt that believing in one’s self is an important aspect in being able to accomplish what one sets out to do - and all is naught without preparation.

Each contribution to this issue of The Professional Advisory does exactly that. Ron Weintraub prepares the dentist on how to Differentiate Your Practice in An Increasingly Crowded Landscape. And understanding that selling is never easy, David Lind wisely guides and prepares dentists on Selling Your Practice in Stages.

How many are confident of the stock market? Mark McNulty wisely warns that trading is not without risk but wisely advises that preparedness can yield a Great Stock Market Trade. Interested in saving taxes?

In his Have You Had Your Check Up Lately? David Chong Yen makes it clear that self-confidence “could be achieved by making some appropriate manoeuvers” and isn’t this preparation? Who doesn’t like to travel?

But how many are aware of the risks? For peace of mind and confident that things will go well Ian Wexler outlines it all: A Guide on How Travelling Will Impact Your Insurance Planning. Confident all legal issues are in place when selling a practice? David Rosenthal ensures “there are no unpleasant and costly surprises” if you’re prepared by following the 11 points related to Legal Matters When Purchasing A Dental Practice.

“Brace yourself for tenancy cost increases”, says Ian Toms in his Tenancy Cost Increases and then he builds self-confidence by preparing the reader on how to identify costs.

Truly, Arthur Ashe is remembered for being an outstanding tennis champion and for his efforts to further social causes but so too do we benefit for being reminded that One important key to success is self-confidence and that an important key to selfconfidence is preparation. PA

crawford@dccnet.com

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Differentiate Your Practice In An Increasingly Crowded Landscape were confirmed electronically. Consequently, setting up strong links for communication with patient and parent is another point to distinguish our practice.

DR. RON WEINTRAUB www.innovativepracticesolutions.ca

Where so many dentists dot the landscape, a nagging question is how can we differentiate our dental practice from other dental practices? The results of conversations with other dentists and a Greater Toronto Area (GTA) pediatrician are revealing. Differentiating our practices takes thought and planning.

Be Current: Have an Internet Presence Historically, the search for a specialty dentist, for example, frequently began with recommendations from the family dentist that ultimately lead to a decision.

Today, however, following recommendations from a trusted professional, the search continues via the Internet. The pediatrician couldn’t contain his surprise when his daughter reported on her search online for an orthodontist for his granddaughter. Presence on the Internet defining patient-focused attributes is a valuable strategy to distinguish our practice.

Build An Effective Communications Team Communications is a key component in any successful operation. We recognized the similarities of the pediatrician’s community-based practice as well as the practices of general and family dentistry and the specialty practices of orthodontic and pediatric dentistry. Dentists and physicians have to deal with the patient and the parent simultaneously. A great deal of time is necessary to motivate them in order to achieve the desired result. The office endeavors to gather as much information during initial patient intake as necessary to understand the patient and their priorities. Every effort is made to synchronize patients’ time constraints with office availability. In the office the pediatrician’s daughter was researching, all appointments

The deciding factor in her choice of specialist for her daughter was a personal visit to the orthodontic office. The experience influenced her choice of office characterized as a progressive specialty practice. In addition to the practitioner’s skill, what impressed this highly motivated parent most was the welcome of patients to the office, ultimately leading her to become an ambassador who extols the virtues of the office. These defining attributes are qualities of human resources who interact with patients that complement the practitioner’s high level of professional competence and care.

An effective human resource team model that uses a team of greeter/dismisser, treatment coordinator/ patient liaison, trained orthodontic hygienist, and clinical assistant allow the dentist to focus directly on the primary patients’ needs. Furthermore, the growing trend to have treatment coordinators explain and support the treatment plan has added benefits. Therefore, we add effective communication through carefully trained professionals to our list of differentiating characteristics of our offices.

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Engage Patients Within a Thoughtful Physical Environment Lastly, the physical environment plays a role in differentiating our offices. In this practice, all patients sign in on the computer in front of two friendly smiling greeter/receptionists to announce their arrival. As the first generation of electronic children, their inclusion in this procedure motivates them to comply and gives them the perception of the modernity and expertise of the practicing professionals satisfying their tech savvy expectations.

The reception area contains many age-appropriate electronic devices including computers and informative health-related reading materials. Youngsters are directed to a handy brushing, flossing appliance cleaning centre.

