Renting out a commercial property comes with several risks for you as a first-time landlord, especially when you grant leases without consulting a lawyer. However, doing it right from the start is crucial to preventing future problems in case your tenant leaves your premises, makes structural alterations without consulting you, or is behind on rent. Here are five considerations to help you avoid commercial property pitfalls as a new landlord.
Carry out a Proper Background Check on Your Tenants
Ensure you know about your prospective tenant by carrying out a thorough background check of the business. You may go as far as asking for references from previous and current trade creditors or landlords. If it is a limited company, find out who the shareholders and directors are and ask for a personal guarantee before signing a lease. Alternatively, you can ask the tenant to pay a security bond that will be held in escrow during the term of the contract, or to provide a bank guarantee.
Engage with Your Tenant
Usually, most communication between the landlord and the tenant only takes place when there is a problem to be reported, but this is not the best time to build good relations. You need to be proactive and create an opportunity to meet your tenants before problems arise. Get to know them and their businesses, what challenges they are facing, and whether you need to put any preventative measures in place.
Dealing with unexpected problems when they are reported or attending to small issues before they turn into crises will help you forge a good relationship with your tenants.
Provide Safety and Security for Your Tenants
Check your property for safety and security issues because failure to do this can culminate in an injury or accident to a client or tenant or damage to equipment. Lifted pavings pose a potential for tripping; uneven stair treads or loose banisters can cause someone to fall; unkempt trees and branches can drop onto the roof or parked cars, and all these pose a danger to people around the premises.
Ensure you trim shrubbery in the garden, and outdoor areas should be well-lit to deter any criminal activity. The electric or security fencing must be in working condition. Also, consider installing security cameras in areas prone to high crime rates.
Ensuring your property is safe and secure will give your clients peace of mind and they will be happy tenants.
Terms and Renewals
Ensure you carefully consider the terms of the length of the lease and renewals that you are willing to grant. Although you may think it is a good idea to sign long lease contracts with your tenants, circumstances may change, and you may need to redevelop the building. Thus, you need to include a clause in the lease that allows you to end the contract early for redevelopment reasons.
Arrange for Sufficient Insurance
When leasing a commercial property, it is crucial to secure full replacement insurance at all times. Thus, arrange to have an insurance cover that is adequate to rebuild your building in case the worst happens. Then, regularly review the level of protection to ensure it remains sufficient. Usually, your tenant will be responsible for covering the cost of your insurance premiums and other insurance valuations.
Experts also recommend putting a sufficient level of ‘loss of rents’ insurance for your property. You can even pass the cost of this insurance to your tenant as long as you agree on this before signing the lease.
There are lots of pitfalls that can occur to new landlords because of their ignorance or lack of experience, but you don’t have to be caught unawares. The real estate business is packed with challenges. However, following these ideas and performing proper tenant screenings will help you run a successful business and help you enjoy an excellent relationship with your tenants.