Landlords use commercial tenant screening to choose the right renters for their commercial properties.
This process enables property owners to look at an applicant’s business income and liabilities to evaluate whether or not the applicant:
- Can make rent payments on time
- Will treat the property with proper care
Commercial tenant screening also uncovers any adverse actions an applicant has made in the past that pose a risk to the landlord and other tenants in the building.
As a landlord, you need commercial tenant screening to protect yourself and your property.IMPORTANT
Screening also helps you develop a strong relationship with your tenants since it shows that you want their mutual trust and respect.
Read on to learn more about commercial tenant screening and how to conduct it.
What is Commercial Tenant Screening?
Commercial tenant screening is an evaluation process where landlords review and determine the best commercial tenants for their property.
If you do not screen your applicants, you may end up renting to a company that does not pay on time and fails to maintain your rental property.
How to Conduct Commercial Tenant Screening?
Here are the steps you should follow when screening your commercial applicants:
1) Review your potential tenant’s lease application
Send your applicants a blank commercial lease application form and ask them to fill it out. After you receive the completed forms from them, review the information on the application and see if their business is worthy of your space.
If you think they would make a good tenant, move on to the next step. If not, tell the applicants that you will not continue with their application.
2) Verify the company with the state
Every state has a Secretary of State’s office or a similar department to look up an entity and make sure it is currently in good standing.
If applicants’ companies are not in good standing, they may not be able to pay rent on time.
Accordingly, you should decline applications from entities that are not in good standing with their state.
3) Get the company’s business credit score
The next step is to conduct a credit check through a business credit bureau such as Dun & Bradstreet, or Experian.
Dun & Bradstreet is well known in the industry and assigns a business credit score called a PAYDEX score to companies.
When you run a credit check with Dun & Bradstreet, you will receive a PAYDEX score from 1 to 100 based on your tenant’s creditworthiness and past payment performance.
4) Check the company owner’s credit score
After receiving the applicant’s business credit score, you should check the company owners’ credit score.
Unlike company credit scores, personal credit scores fall between 300 to 850, with 850 being the best score.
Your applicants should have scores of at least 700 for consideration of your rental. Ratings below 700 suggest that the prospective tenant may not be able to deal with the financial and legal liability of renting a commercial property.
5) Perform background checks on the company owners
Ensure your applicants are who they say they are by running a background check on them. Landlords can conduct background checks through various websites.
While there are many background check websites to choose from, not all are equal.IMPORTANT
Be sure to find a background check provider that is Fair Credit Reporting Act (FCRA) compliant. If the vendor is not FCRA-compliant, you cannot use the check for screening purposes and you might find yourself in trouble with the law.
6) Contact the tenant’s references
Call your applicant’s references to verify:
- Credit history
- Rental history
- Bank account balances
Have your applicant’s filled-in commercial rental application form with you as you make the calls.
The applicant’s bank may want to see the signature and consent on the commercial lease application before revealing any information to you.
7) Get a personal guarantee from the applicant
If you are still debating whether or not to accept the applicant, consider getting a personal guaranty from them.
This guaranty requires the individual business owners to personally continue rent payment until the lease expires — even if their business fails and cannot pay.
8) Make your decision
After accepting an applicant, send the business owner or principal a commercial lease agreement to sign.
If you decide to reject an applicant, mail a tenant rejection letter and explain why you denied the application.TIP
Sending a tenant declination letter helps protect you in a case where the applicant claims rejection based on discrimination. It is also a courteous business practice.
Best Commercial Tenant Screening Resources
Here are some of the best commercial tenant screening resources:
For business credit or PAYDEX scores:
- Dun & Bradstreet
- Experian
- Nav.com
For personal credit scores and background checks:
Laws about credit reports and applications
Tips for Commercial Tenant Screening
Remember to keep the following in mind during commercial tenant screening:
-
Never discriminate against your applicants or their representatives based on:
- Race
- National origin
- Color
- Age
- Sex or gender
- Sexual orientation
- Marital status
- Military or veteran status
- Disability
- Religion
- Receipt of housing subsidy or public assistance.
- Adhere to all applicable state and federal laws regarding credit reports and applications.
- Require all prospective tenants to complete and sign commercial tenant application forms. This helps protect you from discrimination lawsuits.
Suppose you get sued for rejecting someone based on gender, religion, race, or other protected category. In that case, you can use these forms to show that you have written documentation for your selection methods.
Summary
Commercial tenant screening is key to getting the tenants you deserve.
By looking through potential renters’ business credit scores, personal credit ratings, background checks, references, and more, you can better determine whether or not an applicant will be a good or bad tenant for your commercial space.
Use our Commercial Lease Application Builder to kickstart your commercial tenant screening process.TIP
Frequently Asked Questions (FAQs)
Commercial tenant screening typically includes a background check. We recommend you get background checks on all company owners to verify their identities.Does commercial tenant screening include a background check?
Business credit scores for commercial leases, known as a PAYDEX score by Dun & Bradstreet, range from 0 to 100, with 100 being the best score. Here is a breakdown of the score ranges:What is a good business credit score for a commercial lease?
A commercial rental application is not a legally binding document to rent real estate, nor is it a contract. Commercial lease applications are investigative tools landlords use to gather relevant information about prospective tenants.Is a commercial rental application legally binding?