They are encouraged to take home the hygiene aids provided. In the meantime, parents are within the reception area that is contiguous with the clinical area.

The open, circular treatment area affords viewing from the reception area so parents are not isolated from the treatment process and promotes the feeling that they are an integral part of it.

Celebrate Success Another effective distinguishing characteristic of this type of practice is the celebration of milestones in treatment. Possible examples of opportunities worthy

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of recognition are by welcoming the beginning of active treatment, or later, the removal of bands. Successful retention phase can be recognized, for example, by a gift certificate to a local bookstore or a donation to their favorite charity. Treatment progress reports are reviewed with patients and parents on a regular basis.

Many elements of an office configuration such as this example might be incorporated in our practice in order to be differentiated from other offices in patients’ eyes in order to thrive in these challenging times.

It is not an easy task to differentiate dental offices in a crowded market, but planning to have an Internet presence, effective communications, a well-thought out physical environment, and methods to celebrate success are a start to make our office perceived as exceptional. PA

Ron Weintraub is a founding partner with the Bayview Village & Downtown Dental Associates and brings over thirty-ve years of knowledge and experience in the practice of general dentistry to the Professional Advisory. Large companies such as Patterson Dental, Ash Temple Ltd, Henry Schein Arcona, & the former Canadian Dental Co. have beneted from his insight. As owner of Innovative Practice Solutions, Ron advises dentists on practice enhancement, practice purchases, sales, location evaluations, associate buy-ins, and business mergers. Dr. Weintraub can be contacted at (905) 470-6222 Ext. 221 or drronips@rogers.com.

Have You Had Your Check Up Lately?

DAVID CHONG YEN CFP, CA www. dcy.ca

Often dentists are busy caring for patients’ dental health and neglect to review their own financial health.

Here is a case of how improvements, tax savings in particular, could be achieved by making some appropriate maneuvers.

Facts: • Dr. David (age 38), a general practitioner, owns his

dental practice outside the Greater Toronto Area; • His wife Betty (35) stays home and looks after two children aged three and five; • Their home is in Dr.’s name only and worth about $950,000 with a mortgage of $450,000; • His dental practice makes $320,000 net after paying Betty $100,000 salary annually plus CPP/ EI of $3,209; • David’s dental practice owes $300,000 to the bank, interest @ prime with monthly principal repayment of $5,000; • David’s practice is worth about $800,000; • Employment Insurance (costing about $1,800 for Betty and the dental practice) is deducted from Betty’s salary. Betty does some office administrative work (about 16 hrs per week);

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• Dr.’s parents, both Canadian residents, are over 65 and each receives Old Age Security and CPP totaling $20,000 per year. They do not receive Guaranteed Income Supplements; • Betty and David do not have a will or a power of attorney; • David and Betty contribute the maximum to their RRSP’s; • David subsidizes his parents’ income by gifting them some $29,000 (after tax dollars) per year; • David and Betty need all the money from the practice to sustain their personal lifestyle; • Dr. David does not have a professional corporation.

End Goal: • Save $1,800 per year of Employment Insurance; • Save annually $38,000 in the family tax bill by income splitting; • Creditor proof their matrimonial home; • Save $11,500 of potential probate fees; • Receive $10,000 death benefit tax free in cash on death; • Reduce the risk of being double taxed; • Repay practice loan with cheap tax dollars, increasing cash flow by $26,000 per year.

