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Key Considerations When Looking for a Commercial Tenant

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As a landlord, you want to choose a tenant that will suit your commercial property and your criteria. You want tenants who will take good care of your property and fulfil all their lease obligations on time. An unsuitable tenant may lead to difficulties in the future, including rent arrears or potential lease breaches. This article will outline key considerations when looking for the right tenant.

Should I Check My Tenant’s Credit History?

Running a credit check is important and will indicate whether or not the prospective tenant has the financial capability to pay their bills and rent. This will help you make an informed decision and prevent you from choosing a tenant who cannot pay rent on time. Credit reports can show you a tenant’s:

  • payment defaults;
  • credit applications;
  • debts;
  • court judgments;
  • bankruptcies; and
  • insolvencies.

Once you run the check and obtain the credit report, you can discuss any red flags with the potential tenant. 

Can I Check a Tenant’s Rental History?

If the potential tenant has rented before, you can check their rental history. Ideally, you should request the tenant to provide you with one or two references from previous landlords. You may want to know:

  • whether they paid rent on time;
  • how they kept the premises (was it clean and in good condition);
  • whether they have 30 days notice before leaving;
  • if they caused any damage to the property;
  • whether they were evicted; and
  • if they broke any lease clauses.
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Can I Ask About a Tenant’s Financial Obligations?

Your prospective tenant will be running their business from the commercial property. However, you should check that their business is stable enough to pay rent. They may have difficulty meeting rental obligations if they are just starting their business or have a large outstanding debt. Accordingly, you can ask to see recent financial statements, business activity statements and other reasonable information to determine whether the tenant has satisfactory financial capability to meet the obligations under the Lease. This will indicate whether their business makes enough profit to pay rent. 

If the tenant is getting money from Work and Income New Zealand (WINZ) to pay rent, you can request a letter from WINZ to verify their information.

Should I Confirm a Tenant’s Business Experience?

When renting your commercial property, you want to ensure your tenant has the skills and knowledge to run their business successfully. This will ensure that they can pay rent and outgoings on time. Further, you have increased assurance that they will remain in the property for the duration of the lease. 

To confirm your candidate’s business skills, you can conduct some due diligence on their business and understand how it is doing in the market. If you wish to review the business financials, the business owner may ask you to sign a non-disclosure agreement. 

Importantly, you will have several duties under the Privacy Act when conducting background checks and collecting personal information about a prospective tenant. Under this Act, you can only collect a limited amount of personal information from your tenants when making your decision to rent the property. Likewise, you cannot store the information for longer than necessary or disclose it to third parties unless you have consent from the potential tenant. 

There are also crucial anti-discrimination considerations to follow when looking for a commercial tenant. Under the Human Rights Act, you cannot decline a tenant’s application to rent for improper reasons. If you turn away a potential tenant for an inappropriate reason, you may breach the Act. Improper reasons include:

  • race;
  • age;
  • ethnicity;
  • sexuality;
  • religion; and
  • marital status.
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Key Takeaways

When looking for the ideal tenant for your commercial property, you can perform credit, rental and criminal background checks on potential tenants. You should check their references and ensure they have the financial capacity to pay rent consistently. Furthermore, you will have legal obligations under the Privacy Act when storing personal information and the Human Rights Act when selecting a suitable tenant. 

If you need help during your tenant screening process, our experienced property lawyers can assist as part of our LegalVision membership. You will have unlimited access to lawyers who can answer your questions and draft and review your documents for a low monthly fee. Call us today on 0800 005 570 or visit our membership page

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