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How to Screen Commercial Tenants

Screen Commercial TenantsAs a landlord, you should screen commercial tenants before signing a lease. Unlike choosing residential tenants, choosing commercial tenants requires a more thorough screening process, which is why you may want to enlist the help of a commercial real estate broker.

Here are key factors you should consider as you screen commercial tenants:

Conduct a Risk Assessment

You will likely have some first impressions of the potential tenants that come your way, but it’s important not to let your emotions interfere with the tenant selection process.

Your decision should always be based on risk assessment. You’ll want to evaluate each potential tenant carefully by considering credit reports, business prospects, references, finances, background checks, reliability, etc. to figure out which potential tenant poses the least risk to your property. In commercial real estate, the higher the risk, the lower the return. Keep this in mind when you’re making the final decision on which potential tenant to choose.

Use Tools to Screen Commercial Tenants

Tenant screening may seem like a daunting task, but in today’s tech world, several tools exist to simplify the tenant screening process. A quick search can open you to a world commercial real estate tools that provide background checks, previous rental data and credit reports.

These tools can save you time and resources, and ensure you choose a potential tenant that won’t pose a risk to the property. Be sure to take advantage of these tools designed specifically to screen commercial tenants. Fewer tenant screening tasks for owners and brokers makes the whole tenant screening process less frustrating and more efficient.

Evaluate Potential Tenants’ Lease Terms

Potential commercial tenants often have a lease length in mind, which another aspect to look at during the tenant screening process. More often than not, landlords expect longer leases because they are considered a more financially secure commitment. But if a potential tenant suggests a one- or two-year lease, you should do all you can to find out why.

The potential tenant could be a startup that is looking to scale quickly or a government contract granting funds with a limited lease lifespan. On the other hand, the short lease may be a clear indication of financial instability down the road. Once you figure out why the tenant wants a shorter lease, you’ll be able to decide if it’s the right tenant for your space or not.

Check for Multiple Guarantors

Potential tenants looking to lease a commercial real estate space must prove they have financial support. If the tenant can only vouch for themselves as a financial guarantor, you should evaluate if that is enough collateral. Look closely at the tenant’s business model and financial projections to see if the business poses a long-term risk for the property.

Ideal tenants would have multiple financial backers in case of market changes or economic collapse. If they were to default on their lease, you may still recover money lost as a result of unpaid rent or other costs incurred by a default business tenant.

The perfect tenant does not exist, but you can find a tenant that matches your expectations by assessing risk, lease terms and financial backing. By conducting a thorough tenant screening, you will find a tenant that will best fill your space.

To get started, contact a member of our landlord representation or property management teams.

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