10 things you should never do as a commercial landlord
In consulting with landlords who are having problems with a commercial tenant there is quite often themes that arise as to why a relationship goes awry. Here are 10 things you should not do as a commercial landlord:
- Execute a lease agreement without reading or fully understanding the terms. Many commercial leases are several pages long. It is good as a landlord to familiarize yourself with your lease.
- Allow a certificate of insurance on file for tenant to expire. All leases require a tenant to secure liability insurance for the premises naming the landlord as additionally insured.
- Place the responsibility on your tenant to track the dates in the lease. There are several dates that are important to track such as when the rent increases or the lease expires. These should be tracked in a calendar and the tenant should be alerted 30 days before any changes.
- Change terms of the lease verbally only. Always follow-up any discussion and agreement in a change of terms of the lease with an addendum that both parties sign.
- Accept a late payment with no follow-up documentation. Creating a precedence can come back at you. If you ever accept a late rent payment or waive a fee, follow-up with a letter stating that doing so does not dictate it will be done in the future. You also need the history written down in case of future litigation.
- Log income and expenses in a checkbook journal only. It is prudent to use an accounting system or software to track all aspects of your investment. This will provide you the reports you need to insure your investment is being managed properly. I know of a landlord who overlooked collecting tens of thousands of dollars in fee reimbursement from a tenant because of a poor accounting system.
- Be happy you have an interested prospect and not perform necessary background checks. No matter what your gut tells you, eliminate unnecessary future headaches by running a credit and background check as well as reviewing of financial statements. There was a restaurateur tenant who went belly-up shortly after opening because he did not have enough money available to ride out the initial slow time of his new restaurant after spending hundreds of thousands on opening his business.
- Allow a tenant to skip one or more rent payments. I have seen this happen many times, unfortunately 90% of the time when a tenant cannot pay the rent they are unable to catch up.
- Assume your tenant read the lease and understands the terms. It is in your best interest to provide the tenant with what is called a lease transmittal summary. It is a one page summary of the lease highlights.
- Commit fraud. I heard of a landlord who was in collusion with his tenant regarding the rent that was actually being paid. They agreed to state it was higher than it actually was so the landlord would qualify for a better loan when he refinanced.
Any of these things ever happen to you? Let me know your stories or suggestions for future articles below.