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5 Ways to Steer Clear of a Potentially Bad Commercial Tenant

  Sue McConnachie   |     Mar 22, 2019

Commercial leasing discloses a potential hazard of risk and liability. Ensuring you choose the right tenant, at the outset, can dramatically decrease the risk and minimize exposure to arrears, defaults, rent concessions, evictions, legal claims, theft and more. 

1 - Order a Comprehensive Credit Report

You get one chance at selection process– do it right using all the information available to you. Consider using the highest quality reports; the risk is too high to obtain only a database report – often referred to as a credit file. The financial implications of having a tenant default on a lease can be severe and often a simple database “snap-shot” only reveals a part of the prospective tenant’s financial story. It is so important to do a thorough background check on tenants.

Our team at Quality Credit Reporting provides the tools you need to protect your business and make informed decisions about prospective tenants. Quality Credit Reporting specializes in in-depth comprehensive reports that include valuable credit information that typical database searches would not. This additional credit information on prospective tenants gives property managers the negotiating tools they need to secure a lucrative tenant in their valuable space. Use all the resources available to analyze your prospective tenants’ credit-worthiness.

2 - Use an Appropriate and Fully Completed Credit Application

The credit application is one of the primary tools available for helping to control credit risk. The key goal of the application is to assist in learning as much as possible by requesting the right information. When having a prospective tenant complete a credit application, it is important that they take the time to complete it in full.

One of the biggest issues we come across when working with property managers, is missing or inaccurate information on the credit application. When completing the report, time is of the essence and incomplete information could result in delays and possible back-and-forths with the landlord.

3 - Allow Sufficient time for the Credit Investigation to be Completed

The offer to lease will provide the condition that allows you to verify the creditworthiness of the prospective tenant. You should allow for sufficient time to do the work fully and correctly, before releasing the condition. If you are using instant reports (credit files), the specified release date may need to be amended. Remember if you are obtaining instant information, it is completely historical, it will not include current corporate standing with Companies Branch, a rating from financial institutions and several other critical pieces of information.

To obtain a comprehensive, investigative report the turnaround time is longer, as correctly verifying a potential lessee’s background information can take time. Investigative reports require the time to contact the financial institutions and reach out to references to uncover additional details that could be informative.

At Quality Credit Reporting, we know that timing is everything which is why we pride ourselves on our ability to deliver in-depth reports quickly and accurately. We know that you want to qualify your tenant, move them in and start earning an income on your investment, based on all the information available. To do this, sufficient time is required.

4 - Don’t Assume That You Know the Prospective Tenant

Landlords frequently make the mistake of believing they do not need a report on a prospective tenant because the tenant leases other space from the landlord, or the prospective tenant is a big name or publicly traded company.

With the number of failing retail chains and the number of items that could have changed since the commencement of other leases, obtaining current details can be significant. New information through a report is critical to complete the due diligence and assist in future situations of default.

5 - Don’t Hesitate to Solicit An Indemnification or Collateral

After reviewing the credit report, you may not be certain that the prospective tenant is as financially stable as you would like. There may be some negative information including legal actions or the report may indicate that the corporation is not established or appears to be a shell company. Without this comprehensive report, you would not be able to make an informed decision regarding the need for security for future performance under the lease. Security could be in the form of a cash deposit, letter of credit or indemnity. The report will give you the information you require – do not hesitate to solicit the security you need.

Want to learn more about how we can help? Contact Quality Credit Reporting today

Download the Guide to Commercial Tenant Reports 

By Sue McConnachie

Quality Credit Reporting is North America’s premiere credit reporting agency, committed to providing unparalleled, high-quality reports and services.

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