The process of vetting commercial tenants

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There are many differences between leasing a commercial property and a residential asset. For starters, residential lease is fast moving while commercial lease can be, more or less, stagnant. In terms of lease regulations, the former has stricter clauses as compared to the latter. Lastly, tenure of lease is shorter for residential properties as opposed to commercial properties.

Owing to the above, proper screening of commercial tenants becomes vital. Landlords need to choose tenants wisely to avoid the hassles of missed payments and disputes in the future.

• Application – All prospective tenants should fill out an application form. This should include a checklist of information including contact details, line of business and personal information of the business owner and/or manager. The landlord should check that each prospective tenant has all the required licences in place and complies with laws relevant to their line of business.

• Credit check – Landlords should take permission from prospective clients to conduct a credit check on their business. Sale and revenue numbers, list of debtors and creditors and information on bankruptcies are essential. If the business is relatively new, a background check on the owners is also warranted. This is to ensure that the latter has the capacity to pay the lease in case the business closes down.

• Hire a firm – Over and above the initial research, a landlord can hire a tenant-screening company to perform additional checks. Their report can then help in the ultimate decision-making process.

• Short-term contract – If possible, stick to a short-term contract. A shorter lease will serve as a trial period at the end of which you will be clear if you wish to continue with the same tenant or not.

With commercial rents being higher than residential rents, conducting a few basic checks at the outset can ensure that the entire commercial lease agreement experience can be a rewarding one.



Handy Hints

• Commecial property leases usually run for a longer term

• Property owners may hire the services of a screening firm

• Check the tenant’s financial history including bankruptcies




Source: Priyanka Wade, Special to Properties

The writer is a freelancer


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