Commercial Rent Collections - Do your Due Diligence Up Front

In the first of a series of articles on collecting rents from commercial tenants, I thought I would start, "in the beginning."  This may sound a bit, post-facto or late for those landlords now in the position of considering action against late or "no longer paying tenants," but should be of value when considering lease re-negotiations and tenant workouts.

1. "In the beginning," get as much information as you can from the tenant.  Bank accounts, properties, other assets, social security number, family and business references, loans and credit reports.  Just as important and where I see many landlords fail is follow up and verify the information before the lease is signed.  Included with the factual information provided by the tenant should be a representation, under penalty of perjury, that the facts and information provided by the tenant is true and accurate.
2. Make sure that the lease requires the tenant to provide an updated financial information report on a regular basis along with a renewed representation under penalty of perjury.  On a short term lease, such as a 3 year lease, I would require it at the 1 1/2 year mark but the lease should leave it at the option of the landlord but no often then once a year.  Again follow up and verification is the key to the value of this process.
3. Finally, any tenant or lease workout or modification should include an update of information and if not already included in the lease, a lease provision requiring regular updates of financial information.

Not only will this information give the landlord its best opportunity to decide what course of action it may take in the event of a threatened tenant default, but will give the landlord more effective options to insure collection.  The representation by the tenant may also be of value in a potential tenant bankruptcy if the representations by the tenant were/are false.