How to Screen Tenants for Your Commercial Property

Subpar tenants are one of the worst problems plaguing investment properties. Here's how to effectively screen your commercial tenants.

How to Screen Tenants for Your Commercial Property Close
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How to Screen Tenants for Your Commercial Property

Posted by Gary Ashton on Monday, March 21st, 2022 at 10:56am.

How to Screen Tenants for Commercial Real Estate Rentals in NashvilleOwners or landlords who plan to lease commercial real estate in Nashville will want to do their due diligence when screening tenants, as doing so will impact an investor's success in keeping their income stream reliable. Are you looking to fill a vacant commercial property? Keep reading to learn about the best ways to screen tenants for your commercial real estate rental.

For informational purposes only. Always consult with a licensed real estate professional before proceeding with any real estate transaction.

Meet With Potential Tenants Armed With Essential Questions

While some tenancies can work out fine without meeting the actual lessee in person, it is always recommended to interview potential tenants. Today, thanks to technology that's changing commercial real estate, these interviews can happen from anywhere in the world should in-person questioning not be realistic.

Be prepared to ask probing questions as an informal means of screening tenants before taking the following steps. Those in charge of leasing a commercial Nashville property should interview the primary responsible party or parties and inquire about:

  • Income
  • Employment
  • Criminal Background
  • Credit History
  • Previous Evictions
  • Rental History

Consider this a pre-screen step that can help determine whether they meet the essential criteria for tenancy before going any further.

The Application Process: Get To Know Your Tenant's Business

If both the lessor and potential tenant decide to take the next step in the process after the initial meeting, the interested party and any related entities will need to fill out a commercial rental application. Keep in mind this document isn't a binding contract. Rental applications collect pertinent information relevant to the prospective tenant's viability to become a leaseholder.

Typical rental applications ask for information including:

  • Legal Business Owner & Entity's Name
  • Date of the Business' Establishment
  • Type of Business Being Operated
  • Rental History
  • Financial Information

Asking about the potential customer base visiting the space is a good idea. Owners can ask to see financial statements for established businesses to ensure the company is viable. For new startups, checking over their business plan and investigating any guarantor parties for finances is also realistic.

Evaluate Potential Occupant's Lease Terms

Potential commercial tenants will generally know whether they are interested in a short-term lease or a place to house their business for extended periods or indefinitely. The business world can change fast, but most landlords are looking for a more financially secure long-term commitment.

However, there may be reasons if potential tenants express their need for a one or two-year (or a month-to-month) lease arrangement. An example would be a startup company looking to scale quickly or a project effort with granting funds that can only cover a limited lease lifespan. Determine leasing terms upfront before deciding if the tenant's situation is a good match for the space.

Check for Multiple Guarantors

Many looking for commercial space in Nashville have backers. These potential tenants may have one or more financial backers who provide the lease's guarantors. Guarantors are backup parties that can be held liable should a company's primary tenant default. This can be invaluable if the market changes or an economic collapse occurs.

Having multiple guarantors gives landlords confidence that the tenant will have adequate financial support. Should the applicant not have guarantors, look carefully at the company's business model and financial projections to determine whether they pose a long-term risk for the property before making a final decision.

Check for Previous Addresses & Eviction History

Ideally, the prospective tenant will have a previous rental history for their company, and all previous addresses should be diligently researched. All previous landlords should be questioned about the previous tenant applying for the property. Key things to ask include:

  • Did the tenant consistently pay rent on time?
  • Did the occupant take proper care of the space?
  • Were there complaints from neighboring tenants?
  • Would they lease to the tenant again?

It's also good to continue screening by checking local court records to see if the prospect has any past or current judgments for property damages, liens, or previous evictions. Nashville's landlord/tenant laws allow and encourage such inquiries.

Make a Final Risk Assessment

Candidates who pass the previous screening areas are good finalists for the tenancy. If there is more than one top candidate, weigh the balance between gut instincts, references, finances, credit, reliability, and the background check.

It is also worth mentioning that even prospects with a less than flawless history on paper that are honest about their situation could be great tenants. We all have some hidden faults and make mistakes in business at some point, but good character traits can be invaluable. Be objective by considering both the paper screening and the interview process.

Commercial Real Estate in Nashville is In Demand: Choose Tenants Carefully

With the commercial real estate booming in Nashville, Tennessee, several candidates are likely to be interested in renting desirable spaces. Take time to screen each applicant for tenancy carefully, and be sure to fully understand the rules and legalities of renters' rights to ensure fairness throughout the process.

For informational purposes only. Always consult with a licensed real estate professional before proceeding with any real estate transaction.


Gary Ashton

The Ashton Real Estate Group of RE/MAX Advantage

The #1 RE/MAX team in the World!

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