Commercial property management is a risky industry which is why it is so important to take every step possible to mitigate potential risks.
One of the best ways to do this is to review your tenants thoroughly before they sign a lease. Doing so can help you identify:
- The legitimacy of the company - is it active and in good standing with Company's Branch and Corporate Tax Branch?
- Whether they have the financial stability to maintain a long-term lease
- Current banking relationships and deposits
- Current borrowing facilities and balances
- Whether they will suit the reputation of your building
- If you need to request personal guarantees, letters of credit and security deposits
By confirming this information, you can be sure you are selecting the right tenant, protecting your investment, maximizing return on property and reducing risk.
When you are renewing a lease, screening is an effective tool. It will help you confirm whether your tenant will continue to be dependable.
The reality is, even if a tenant has been reliable in the past, they may have developing issues that will put your, your profitability and your investment at risk.
Possible changes that could signal potential problems in the future include an increased amount of debt, defaults with Company or Corporate Tax Branches, decreased liquidity or other delinquent activity such as late payments, collection claims, legal actions, judgments or bankruptcies.
Screening is also an effective way to qualify individuals for design build projects.
Unlike leasing an existing property, design build projects entail more upfront risk for the owner. Additionally, they often rely on a longer term commitment from the tenant to make the project more successful. As such, whether or not you confirm the potential tenant’s assets, liabilities and credit history can be a determining factor for your success.
In any of these situations, choosing the right tenant will:
- Protest your investment
- Increase cash flow
- Improve property value
- Minimize risk of income loss due to frequent turnover
- Decrease the risk of damage, fraud, or theft
- Drive down number of rent concessions
- Minimize lease modifications/terminations
- Reduce subleases and assignments
- Decline the number of defaults, evictions and midnight moves
- Reduce exposure to legal claims by or against delinquent tenants
Ultimately, effective tenant screening ensures that your investment is as lucrative as possible and that your financial non-monetary resources are being used effectively. Instead of using your resources to settle disputes or prepare your property for new tenants, you can reinvest in your company and continue to grow.
