People who invest in property often turn to rentals for a steady income stream. However, it is often challenging to weed out unfavorable commercial tenants during the screening process. Commercial landlords who lease office space are no exception.
If you are one of them, you must be very particular in ensuring that you are choosing the right tenant. You would not want to end up with a high tenant turnover rate, which can affect your annual profits. But how do you screen potential tenants and make sure they are meeting your qualifications?
Unlike ordinary property rentals, there is so much at stake in commercial leasing and renting. Property owners need to be prudent in giving out information unless you are fairly certain who you are talking to and what they are looking for in a commercial property.
If you are a tenant looking for office space, you need to know what landlords consider when approving new commercial tenants. From a lndlords point of view, here is what they usually do.
Conduct a Prescreening
Often considered a time-consuming process, tenant prescreening can usher in a wealth of benefits in the long run if done right. For one, it is one of the best ways to eliminate prospects that do not meet your set criteria. If you lay down prescreening requirements, you set expectations early on in the process, which means you will only attract high-quality tenants.
You can start by outlining your prescreening conditions in your rental listing. As the first point of contact between you and thousands of other tenants, rental listings generate interest and help ensure that the tenant screening process goes smoothly by weeding out unqualified leads. For example, you include a statement that encapsulates your condition, detailing how much they would pay upfront for the screening process and getting their approval for completing the application form and subjecting them to a background check.
It is also essential to set out a couple of prescreening questions. This can range from who they are and who will guarantee the lease to the nature of their business and who their target customers are.
Verify The Business and Income
Another crucial step in qualifying your tenants is to ensure that they have a healthy business and pay rent months down the road. That is why you need to know what kind of business they have and how well it is earning.
As a landlord, you may require them to submit bank references, personal and corporate financial statements, and a copy of their business plan. Just bear in mind that other documents you can require might depend on the type of business they are running. A corporate entity, for example, might need to provide you with a certificate of incorporation, director names, and many more. On the other hand, a limited liability company might have to give the names of their current members and managers, articles of organization, and certificate of filing, among many others.
Check Their Creditworthiness
Tenants must also establish their creditworthiness. This will ensure that they will pay their rent on time and uphold any lease obligations you both agree upon throughout the lease term. Some of the factors you need to consider when checking their creditworthiness include their financial records, rental history, payment track record, industry assessment, and tenant attitude.
You might need to delve into their income statement, balance sheet, and income tax returns that will give you a solid picture of their financial standing.
Arrange for a Background Check
A background check is a handy tool for checking someone’s character, credibility, or even financial stability. If you want to ensure that the potential tenants of your commercial property are to be trusted, then conducting a background check is only logical.
Some of the information you will uncover in the process include address verification bankruptcies, identity verifications, criminal convictions, credit history, and other significant details that will help you decide whether they are worth leasing your space to. When it comes to checking criminal record history, you must find a reliable company for this kind of background check as it can be very tricky.
Just keep in mind that there are parts of a background investigation where consent is required, so you must include this condition in the prescreening process. Hence, your potential tenants are aware, and it will be easier to ask for their consent when necessary.
Rental History Reference Checks
If the business of a potential tenant is not new, and they are moving from somewhere else, it is only sensible that you will verify their rental history. Ask essential questions like the property’s address that they previously leased, the length of tenancy, the amount of the monthly rental, and their reason for leaving. It is also vital that you find out if they have paid their rent consistently and on time.
Know the Tenants’ Needs
While you have already set out your requirements and expectations, you must also be privy to what the potential tenants need. There is no point in wasting your time on a lead who has no idea about what they need. It can be utility needs, zoning, and other details that will affect the leased space. This will help you avoid complicated situations later on when tenants start negotiating for nonnegotiable items on the lease terms.
Set a Proper Time Frame
You would want to avoid your space being vacant for too long. After all, you are paying for the upkeep of your property. Regular income is needed to maintain the place. To ensure you and the potential tenants are on the same page and pace, you must communicate specific time frames. They should be able to move in quickly once everything is settled. You can always weed out those who are unsure.
Wrapping It Up
The qualification process for commercial tenants is not something that can be rushed. It entails the landlord evaluation a lot of considerations that are important for the property’s safety and long-term benefits. Landlords are looking to ensure that they have quality tenants and mitigate risks. Tenants need to understand the hoops landlords will likely require them to jump through in order to ensure a smooth leasing process.
Having a tenant rep on your side can help the process go as smoothly as possible. If you are looking for office space, we can help with our national network of top tenant reps. Contact us today so we can show you how we can help you find the right office at the best price. No Obligation!