There’s a lot that goes into lease negotiations and finding the right tenant. To protect themselves, landlords can’t just choose the first tenant that offers to rent out their property. It can be tempting to do this in order to reduce vacancy rates, but in the long run, it could be dangerous. When a landlord has a vacancy to fill, they need to screen tenants thoroughly and take extra measures to protect themselves. Here are some things landlords should think about when going through the process of leasing to the right tenant.
Go over the business plan
Before choosing to rent to a tenant, you should talk to the tenant about their business plan. Ask them to provide it to you so you can look it over. You need to ensure it’s a business plan that seems solid and has the possibility of succeeding. You also want to make sure the business idea works with the size of your property and where it’s located. If the business plan doesn’t seem to be well thought out or complement the property (and other tenants in a multi-tenant property) then you should probably move on. Keep in mind, you should avoid renting to tenants who will compete with the other businesses in a multi-unit property.
Talk finances
You need to make sure your tenant is reliable and in good financial shape. Doing a credit check can help you see where your tenant stands financially. If there is a guarantor involved, you should also run a credit check on him or her. Another thing you may want to do is ask for a letter of credit. This letter of credit should be provided by a bank you can trust. It allows the landlord extra protection in case the tenant runs into financial problems down the line.
Choose wisely
You will need to have a good working relationship with the person you rent to. Choosing someone you can get along with is a good idea. Consider how the person comes off and if it’s someone you will be able to establish a good landlord-tenant relationship with for years to come.
Ensure your rights
There are a couple of rights you want to maintain throughout this business transaction. You need to make sure that you control the approval of transfer rights. This means that you get to approve if a new tenant takes over the business. This is important because you need to make sure the person taking over the business can run it successfully (has the finances and good credit).
You also want to ensure you keep the property operation approval rights. This way tenants aren’t making changes to your property without your approval. Also, in the lease, you should include a “use of” provision. This allows you to specify what the property can be used for. This will keep your tenant from being able to change their business down the road without negotiating the change with you.
Set rules upfront
Any rules in regard to the property need to be covered in the lease. Make sure that you are clearly communicating any rules and expectations with your tenant. Putting these regulations in the lease can protect you and ensure that the tenant follows these guidelines.
Check for insurance coverage
You want to ensure that your tenant has good insurance coverage. A commercial renter’s insurance policy should be able to cover natural disasters, burglaries, fires and other potential incidents.
Require a security deposit
It’s a good idea to have a tenant pay out a security deposit upfront for one to two months’ rent. This can help add another layer of protection in case of property damage.
Consider inflation
When setting your rent and writing it into the lease, you also need to consider inflation. Make sure to clarify that rent will increase with inflation so that your rental stays profitable and your tenant clearly understands what will be expected going forward.
There are a lot of things to consider as you navigate finding the right tenant. You need to ensure your tenant has the financial ability to start their business and make rent payments even if the business doesn’t do well. You can take several steps to help you find the right tenant and increase the likelihood of a successful venture.
If you’d like help finding the right tenants and managing your commercial property, please reach out to us. We can help you set a correct rental price and screen tenants thoroughly. We can also make sure that all laws are followed and you are protected. In addition, we can be sure your property is well maintained.
If you need help, get in touch with us to learn more about what we do and how we can help you: https://www.propertymanagementinc.com/. We will do everything to help your commercial real estate investment be a success.
