Often, tenants are unsure of the items that a potential landlord may be looking for. The below list should help you get prepared.
1) Rental Application. Every landlord will require a tenant to complete a comprehensive rental application. Landlords need to understand whom they are leasing to. Landlords will need to run a credit check to verify the tenant is in good credit standing with other credit agencies, because in reality the landlord is lending you the space for a period of time. All landlords should run a credit check in order to protect their investment.
2) Two Years of Tax Returns, Income statements, and Balance Sheets. Many landlords want to see the past history of a tenant. This can only be done by looking at the tenant’s past income statements and balance sheets and compare those with what was given to the Internal Revenue Service – also known as their tax return.
3) Current Financial Statements. Landlords will also want to review the “most up to date” balance sheet and income statement of a client to make sure the tenant is performing in an acceptable matter.
4) Articles of Incorporation. Landlords would want to see the Articles of Incorporation should the company be incorporated. The landlord wants to make sure it is a viable entity and can enter into a lease.
5) A visit from your landlord to your current property. Many landlords like to swing by a client current office to get an idea of how he or she might treat the property. It’s important to make sure the tenant’s “current” property is in a neat and tidy fashion in order to give the landlord the necessary comfort level that you will take care of his or her property as well.
6) Potential references. Some landlords will require references should the company financial not be as strong as they would like them to be. If you are unable to provide references, this might be considered a potential red flag to the new landlord.
7) Conversation with your current landlord. Many landlords will contact your current landlord to verify your payment history. This can be a tricky situation because if your current landlord would prefer you out of “his” property, he or she may provide inaccurate information. Most landlords complete their due diligence before entering into a lease. Landlords would prefer to have a tenant that they feel comfortable with, than to sign a lease with a tenant who could be a potential nightmare for years to come. As a tenant, it is important to live up to your obligations when you say you will live up to them.
I heard of a story where a tenant and landlord come to an agreement and the next step was for the landlord to cash the tenant first month rent and security deposit. The tenant kept stalling and asking the landlord to wait until some specific contingency had expired; the tenant kept moving the date where the landlord could cash the check, which inevitably frustrated the landlord enough to where he canceled the lease. The tenant was in a world of hurt after that circumstance. We believe the reason the tenant did not want the check cashed was that the company was cash poor until a specific date, however no one ever confided in the landlord to tell him the real situation and because of that lack of communication, the company lost the space which dramatically affected its future business operations.
Being prepared and knowing what to expect will greatly speed up the negotiations and everyone will win.
By Randolph T. Mason, CCIM, SIOR, Partner, Commercial Realty Specialists