To implement: • Apply for Employment Insurance exemption. Dr. could recover up to three years of Employment • The $21,000 salary would create room for wife to Insurance paid in respect of wife’s salary; deduct $14,000 of child care expenses; • Setup a professional corporation (PC) and include • Dr. could receive a salary of $130,000 in order to spouse and parents as shareholders; create the maximum RRSP contribution room; • Share structure should permit income splitting; • Dr. and wife could each receive dividends from the • Dr. and spouse could become equity shareholders remaining funds from PC, which could be used to enabling them to claim up to $1,500,000 of life pay down home mortgage; time capital gains exemption when PC shares are • Employment contract - when setting up a PC, a sold. This could save $348,000 of taxes; lawyer could draft up an employment contract • Pay $35,000 dividend to each of the parents. Their which includes a death benefit of $10,000. This is total income should be under the clawback thresha tax deductible expense to the PC while a tax free old i.e., avoids paying back part of the Old Age receipt to the beneficiary; Security. The personal tax on the $35,000 should • By using a PC to repay the practice loan with cheap be no more than $6,000. This becomes a tax effectax dollars, less money is needed. How much? tive way of gifting money to parents; $26,000 per year; • Change home ownership to spouse’s name. Since • Have your lawyer prepare double wills. This will the home is a matrimonial home, Dr. should still be save you probate fees - in Ontario, this is about 1 ½ entitled to 50 per cent of the house value even if they per cent of the value of your PC shares. get divorced. Please check with your family lawyer; • Reduce wife’s salary to $21,000. By doing so, you Have you had your financial check up recently? PA have avoided the potential double taxation. The tax department could disallow the excess salary Chong Yen, CFP, CA of DCY Professional Corporation Chartered of $79,000 ($100,000 - $21,000) in Dr.’s prac- David Accountants is a tax specialist and has been advising dentists for decades. tice (i.e., pay back tax on $79,000) while spouse’s Additional information can be obtained by phone (416) 510-0888,fax tax return would not be revised (i.e., taxed at full (416) 510-2699,or e-maildavid@dcy.ca,www.dcy.ca. This article does not replace professional advice. $100,000 salary);

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Selling Your Practice In Stages DAVID LIND www. ppsales.com

Over the last few months many of our clients have pondered the idea of whether they should sell their practice in stages or all at once. There are many factors to consider when making this decision and every situation is different. However, there are some common issues that will apply and that is what I will focus on in this article.

Prior to deciding if you should sell your practice in stages, the first question to answer is; are you really ready to sell? There are many motivating factors to this decision such as financial, health, time and stress but no one but you can really tell you whether you are ready to sell or not. When you are ready, you will know.

If you have decided the time is right, then the next question is, should I sell it all or in stages? If your intention is to retire upon completion of the sale then the answer is obvious - you sell it all. If on the other hand, you would like to continue to practice for more than two years then you must decide if you want to retain an ownership interest or become in associate for the buyer. In order to stay, there must be enough work for both you and the buyer. The buyer will want to fill up his or her schedule first, which requires approximately 1,300 active patients. If there are enough patients for both of you to be busy, then it is possible to stay.

If you stay and decide to maintain some ownership, you will be required to become partners with the person who buys part of your practice. I’m sure you know of many very successful partnerships in dentistry. Most of these are with partners that are similar in age and philosophy. These partnerships were formed to facilitate the long term goals of both parties. Unfortunately, even these fail.

How much will you sell? If it is any less than 50 per

cent, you effectively just have an associate who has some equity. You still have control and all the responsibility that goes along with it. It is really not a major change.

Most buyers who will consider a partial purchase will not want to buy less than 50 per cent as they will want control over the future direction of the practice.

There are many motivating factors to this decision such as financial, health, time and stress but no one but you can really tell you whether you are ready to sell or not. When you are ready, you will know.

For illustrative purposes, let’s assume you sell 51 per cent. The deal closes, and two months later the buyer (your new partner) announces that he/she is upgrading your old computer system and adding digital radiography to the office. The total cost for these changes is $130,000 and you are on the hook for your 49 per cent. Are you going to be happy about that? Is that where you wanted $63,700 of your retirement nest egg to go? A few months later the buyer decides that your receptionist of 25 years just can’t keep up with this new technology and besides she is still booking all the best patients with you and only giving him/her the tough patients to deal with.

He/she is going to let her go and you are going to pay 49 per cent of her substantial severance package.

Besides the emotional strain that this change will cause you, it will also be very expensive. These are just a couple of examples of what might happen if you sell your practice in stages.

The next challenge will come when you are ready to sell the balance of the practice. Let’s assume your practice was worth $1,000,000 and therefore you sold the first 51 percent for $510,000. It is now four years later and besides the computers, digital x-rays and new receptionist, the buyer has added an associate who has taken extensive orthodontic and endodontic

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courses to work Fridays and Saturdays. The revenue of the practice has doubled and the bottom line has even more than doubled. You are looking forward to receiving your 49 per cent of a practice that will be worth at least twice as much as it was four years ago.

