Commercial Real Estate Leasing – Investigating the Business History of Prospective Tenants

vacant office tenancy

When looking to lease a commercial or retail property, and or resolve a vacancy, don’t jump at the first tenant or lease enquiry that comes your way.  Make some careful choices about the tenant, the location, the building, and the relevance that the tenant must have to the landlord’s asset.  (NB – you can get more commercial real estate leasing training here in Snapshot)

Take the offer from the prospective tenant in written form, and process it with the landlord only when you have all the facts about the tenant’s business.  As part of that processing, there will be some key leasing factors to investigate and matters to consider.

 

Choose Tenants Wisely

What can you do here?  Ideally, look for a tenant that resolves the vacancy problem in a quality way for the longer term, for the property, and for the landlord. Seek a tenant that can bring stability to the property as it exists today, add value to the cash flow, and enhance the landlord’s operational or investment targets.

So, there are some things to investigate as part of leasing a commercial or retail property, and there are some good reasons to do that. Here are some ideas to help:

  1. Identity of the company – check out the company, what they do, and where they are located now. Find out what they sell, service, or manufacture; understand how that product or service may sit in the business environment given the impact of the economy and or the internet.  You can do some tenant research online to determine just how relevant the tenant will be for you, the client, and the vacancy.  The information that you source allows ‘informed choices’ to be made with the tenant and the vacancy.
  2. Ownership of the company – you want a ‘stable’ tenant for a good quality lease occupancy. Who owns the business?  Do a financial background search for the landlord and get to the real facts behind the tenant’s business and ask them about occupancy intentions.
  3. Financial performance – if the company is a publicly listed company on the stock exchange, you can get the financials of the business for the last few years. See what has happened with company results over the last few years.  Have they been improving from an industry perspective?  Are they an industry leader in their field or are they one of a number of businesses in a ‘struggling’ industry environment? You should get some answers to those leasing facts.
  4. Previous premises occupied – if possible, talk to the previous property owner where the business may have occupied. See if there are any ‘difficult’ relationships that may frustrate any new lease and occupancy.
  5. Lease intentions and lease conditions – the terms of occupancy should be structured in a way that enhances your clients position with their investment. The lease document will do that.  The client could have a ‘standard lease’ for the property that you can work with in negotiating the final terms of occupation.  Permitted use intentions should be considered so that all factors of ongoing property use comply with local council rules and zoning classifications.
  6. Security bonds or bank guarantees – ultimately you should protect the landlord’s position within the lease, and set some rules for the tenant lease compliance for the long term. The best way to provide that protection will be with some form of bond security or bankers guarantee; that security is then retained for the situation where the tenant leaves the property or breaches the lease in some way or form.

There are some good things that you can do here with your lease arrangements and investigations with an incoming tenant.

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