Importance of Due Diligence When Tenanting Commercial Properties

Posted by Auckland Property Management Ltd on August 9, 2023 | Commercial, Company News, News

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Completing due diligence on prospective new commercial tenants is a critical step for landlords and property managers, but what sorts of things are checked when vetting prospective commercial tenants? James Bangerter, Commercial General Manager, discusses key areas of financial stability, business reputation, zoning regulations and credit checks when it comes to tenanting a commercial property.

Completing due diligence on prospective new commercial tenants is a critical step for landlords and property managers. This process involves thorough research and investigation into the tenant’s financial stability, business track record, and reputation.

By conducting due diligence, property owners can mitigate risks and make informed decisions. It helps ensure that the tenant has the financial capacity to meet their lease obligations, reducing the likelihood of rental defaults. Examining a tenant’s business history also provides insights into their ability to maintain a stable operation, which contributes to the overall health of the property.

Furthermore, due diligence aids in safeguarding the property’s value and reputation. A tenant engaged in questionable practices or with a history of conflicts could potentially harm the property’s image or even its relationship with other tenants and the surrounding community.

Undertaking due diligence also helps protect against legal and regulatory issues. Verifying that a tenant’s business aligns with zoning regulations and obtaining necessary licenses and permits prevents potential legal complications down the line.

At apm, we work closely with the leasing agents that are marketing landlords’ properties to ensure as much information is collected as possible. As a Commercial Property Manager, we collect confirmation of a prospective tenant’s business history, check that the business holds a certificate of incorporation, undertake background and credit checks on the directors of the company, and where possible ascertain their financial position by gathering a financial position summary along with landlord references.

Conducting due diligence on prospective commercial tenants is an investment in long-term success. It allows property owners to make informed choices, safeguard their property’s value and reputation, and mitigate risks associated with financial instability, legal disputes, and unsuitable tenants.

Kind regards

James Bangerter

General Manager – Commercial Property

Feel free to contact our Commercial Team via the contact form below.