You should be getting close to $1,000,000! The buyer gets a lawyer to draft the offer to buy you out of the partnership and offers you $490,000. You are dismayed but he/she says the growth in the value of the practice is all due to his/her efforts and he/she has no intention of paying you for “my goodwill”. You are not in a good bargaining position. You have cut back your hours, do not want to buy him/her out, and don’t have the energy or resources for a long drawn out battle.

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In the end you would have been better to sell it all at the beginning, take the $1,000,000 and invest it wisely, while letting the new owner come in and make whatever changes he wants as you are an associate, earning 45 percent and immensely enjoying the last few years of practice. PA

David Lind is a Principal in Professional Practice Sales Ltd. (www.ppsales. com), which specializes in the valuation and sale of dental practices. He can be reached at (905) 472-6000 or 1-888-777-8825 or e-mail at: david.lind@ppsales.com

Legal Matters When Purchasing a Dental Practice DAVID ROSENTHAL BA., LL.B. In volume 46 of The Professional Advisory I wrote about legal matters to consider when selling a dental practice. In this article I will discuss those same issues, except from a purchaser’s perspective. The following points will help purchasers make informed decisions about the nature of the purchase and ensure there are no unpleasant and potentially costly surprises later in the process: 1. Price Determination - How is the purchase price determined? For an asset purchase the purchase price is allocated to various assets. A proper valuation of the target practice by a reputable appraiser is critical and will assist in determining asset values. Review the allocations carefully with your accountant to help finalize the purchase price. The appraisal was prepared for the vendor’s benefit and not for the purchaser, so review the values carefully.

2. Professional Corporation - Typically the purchaser will be a dentistry professional corporation (PC).

There can be significant tax benefits for using a PC

as the purchaser. You need to ensure the purchaser PC legal documentation and minute book are up-todate and in compliance with the laws relating to the PC, especially the rules of the Royal College of Dental Surgeons of Ontario (RCSDO). The purchaser PC must have a Certificate of Authorization issued by the RCDSO before it can carry on the practice of dentistry.

3. Assets or Shares : What are you purchasing? - There are many tax and legal considerations and differences between a share purchase versus an asset purchase.

Hire an accountant and lawyer who understand the issues when purchasing dental practices.

When purchasing assets the purchaser pays all transfer taxes on the purchased assets. Those taxes are in addition to the purchase price. Transfer taxes are now known as the Harmonized Sales Tax (HST), formerly Goods and Services Taxes and Provincial Sales Taxes. Certain classes of assets are subject to HST. Exemptions may be available so that HST is not paid on certain purchased assets. Review the asset allocations carefully with your accountant and make sure you understand the tax implications.

4. Cost Sharing or Partnership - If the vendor is currently in a cost sharing arrangement or partnership, upon closing the purchaser will assume the vendor’s rights and obligations under those arrangements.

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The purchaser must carefully review these agreements to understand those rights and obligations. If any changes to those arrangements are required, then make such changes a condition to be completed before closing the purchase.

5. Purchase Agreement - This is the definitive legal document so make sure you understand all your rights and obligations, including your representations and warranties, covenants, conditions and indemnities.

6. The Vendor’s Associates - Consider what happens to the vendor’s existing associates on the purchase.

Do you want to keep them? If the associates leave the practice, what effect will that have on the practice?

Review the associate agreements to determine what non-solicitation and non-competition covenants bind the associates. If changes to those arrangements are required, make such changes a condition to be completed before closing the purchase.

7. Premises Lease - A purchaser (and purchaser’s bank financing the transaction) wants a long term lease in place with renewal options. Review the existing lease as the purchaser is taking over the vendor’s rights and obligations under the lease. If amendments to the lease are required, make such amendments a condition to be completed before closing the purchase. If the purchaser is your PC, the landlord will likely require your personal guarantee of the PC’s obligations as tenant under the lease.

8. Leased Equipment - Review all existing equipment leases. Ideally the vendor will pay out all such leases in full and transfer the equipment to the purchaser free and clear of any claims. Or if the purchaser is taking over the ongoing payments and obligations under equipment leases, the purchase price for those assets should be reduced accordingly.

