Commercial leasing is risky business but ensuring you choose the right tenant, at the offset, can dramatically decrease the risk.
In fact, selecting the right tenant for your commercial rental property can:
To ensure that you select the right tenant, you want to be sure to do a thorough background check. Not only will this help you determine financial stability, it will help you determine overall character, which can signal whether the future tenant will care for your property and maintain your building’s positive image.
Corporation Profile
Before approving any prospective tenant, you want to look at their Corporate Profile and ensure that they are in good standing with both Companies Branch and Corporate Tax Branch. This will confirm that the correct legal company name is going on the lease and that it is registered, active and in good standing. The profile will also confirm that it is up-to-date with Corporate Tax Branch filings.
Sole Proprietorships / Partnerships
Similarly, if the leasee is a is a sole proprietorship or partnership (general/limited) you will want to confirm the registration status, and ensure that the full legal name is correct for the lease. Further, details regarding start date, address, partners and proprietors should be confirmed.
Individual or Guarantor
Should the lease require an individual Guarantor, a full background check will ensure that the individual has the necessary financial stability.
This is done by confirming outstanding debts, mortgages, loans, lines and credit card balances. Further confirming that there are no negative liens, NSFs, late payments, bankruptcies, legal actions or collections is imperative.
A land title sub-search on the individual’s residential property is also useful as it will confirm ownership, mortgages and equity.
Lastly, a professional accreditation search should be completed on registered professionals. Specifically, you want to determine the status of their license and whether there is a record of disciplinary actions, suits and complaints.
Bank Ratings
Before approving a prospective tenant, you will want to obtain current information from banks and financial institutions regarding term loans and operating lines, including authorized limits, current balances, and repayment history.
You will also want to review deposit accounts, their balances and reported NSF activity.
Landlord References
Before entering into a commercial lease with any company, you want to ensure that you have contacted their previous landlords.
When reaching out to their landlord references, you want to find out information about their previous lease obligations, including lease type, amount of space, length of the lease and payment amounts. You will also want to inquire about their repayment history.
Supplier References
You will also want to contact trade references, to determine whether or not the applicant carries balances, what their payment terms and credit limits are and if there is a positive payment history.
Financial Profile
There are many different due diligence checks you want to conduct, before completing the lease agreement, to ensure your tenant will be able to maintain the lease on a go forward basis.
As mentioned above, you will want to verify the applicant’s payment history with previous and current business partners, but you shouldn’t stop there.
Financial institution and landlord relationships should be verified and rated. The repayment history and patterns, of your prospective tenant, will determine a good or bad history.
It is also useful determine whether or not there is any negative activity such as NSF charges and if the company has a history of bankruptcy, receiverships of CCAA filings.
Judgments, Legal Actions and Collections
Negative information including judgments, legal actions and collections, can signify that a prospective tenant may be unable to pay their rent in the future. It may also be a sign that the applicant will bring unwanted attention to your building, possibly damaging its reputation.
As such, you will want to determine whether any of these negative pieces of information exist and, if they do, you will want to know their particulars and dispositions.
By obtaining this information, and possibly more, you will be equipped to make an informed decision, which will eliminate a substantial amount of risk from your commercial leases and increase your success.