Commercial Tenant Referencing and Due Diligence

Before you grant a lease, check who you are letting to. A strong tenant underpins your income and your property's value; a weak one is a liability.

What to check

• Financial standing: accounts, credit checks and, for a company, how long it has traded and whether it is profitable.
• Track record: references from previous landlords and trade references.
• The covenant: for a new or weak company, consider whether you need extra protection.

Protecting your position

Where the tenant's standing is not strong enough on its own, you can require:

• A guarantor, such as a parent company or a director.
• A rent deposit, held under a rent deposit deed.
• A larger rent-free trade-off in exchange for a stronger covenant or guarantee.

Match protection to risk

A blue-chip tenant on a long lease needs little extra; a start-up needs more. Set the level of guarantee or deposit to reflect the covenant, the rent, and how hard the unit would be to re-let.

Do it before you commit

Reference and structure the protection before you grant the lease, because you have far less leverage afterwards. See finding commercial tenants and, if things go wrong, arrears and CRAR.

What should I check before letting to a commercial tenant?

Financial standing (accounts and credit checks), track record and references, and the strength of the covenant.

How do I protect against a weak tenant?

With a guarantor, a rent deposit, or a larger rent-free trade-off for a stronger covenant, set before you grant the lease.