How to Screen Tenants for Your Commercial Properties

Tenant screening is common for both residential and commercial property leasing. Commercial screenings tend to be more comprehensive as the financial and legal stakes are typically higher. Completing a comprehensive assessment allows you to determine if a prospect meets your criteria.

Why Commercial Tenant Screening Matters

This is the time to put your investigative skills to the test and ask plenty of questions. Screening commercial tenants helps you get a clear picture of their financial stability so you can protect the success of your long-term investments.

Finding the ideal business to rent your commercial space also supports smooth operations, which can go a long way toward building a healthy tenant-landlord relationship. Decide whether the applicant suits the commercial space and aligns with other renters in a mixed property like an office complex or mall.

Other advantages of commercial screenings include:

• Increased likelihood of long-term occupancy
• Reduced financial risk
• Legal and operational risk management
• Enhanced marketing positioning

What to Review During the Screening Process

Financial Statements and Credit History

Looking into a possible tenant’s financial history is one of the most important steps in the screening process. Understanding their financial stability reflects their ability to manage cashflow, pay rent and fulfill other lease obligations.

The prospect must provide their business and (sometimes) personal information on their application so you can use a credit reporting agency or screening service to obtain financial reports. Watch out for a history of late payments, bankruptcies and defaults on loans.

Review information including:

• Business credit
• Financial statements
• Tax returns
• Income statements
• Debt ratio
• Profit/loss statements

References

A list of references allows you to assess a prospective tenant’s professionalism and their ability to sustain relationships. Consult with previous landlords, suppliers, business partners or even previous customers to determine if they’re reputable and reliable.

Consider the following questions while checking references:

• Why did the tenant leave their previous lease?
• How did they handle property upkeep?
• How well did the tenant communicate with property management?
• Would you lease to this business again?

Rental History

How a prospective tenant maintained their previous financial obligations could sway your decision to offer them a lease agreement. Ask about their payment history while checking references, specifically if they were ever late when rent was due. The answers may reveal a pattern of behavior that reflects positively or negatively on their behalf.

Their rental history will also reveal their ability to comply with lease terms, including maintenance and property use. That insight will help you gauge risks associated with leasing to that specific company or entity. Signing reliable tenants can also lower your vacancy rate and preserve steady income.

Business Compatibility

Ask commercial applicants to provide a business plan that includes information about their products or services to determine if their needs align with the property. Commercial real estate isn’t one-size-fits-all, so it’s important to vet a prospect’s strategy to avoid dissatisfaction and early lease termination.

Operational Needs

How much space does the tenant need to run their operations? Do they plan to increase production or expand their space? The answers will impact whether your commercial space can support long-term financial success.

Their business could benefit their neighbors in a multi-tenant property. Be mindful of potential conflicts, too, that could stem from customer congestion, noise and expansion.

Industry Stability

You can request a market analysis during a commercial tenant screening to help you see the viability of a specific industry. Compare those insights against a tenant’s operations to see where they’re positioned within their industry. Investigate industry reports to identify trends, regulation changes and technological advancements that could influence a tenant’s viability. Look at their financial history and business plan to determine how well they adapt to market changes.

Insurance Coverage

A tenant should have liability insurance to cover the cost of accidents and property damage. That reduces your legal risk and provides proof of payment responsibility if an accident occurs. Some industries require insurance as part of their compliance standards. Verifying a prospect has the appropriate coverage can prevent them from incurring violations and fees that could affect their ability to fulfill lease obligations.

CRE Tenant Screening Services in Columbus, Ohio

Completing a thorough application screening in the first step in building a positive tenant-landlord relationship. DRK and Company offers property management services to streamline that process so you can focus on optimizing your commercial portfolio. Learn more about our services and contact us to schedule a consultation.

 

Until next time,

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