5 Risk Management Tips for Commercial Landlords

The world of commercial property can at times be like navigating through a minefield of disputes, claims and unforeseen problems.

Many landlords fail to follow essential steps and end up exposing themselves to risk and unnecessary expenditure. So, if you’re thinking about becoming a landlord, buckle up and wise up, quickly! Here’s five simple steps a commercial landlord can take to limit risk and assure an easy and cost-effective venture.

Number 1: Remeasuring your property

Knowing the exact total area of a property before acquiring it is essential in managing the potential risk of disputes and avoiding the loss of market value and ultimately revenue. Think of it like this, you wouldn’t buy a suit without trying it on first. Failure to get the property remeasured can result in two major issues:

Loss of market value: the value of a property can be seriously hampered due to inconsistent measurements. For example if a survey states a reduced total floor area, then you, the landlord, are likely to charge a lower market price than is fair and lose cash flow.

Disputes with tenants and claims: A happy tenant = a happy life so transparency and trust are key! If you provide an over-evaluated survey to a tenant and they have been paying an inflated rate, they will look to recoup the costs back through a legal route.

Number 2: Assuring your Insurance Valuation is up to date and fool-proof

An Insurance Valuation basically provides an evaluation of the total sum it would cost to reinstate your property in the event of a disaster, for example a fire. This is usually carried out by a building surveyor and can largely dictate how much you pay for your insurance premiums.

Much like people, the older a property gets the more chance it has of being damaged and costing somebody a lot of money. So insurance is key, but paying the right premium can be just as important.

Risks of an undervalued Insurance Valuation
Sometimes an existing valuation can be outdated and neglect potentially expensive features. Consequently, if a disaster does occur and something has not been stated in the valuation and covered in the insurance plan, then additional costs will be required to repair the feature. Worse case scenario-your existing insurance could be void and you’ll get nothing…Ouch!

Risks of an over-evaluated Insurance Valuation
Being too cautious can be dangerous. If a valuation includes too many unnecessary features or provides an exaggerated total volume of the property, you will be faced with paying higher insurance premiums. So accuracy and seeking advice from a professional is key!

Number 3: Assuring a commercially competitive lease

Arguably your most powerful tool when becoming a landlord is the lease. One of the benefits of choosing to become a commercial landlord is that you have a far greater opportunity to relinquish responsibilities.

The tenant may be required to take on a full duty of care if it is stipulated in the lease. Basically the tenant could be responsible for everything, from cleaning to repairs. Moreover, if for example your lease states that the tenant is required to replace all carpets when they leave and they fail to do so, this is what is called a breach. Luckily for you, a breach that is stipulated in the lease is very hard to argue against.

Warning! In the commercial sector your lease can also be a way to attract tenants and fend off competition. If your lease is more attractive than other landlords, for example the amount of amenities that come included, then you are far more likely to attract a tenant. Remember, keep things simple and transparent.

Number 4: Finding a secure tenant

This is something that can typically be over-looked and can potentially leave landlords with vacant properties, which means no generated income! Keeping an eye on the stability of markets can be a good indicator when considering the right tenant for you. If we take for example the current slump in the retail market which is resulting in many retailers closing numerous stores.

Online shopping and eCommerce has led to new stiff competition within the market and some retailers are struggling to contend. However, it is important to conduct more in-depth research to identify which retailers are thriving. For example let’s say the electronic cigarette market, which is currently booming, so attracting a retailer specialising in e-cigarettes could provide a landlord with a more stable cash inflow.

Typically, what will happen, especially if your property is occupied by a retailer who are struggling to make ends meet. Is that the tenant/company will enter into a Company Voluntary Agreement (CVA) which ‘allows a tenant company to restructure its rent obligations or change the terms of its leases across some or all of its premises’. Which translates to landlords losing money! So do the research and don’t be afraid to ask for a copy of their credit reports.

Number 5: Property and on-site management

Once you have found a property and a suitable tenant, the next step will be to assure that the tenant is happy and your property retains all of its original charm. As mentioned earlier, for commercial landlords usually the scope of maintenance and responsibilities are listed in the tenancy agreement.

But there are a few economical ways of effectively assuring a happy tenant and a well kept property:

  • Include a service charge in the lease. This assures that the tenant will pay an additional fee to cover your costs of cleaning and standard repairs/services.
  • Maintain constructive communication with the tenant. This will help build trust, assure positive relations and potentially secure a long-term tenant.
  • Abide by the stipulations in the lease. Failure to do so may result in legal disputes and unnecessary fees.

So there we have it! The 5 essential steps a landlord can take to optimise their commercial property portfolio. For more information visit the links provided in the sub-headings or get in touch. Good Luck!