If you’re a commercial property investor searching for the best tenants to fill your rental units, you may be wondering how to find those tenants.
You want to fill your spaces with qualified tenants who are financially responsible and have a viable business that’s already succeeding. You’re also looking for a reliable rental history and a demonstrated commitment to paying their rent on time.
But, how do you verify whether a tenant has previously been successful at keeping up with their lease obligations?
As experienced commercial property managers in the High Desert, we have some best practices to share with you that demonstrate how to verify your potential tenant’s rental history. By exploring rental history and evaluating it against all of your other screening criteria, you can make sure they are the right fit for your commercial property.
Collect Rental History Information and Consent on the Application
Make sure you have the correct commercial lease application to provide to your prospective tenants.
Filling out a commercial lease application will be the first step in the rental process for any party that wants to rent space in a commercial building. While the form you require your prospective tenants to fill out is most often known as a commercial lease application, it can also be referred to as a: Commercial Rental Application or Commercial Tenant Information Form.
This is where and how you gather the information you’ll need to make a decision about whether to rent space to a particular tenant.
The first part of verifying rental history is gathering information from your prospective tenant on their application. There are some specific things you need:
- Addresses of current and former places that they rented space. If this is an established company or business, there is likely a rental history that can be verified and checked. You can also ask how much rent was paid at that location and what the dates of occupancy were.
- Contact information for previous and current commercial landlords or property managers. You should ask for a full name, a phone number, and an email address.
- Permission from the applicant to contact those individuals. You’ll be collecting personal and financial information and data on these applicants, so you’ll need their consent before you do any digging around.
Your applicants need to know you’ll be checking these references. You want and need permission to conduct a full background check, including landlord references, so make sure your applicant signs the application and completes each field fully.
Look for Gaps in Rental History
Once you have a complete application that is signed and dated and inclusive of consent to check rental history, you’ll want to begin reviewing the timeline that your applicant has provided for where they’ve lived previously.
There should be a logical flow to places that the tenant has rented previously. It’s a bit of a red flag if you notice that they rented a space 10 years ago, but then there was a period of two years that cannot be accounted for, and now they’re looking for a new space.
Where was the company based for those ghostly two years?
If you notice any gaps, you might want to discuss that with the applicant and find out what their situation was during those time periods. Maybe they were traveling or conducting business remotely. Maybe the pandemic required them to close up shop for a year or longer.
It isn’t necessarily a bad thing if there’s a year or two where no commercial rental history can be accounted for; you simply want to ask for an explanation so you can be sure it doesn’t indicate a problem. If a tenant had a particularly bad experience with a landlord or was asked to leave their property, they might want to leave it out entirely.
Rental History Includes Checking for Prior Evictions
Commercial evictions are extreme. Something has to go very wrong in order for a business to be booted from their commercial space. If you come across an application where the prospective tenants have been evicted previously, you either want to deny them immediately or invest some time hearing the story.
Evictions can be tricky. Many landlords and property managers have a zero tolerance policy on evictions. If an applicant has ever been evicted, it’s an automatic reason to disqualify them from renting a commercial property.
You can decide how you want to handle these situations.
As you’re putting together a set of standard rental qualifying criteria, you’ll have to decide whether or not you’re okay with renting your property to someone with a history of evictions.
Court records will show whether a tenant you’re considering has been evicted, but these are local. You’ll need to hire a third party company to conduct a thorough eviction search or a High Desert property manager. It’s worth it. You don’t have the time to check court records for every state, and you don’t want to miss potential evictions by focusing only on California.
An eviction record search results will include basic information about the filing. You’ll receive a record that includes the tenant’s full name, the name of the plaintiff or property owner, the address of the property, the dates that the eviction was filed, the location of the court the eviction was filed with as well as the outcome of the eviction proceedings.
When you run your own eviction search, make sure you’re working with accurate records and data. It’s especially important that you’re looking at records belonging to the correct person.
Contacting Former Landlords for Rental History Checks
Verify rental history by talking to current and former landlords. You can do this in person, by calling them on the phone, or you can send them a questionnaire with some inquiries.
Some of the questions you’ll want to ask include:
- How long was the applicant a resident of their building or property? You need to verify that the dates provided by references match up to what’s on the application.
- How much rent was paid?
- What type of commercial lease agreement was in place?
- Was rent paid on time?
- Was there any property damage left behind?
- Did they receive their security deposit back?
- Was proper notice given before the tenant moved out?
- Would you rent space to this tenant again?
A prospective tenant’s previous landlord will be able to answer all of these questions and tell you if rent was paid on time, how rent payments were usually delivered, if there were any problems with other tenants in the building, and if there were any disputes or lease violations.
Most commercial landlords are more than willing to give out this information. They understand what it’s like to turn a property over to a tenant, and they’re happy to help out when they can. If you have trouble getting in touch with a landlord, let your applicant know. Or, move on to another landlord reference who may be more available.
What If an Applicant Does Not Have a Rental History to Verify?
When we’re dealing with commercial properties, there are times that you have an applicant who is starting a new business. They’ve never rented commercial space before, so their rental history is sparse. How should you handle this part of the screening process?
You’ll have to be thorough in other parts of the screening process. Take a look at their business plan. Look a little more closely at their finances. You have to be creative. These applicants are new to the commercial rental market and just because they don’t have a rental history to provide doesn’t mean that they’re risky tenants.
Don’t disqualify renters without a rental history too quickly.
If you find yourself in this situation, there are several things you can do to limit the risk you’d take on with a tenant who has no rental history.
- Proof of funds can show you that there is regular income expected and enough of a reserve to cover at least six or eight months of rental payments. This tells you that the obligation to pay rent will be met. While this does not make up for rental history, it does provide some extra context into whether or not your tenant will be struggling from month to month.
- You can ask for a higher security deposit. You can also alter the terms of the lease to reflect what you need from your tenants without a rental history that can be verified.
- Ask for a co-signer on the lease. Someone who does have an established business, such as a partner, can help you feel more secure in renting to a first-time commercial tenant.
These are some of our best practices when it comes to verifying rental history for our commercial tenants in the High Desert.
If you have any questions about this process or anything pertaining to our property management services, we’d be happy to talk with you. Please contact us at Preston-Lee Management Company. We’ve been providing property management services in the High Desert for more than 30 years.
