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INCREASED TENANT RISK DUE TO ECONOMIC INSTABILITY IN THE WAKE OF COVID-19

  Sue McConnachie   |     Sep 21, 2020

Prospective Tenants – Ensure you Have the Best Possible Risk Screening

Do you have all the information you need for negotiations with your potential tenant?

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.

During these uncertain times, when it's becoming increasingly 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 creating flexible, in-depth comprehensive reports that include valuable credit information 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.

For more on prospective tenant credit reports, click here.

Risk at Renewal - Be Aware of Changes in Your Tenant's Financial Situation

A change in corporate status, increased debt, defaulting with the Canada Revenue Agency and creditors, decreased liquidity, delinquent activity, a change in the corporate name or in the jurisdiction in which your tenant can do business - these are just some of the many changes that could occur from the time your tenant signed their original lease to the time they sign their renewal.

Being unaware of these changes could be detrimental to your continued success in property management.

That is why you need to treat each renewal tenant as you would a prospective tenant, screening them prior to renewing.

For more on risk at renewal tenant credit screening reports, click here.

Due Diligence Designed for the Skipped and Delinquent Tenant 

During these unprecedented times with COVID-19, the numbers of Skipped and Delinquent Tenants is on the rise. Being a property manager brings with it the potential for serious risk, liability and consequences at a time when the scales of justice seem tipped in favour of delinquent tenants. Once a tenant has gone delinquent, property managers must decide whether to proceed with legal action, and after all, if there is minimal probability of recovering the debt, why incur the costs of legal action?

Take legal action or not – you do not have to incur the cost of legal action without knowing the prospect of collecting or satisfying a judgment.

Skipped & Delinquent Tenant Reports Include:

Asset Identification

  • Real Property: Locate real property assets, identifying fraudulent conveyances and spousal property
  • Mortgage Interests: Locate mortgage interests, including vendor take back mortgages
  • Personal Property/ Motor Vehicles: Identify personal property, including motor vehicles, equipment, goods, inventory, and accounts
  • Business Interests/ Affiliations: Locate tenant’s business interests. We often find co-debtors and co-defendants that link your tenant to other companies and businesses
  • Bank Accounts: Identify banking relationships, which can be useful for garnishment during the debt recovery process
  • Rents: Identify this form of income
  • Wages: Locate the tenant’s place of employment and salary which will assist with garnishment of wages

Liability Identification

  • Tax Liens: Locate tax liens, including PST, Corporation Tax, RST, HST and GST
  • Collections: Establishing history of collections identifies both debt and repayment history
  • Pending Legal Actions/Judgments: Identify pending legal actions and judgments that will be significant in determining the probability of debt recovery
  • Credit Card Balances: Determine credit card debt
  • Secured and Unsecured Borrowing Facilities: Identify term loans and operating lines
  • Mortgages: Confirm registered mortgages and executions on real property

For more on due diligence for skipped and delinquent tenants, click here.

Dealing with Increased Subleasing and Assignments

It is difficult to assess the full impact on the commercial market, created by the COVID-19 interruption. However, it is predictable that there will be substantial increases for subleasing and assignments, particularly in the office market. With the spread of COVID-19, brought the shift to work from home, leading certain departments to operate remotely with productivity success. Tenants are now exploring downsizing current space through assignments and sublets.

With the negative financial impact on many tenants, it is important to ensure that the tenant remains viable when authorizing assignments or sublets. Credit reporting designed for the property management industry is important for the current tenant who will remain responsible under the lease as well as the assignee or sub-tenant. Depending on exactly what the lease stipulates the landlord usually has the authority to approve both assignments and sublets and therefore, also has the control to ensure that all parties, including current tenant, assignee or sub-tenant are capable of satisfying the lease terms.  

By using comprehensive credit reporting, you can be sure you are selecting the right tenants, protecting your investment, maximizing return on property and reducing risk. 

One of the best ways to do this is to review your tenants thoroughly, to help you identify:

  • The legitimacy of the current tenant, assignee or sub-tenant - is it active and in good standing with Company's Branch and Corporate Tax Branch?
  • Whether the current tenant, assignee or sub-tenant have the financial stability to maintain the lease
  • Current banking relationships and deposits
  • Current borrowing facilities and balances
  • Legal actions, collection claims, delinquent payments, and tax liens
  • Whether they will suit the reputation of your building
  • If you need to request personal guarantees, letters of credit and security deposits

For more on dealing with increased subleasing, click here.

Who Are the Tenants You Are Inheriting with Your Income Focused Property Acquisition?

When working in real estate advisory or the commercial property investment industry, due diligence is critical to a successful purchase. This is especially true when it comes to assessing the value and quality of an existing commercial tenant base and the future income stream of the property. 

Go one step further. Look beyond the past performance of the existing tenants, as it is not always a reliable indicator of future performance. 

Our Existing Tenant Base Financial Reports go beyond standard examination of receivables, lease terms, cost sharing, tax recovery and operating costs to remove uncertainty from decisions made to analyze the cost benefit of an acquisition. Our reports gauge the security of the future income stream by confirming you have high quality tenants.

For more on acquisition due diligence reports, click here.

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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