Important Questions to Ask a New Tenant in a Commercial Investment Property

When you as an investor have a vacant tenancy to lease, be very selective and questioning when it comes to finding a new tenant and placing them in the property.

Don’t just fill the vacancy; explore all the facts about the tenant and their leasing requirement.  Make your leasing choices when you know everything that is important in the final lease and rent decision.

Why is this so important?

Well, the facts of the matter are that:

  • Some tenants are better than others
  • The future of the property as an investment is at stake
  • The improvements of the property should be protected as part of a new lease
  • The other elements of the existing tenant mix should be looked at in balance to ensure a clear match

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Facts to Explore About the Tenant

To get some valuable facts from the potential tenant as they consider your property or premises you can ask deeper questions about all the following:

  1. Business history – Know where the tenant and their business may be coming from. If necessary, check out the other locations and or property that they are relocating or expanding from.  When you know their business history, you can decide if they are a clear match for your investment and your overall property performance.
  2. Rental budget and property expectations – Every tenant will have a budget for rental and occupancy costs that they can afford. Given that your rentals will escalate over time in some rent review process, ensure that the tenant can afford the full rent as it exists, or it will be.  Make sure that the tenant is not expecting to build their business in the incentive or rent-free period and then pay the full rent from some new business generation after that time.  You want the tenant to be stable and growing from an existing business perspective.
  3. Tenancy use – Ask questions about how they will use your premises and fitout design. Determine if there are any ‘pressure points’ from excessive or ‘high volume’ use in the premises.  A ‘call centre’ is a good case in point.  A tenant with an excessive use requirement on the building or premises should be controlled through extra lease clauses and terms.
  4. Other occupancy locations and competing businesses – Some tenants today operate in a very competitive industry and or location. Things are changing in many industries.   Determine if you have a tenant that could be of a higher risk in any industry change that is evolving in the economy.
  5. Owners of business – Know that you are talking to the actual business owners and interview them to get to the real facts of their property need and change activities. You don’t need to make a leasing decision with them until you are fully satisfied with the information that they share.
  6. Lease requirements – This will all be about rents, lease duration, lease conditions, and document choices. Within all of that, you will also have bank guarantees or bonds to protect your situation in any tenant default.  Ensure that you have all the information and securities to protect your lease situation.

So, these questions and ideas will help you make better choices when it comes to leasing a commercial or retail investment property to a new tenant.  Look at your choices and consider all the information before you sign a lease proposal or accept a lease offer.