4 QUESTIONS TO ASK WHEN ASSESSING LEASE RENEWALS

What could have changed since the original lease was executed?

• The full legal corporate name due to an amendment or amalgamation.
• Corporate Provincial status.
• The jurisdiction in which a corporation is registered to do business.
• Default with Companies Branch and Corporate Tax Branch.
• Increased debt (including mortgages, lines of credit, term loans and credit cards).
• Decreased bank account balances.
• Delinquent activity (late payments, collection claims, legal actions, judgments or bankruptcy).

My tenant has not missed any payments, why do I need to do a report?

Just because your tenant has paid on time each month does not mean that they are not a future risk. When a business is struggling financially, the first payment made each month is the rent, as risking the primary place of business would probably mean the business will have to shut down.

The landlord gets paid as it is the tenant’s priority! What you need to consider is what other payments they are not making and if there are pending law suits, judgments, collections or unpaid taxes. Receivables do contribute to the overall picture; however, they are not the only consideration.

My tenant has an option to renew, is there still a need for the report?

Although your tenant may have an option to renew, assessing your risk for a further term still makes sense. The more you know about the tenant the better. If the tenant is exercising the option to renew, a report could assist during the course of the lease should the tenant run into financial difficulties.

You could be alerted at the time of renewal regarding possible problems and this knowledge will help make decisions when considering leasehold improvements and other issues. Further, you may opt to terminate if the lease is contingent on some element of default. The report will help you decide if you want to renew based upon the current credit information and the nature and extent of default.

Do I need to Get Consent before Screening Renewal Tenants?

Asking your current tenant for an updated credit application so that you can gather subsequent credit data can be an uncomfortable conversation. Fortunately, you may be able to avoid the conversation entirely.

If you screened your tenant prior to them signing their original lease, you may be able to use the original credit application, if there was a clause authorizing additional checks throughout the duration of the lease, as is the case with QCR credit applications.

If this was not included as part of the original credit application, you will not need to obtain their consent for additional screenings if the tenant is a company or business tenant. Consent may be required for an individual tenant depending on what information is required.