9. Staff - There are potentially large liabilities regarding terminations of employees. Typically the purchaser will keep all employees and assume all liabilities for staff. However, the purchaser may not have worked with the existing staff before closing and will not know if certain staff members are suitable or not. Ideally the purchase agreement will provide that the vendor is responsible to pay all staff termination costs during the first three months after the purchase.

10. Non-competition or Non-Solicitation Covenants The purchaser should require the vendor to agree (i) not to compete within a certain area for a certain time after closing, and (ii) not to solicit the patients and staff at the practice.

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PA

11. Vendor associating for transition after closing The purchaser may want the vendor to remain at the practice to assist in the transition or for a longer term association. Think about what your expectations are after closing. How long do want you the vendor to stay after the purchase and on what basis?

David Rosenthal is a senior lawyer with Spiegel Rosenthal Professional Corporation whose practice is devoted to corporate, commercial and business law, with special emphasis on advising and consulting for the dental profession. He can be reached at (416) 865-0736; or fax to (416) 203-8592; or e-mail to david@drlaw.ca

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A Great Stock Market Trade MARK McNULTY BA, CFP, CIM www.yournumber.ca

The further equity markets decline, the easier it typically is to find great buys, and the 2008 market downturn was no exception. As long term investors, the cheaper securities get the more we like to buy them. On the other hand, as equity markets climb and equities get expensive, we are much more cautious about buying stocks.

A great example of this was in September of 2009.

From its bottom, the S&P 500 index had gained over 50 per cent. However, Berkshire Hathaway (Warren Buffett’s company) had not participated in these gains.

Over the past several decades, not only had Berkshire’s stock been less volatile than the S&P 500 index, it had also consistently outperformed it. So in September of 2009 when the S&P 500 was starting to meaningfully outperform Berkshire, we started to take notice.

On September 4, 2009, six months after the market bottom, the S&P 500 was up 50 per cent whereas Berkshire was only up 39 per cent. This represented an 11 percentage point difference. This performance differential persisted until October 9th when the S&P’s performance differential increased further to over 15 per cent.

We knew that: 1. Berkshire has a long history of outperforming the S&P 500 2. Berkshire is itself a fairly diversified holding company, with well over 50 subsidiaries 3. Berkshire is run by some of the best management available.

When the situation is right we are certainly not opposed to buying the company on its own merits. However, when the S&P significantly outperformed Berkshire over the short run, we got to thinking that a good trading opportunity was presenting itself. So in this situation when the S&P 500 was outperforming Berkshire by at least 15 percentage points, we started selling some of our S&P 500 index and buying Berkshire.

Leaving the fundamentals aside, on a relative basis we were expecting one of two things to happen. First, if the S&P 500 had increased too quickly relative to Berkshire the S&P would likely give back some of its gains relative to Berkshire. Even if the price of both securities declined, we anticipated that S&P’s price would decline faster, so on a relative basis we would rather be holding Berkshire.

Alternatively, Berkshire could simply have been underperforming the S&P, in which case we were expecting Berkshire’s price to appreciate faster than the S&P’s going forward. Here again, we would prefer to be holding Berkshire.

In the end, a combination of the two likely occurred and Berkshire significantly outperformed the S&P 500. If you moved out of the S&P 500 and into Berkshire on January 15, 2010, you would have generated a 27.6 per cent return (as of Sept 27, 2010).

In contrast, the S&P 500 was only up one per cent over the same period. In fact if you had bought Berkshire on any of the 68 trading days after October 9, 2009 when Berkshire started to underperform the S&P by 15 percentage points you would have outperformed the S&P 500 from between 13.6 per cent and 27 per cent depending on your date of purchase.

Needless to say, this trade, like any trade, was not without risk. The main risk of this trade was, of course, that Buffett and Munger had lost their touch and that Berkshire’s underperformance was not temporary but rather permanent. However, because Berkshire had so much cash which it started to put to good use during the credit crisis, and with its long history of beating the index, for us the upside far outweighed the down.

Great opportunities can present themselves under any market conditions, so keep your eyes open and be ready to take advantage of them when they do. PA

Mr. Mark McNulty BA, CFP, CIM, is a nancial advisor with Raymond James Ltd., Independent Financial Services - Member CIPF. This article is for information only. Its opinions are those of the author, not necessarily those of Raymond James Ltd. He may be contacted at 905-470-6222ext 209 or mark.mcnulty@raymondjames.ca.

