Commercial Tenant Screening and Background ChecksReal Estate Influence
December 6, 2012 — 943 views
Thoroughly screening prospective commercial tenants is the best way to protect landlords from financial losses in the future. That responsibility also extends to real estate agents who work on behalf of commercial landlords. It’s imperative for the landlord and the real estate agent to work together as a team to secure a professional tenant who can guarantee the lease and provide proof of financial stability. Taking the time to screen commercial tenants is especially significant in today’s difficult economy. With a high percentage of businesses closing their doors within a year of opening, the initial screening process is the most important aspect of choosing a long-term tenant.
Performing a detailed background check should always be the first step to qualifying a new tenant for a commercial lease. Tenant background checks can show the applicant’s credit history, criminal record, bankruptcies and financial delinquencies. Remember to have all applicants sign their tenant screening applications authorizing you to look into their credit reports and other relevant background checks. Wait until you get the results before you move any further. Unfortunately, some applicants are not forthcoming with information about black marks on their financial records. While many prospective tenants are perfectly nice people, you should always hold off on pushing through their application until you are sure that they are financially secure and responsible.
If the background and credit checks go smoothly, ask for detailed financial reports. While it might seem strange to go over a prospective tenant’s business plans and profit projections, you need to make sure that your rent will be fully covered every single month. That means your commercial tenant must have sufficient startup funds and enough money to take care of business expenses during downtime. Tenants who don’t have backup funds can easily fall behind on their rent payments if they don’t bring in enough money to cover their monthly expenses.
Another important part of the tenant screening process is asking a new commercial tenant to guarantee the lease. These documents give landlords the right to go after the personal assets of their tenants if their businesses fail. It’s possible to negotiate other terms if a prospective tenant has a strong financial background. In that case, you can forego the personal lease guarantee in favor of a larger security deposit or a shorter lease with option to renew. Just remember that any compromise or concession should be included in the final copy of the commercial lease and signed by both parties.