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Don't Sign With A Tenant Until You've Read This Main Photo

Don't Sign With A Tenant Until You've Read This

Posted: June 09, 2016 by Amy Swinger

Getting the best return from your commercial investment property is largely dependent upon finding the right tenants and securing the appropriate agreements with them. So when signing a new tenant, be sure to take these three steps to protect your investment and help ensure the success of your business relationship.


1. Do the legwork. Before you begin discussions with tenants, invest time in thoughtful preparation. Consider the following:

·         What are you willing to negotiate? What's non-negotiable?

·         What type of tenant are you seeking for your property?

·         What will your application process include? What criteria will you establish for tenants to qualify for the property?

·         Is the tenant's business plan a fit for your property? What renovation or customization are you willing to do, if any?


2. Screen potential tenants. Even if the tenant and their business plan seem to fit the model for your property, screening can help you determine if there are potential issues or risks. To gather the information you need to make a wise tenant choice, research the following:

·         credit history and inquiries;

·         previous and current names and addresses;

·         previous and current employment;

·         leasing history;

·         payment history on loans, installment accounts, and any collections; and

·         public record filings, including evictions, bankruptcies and tax liens.


3. Obtain a personal guarantee. A personal guarantee protects your investment during an early lease termination or if a tenant fails to pay their rent. A personal guarantee ensures the party who signs the agreement is responsible for meeting the terms of the agreement. The specifics of a personal guarantee can be negotiated and may be in effect for a set period of time or until the tenant meets the requirements you have set. It may also be lifted if the tenant decides to end their lease early but on good terms, such as being up to date on rent, leaving the property in excellent condition and providing sufficient notice of their intention to vacate the property.


Together, these steps form the triad of success to ensure you find the right tenant for your space. Moreover, these measures will solidify your relationships with those tenants to ensure a mutually beneficial business relationship. 

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