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A Guide on How Traveling Will Impact Your Insurance Planning DR. IAN WEXLER www.protect-ins.com

Over recent years, the issue of where you plan on traveling to, as well as where you have recently traveled has taken an increasing role in determining your insurability for life, and all forms of disability insurance including long term disability and critical illness protection. This article will serve as a guide in understanding how this issue may impact both new applications and any existing coverage you have.

General discussion Some years ago, after 9-11, all major insurance companies in Canada started to look more closely at insurance applicants’ travel histories and travel plans.

Companies have determined that if an applicant has specific “plans” to travel to a particular country (or even a specific area or part of a country) in the future and/or returned from a trip within the previous one to two year time frame, that this will impact how the plan will be issued.

Which countries are on “the list”?

Each insurance company has a “black box” of countries around the world that will impact their underwriting decisions. Underwriting, as I have mentioned in previous articles, is the comprehensive process of determining your insurability. No company, in my experience as an independent advisor, will divulge their entire list. What adds additional layers of complexity to this, is that “the list” changes over time.

Countries I have seen include most Middle Eastern countries such as Syria, Lebanon, Israel, Iraq, Iran, and Afghanistan, as well as countries such as China, Brazil, and other countries in Southeast Asia.

The impact on new insurance applications In my experience over the years in having submitted thousands of life and all types of disability applications, the insurance companies will offer coverage in one of three ways based upon the travel information provided.

1. Standard acceptance • This includes no restrictions whatsoever on your plan 2. Decline • No plan will be offered to you at this time. Companies however will often offer “reconsideration” in the future once you: i. Complete your travels and have not travelled to the restricted countries in the last two years ii. Show no plans to travel again to the particular country in the foreseeable future 3. Travel Exclusion • This means that the insurance company will approve you for the plan you have applied for, but that it will contain one of several benefit related restrictions. It has been my experience that insurance companies will often reconsider these exclusions for removal over time, and that most applicants, once learning how these exclusions actually work, are quite willing to accept them.

The most recent ones that I have seen include: i. You will not be insured if you travel to a specific country (life and disability) ii. You will not be insured if you travel abroad in general (life and disability) iii. You will continue to be insured if you travel abroad (or a to a particular country) but benefits will not commence until you return to either Canada or the United States (disability) iv. Same as iii, except the “elimination period” as noted in your contract, will not commence until you return to either Canada or the United States (disability) The impact on existing coverage 1. Guaranteed non-cancellable coverage • If you have an individual life or disability plan

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that has been purchased through an insurance advisor, chances are the plan cannot be changed or impacted by your travel plans. Review your policy contract for the actual wording.

2. Association (CDSPI) coverage • If you have this type of coverage, as it is not guaranteed and the benefits (as well as premiums) are changeable, there is a risk that your travel plans could impact your plan and potential benefits at some point in the future.

How do the insurance companies differ?

Insurance companies differ in the following ways: • Countries that are on their particular list will influence their underwriting decisions; • How travel to these particular countries will impact an applicant; • How they phrase travel questions on their applications. For example, some companies inquire as to your travel history over the past year as well as travel plans over the next 12 months, while one particular company only asks about future travel plans.

What should I do?

1. Avoid advisors who utilize scare tactics as a sales tool in getting you to purchase coverage. For example,

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advisors who tell applicants not to travel abroad until they purchase coverage.

2. If you would like feedback and/or are concerned about how your travel history or future travel plans may impact your insurance planning, request that your insurance advisor “anonymously” submit to a number of companies to see how each would view an application from you.

3. Consult with an insurance advisor who is independent and represents all major insurance companies.

4. Ensure that your advisor is familiar with the differences in insurance applications and travel exclusions in general. PA

Dr. Ian Wexler is Canada’s leading authority on insurance issues for dentists. He is the President of Protect Insurance Agencies Inc. in Toronto which provides specialized expertise in life, disability, critical illness, long term care, annuities, and other insurance products and services to professionals, executives, and business owners across Ontario. He can be reached for questions or other enquiries at (416) 391-3764 or drwex@ protect-ins.com

Tenancy Cost Increases IAN D. TOMS B.Sc. (Hons) www. iantoms.com

Brace yourself for tenancy cost increases. Landlords are using alternate ways to squeeze additional payments from tenants without changing the lease or increasing base rent. Three of the more significant current tenancy cost increases are discussed below.

Assignment Fees - Most leases include requirements related to transfer of tenants rights under the lease.

One typical requirement is that tenant pay landlords legal and administrative costs associated with drafting and administering the transfer documentation, and qualifying the prospective assignee. Typically, fees

have ranged from $750 to $5,000 per occasion with the higher fees associated with larger landlords.

Recently, a tenant called who had executed a lease some time ago (before my involvement). After executing the lease, he had built and opened a new practice, and then had received an unsolicited offer to purchase his practice, which he accepted. One of the conditions of the purchase offer was that the lease would be assigned to the purchaser. The lease says that the landlord would not unreasonably withhold consent to assignment, provided amongst other things that tenant pay landlord a “standard transfer processing fee”. Until recently, this landlord interpreted this “processing fee” to be $3,500. Now this landlord is interpreting this “processing fee” to be five per cent of the purchase price. Since the purchase price is $3,700,000 the “processing fee” is $185,000 plus sales tax! This landlord is using a convenient

The Professional Advisory

interpretation of industry standard lease wording to justify this grab.

This matter is very important to all tenants since it sets a precedent. Can landlord extort a percentage of the sale price of a practice on transfer according to typical lease language? Each tenant’s exposure will depend on how the transfer passage in the lease is worded, how the wording is interpreted at the time, and how the legal system interprets this wording. To avoid this trap, be sure that during lease negotiation the fees landlord can charge to “process” your assignment application are qualified.

Pay Parking - For many years some properties have required patrons to pay a nominal fee for parking.

Typically, these pay-parking properties always have available parking spaces and therefore patients arrive for their scheduled treatment on time. Clinics located in these properties have been reimbursing patients for their parking cost, and life goes on. Recently however, landlords have been significantly increasing parking fees. One clinic in a well known property reports that parking cost reimbursement has increased in the last six months so that it is now greater than their base rent! With a significant increase in parking fees, a tenant is faced with a choice: 1) leave the building, 2) absorb the increased cost, or 3) stop pay parking reimbursement and lose a significant number of patients.

It is very important to recognize that occupancy cost consideration now includes base rent, additional rent, and parking cost reimbursement. During lease negotiation, make every effort to ensure that your parking will always be free if your building is not currently subject to pay parking. In pay parking properties, work to cap or otherwise manage all three of these three costs.

Finally, understand that although some buildings do not charge for parking, their base or additional rent may be higher to compensate for the uncollected pay parking revenue. In other words, you may already be paying for that “free” parking if your base or additional rent costs are high.

Additional Rent - Because base rent values are clearly described and agreed to many years in advance, the

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Each tenant’s exposure will depend on how the transfer passage in the lease is worded, how the wording is interpreted at the time, and how the legal system interprets this wording. To avoid this trap, be sure that during lease negotiation the fees landlord can charge to “process” your assignment application are qualified. pressure on landlords to increase revenue is now focused on additional rent, because what additional rent includes is often not clearly defined and is therefore subject to interpretation. One tenant client reports that while base rent has hardly changed over the past 10 years, they have experienced an additional rent cost increase of over the past five years of 78 per cent, which is an average of 15.6 per cent per year, well ahead of inflation. The lease wording has not changed, only the interpretation of what the lease says. In this case the landlord is clearly charging the tenant for costs which the lease indicates were to be specifically excluded from additional rent. Landlord has indicated that it intends to continue charging for these items and tenant will need to make a legal claim to enforce the lease.

Again, during lease negotiation, you need to clearly identify what costs can, and what costs cannot be included as additional rent. You need to include a provision to review additional rent source documents, and finally, a provision has to be included to provide recourse if additional rent is being “padded”. PA Mr. Toms has been creating and preserving realty leasehold value since 1986 and can be reached at (705) 743-1220, by e-mail at iantoms@ pipcom.com, or through his web site at: www.iantoms.com.

The views expressed in any article are those of the author alone. They should not be acted upon without the advice of your “professional advisors”.