When preparing a rental application form, landlords should always be thorough in the information that they collect. From past references to current plans, there are many things that you could ask that will help you to choose the best, most reliable tenant.
It’s not enough to simply create a general application form. Due to the differences in residential and commercial leases, putting together the application to lease commercial space that you own for tenants to fill out can be confusing. What other information should be included? What types of liabilities are at work?
The fear of putting the application together incorrectly leads some landlords to waste time while moving forward with their property management. And, in this industry, time really is money! However, how can you improve when you aren’t sure what the key aspects of the form are?
Instead of struggling with your application, take the guide and template we have provided below to make your process more efficient as you move into the world of commercial realty management!
A Table of Contents for Commercial Rental Application Forms
- What is a Commercial Rental Application?
- When to Use a Commercial Rental Application
- Landlord-Friendly Commercial Rental Application Form
- How to Prepare an Application to Lease Commercial Space
- Final Notes & Tips
What is a Commercial Rental Application?
A commercial rental application is an application form prepared by a landlord or property manager for potential tenants to fill out. This form is used when the potential tenancy is at a commercial property. Due to the added complexity of most commercial properties, this type of rental application can be overwhelming.
Still, this document needs to be accurate because it begins the business relationship between landlord and tenant. Additionally, it is a way to verify the creditworthiness of the business, as well as their potential for operating successfully. Principal backers must also be identified.
Essentially, you are gathering enough information to determine whether or not the applying business is worth the financial risk of signing on as a commercial tenant.
How Residential and Commercial Leases Differ
If you are a landlord that is experienced in residential leases, you may be wondering how that experience will help you deal with commercial leases. While there are, of course, similarities in the way that contract lease law works in both fields, there are some major differences:
- Fewer Tenant Protections:
While residential lease laws are often said to favor tenants, that is rarely the case for commercial leases. There are few consumer protections on commercial leases, so tenants may be very thorough and weary when reviewing their options.
- Binding for a Long Time:
While residential leases are relatively short-term and easy to break, that is not the case for commercial leases. Usually, they are for a minimum of three years and have a substantial amount of financial risk.
Because of the complexities involved in the renting out of commercial spaces (especially those with common areas), there is usually a lot more negotiation and flexibility when figuring out commercial lease terms. Whereas residential tenants might have immediately accepted your contract as is, that is not likely to happen with commercial tenants.
Types of Commercial Lease Agreements
While you do not need to know the type of lease agreement that you will be using on a commercial property when preparing an application, it can be helpful to have a plan in mind about how you want to rent it out so that this information can be conveyed in the application as appropriate.
There are four main types of commercial leases:
- Gross Lease: all operating expenses are included in rent
- Net Lease: operating expenses are not included and will be prorated
- Modified Gross Lease: a mix between gross and net in which the tenant takes on certain aspects of operating costs only
- Percentage Lease: pays rent plus a percentage of gross revenue of what the business makes
This knowledge can help you have a clearer picture about the expectations you have for a commercial tenant, so figuring out your preferred rental lease type before you create the application form is a great idea.
When to Use a Commercial Rental Application
If you would like to rent any part of one of your properties to someone who will run a business on that part of the property, you need to use a commercial rental application to choose your tenant.
Often, the businesses that may be filling your spaces include:
- Factories or warehouses
- Retail businesses
- Offices or companies
- Childcare facilities
- Hotels or lodgings
- Medical clinic
- Shopping mall store or kiosk
Anytime that you have one of these properties available to rent, you should prepare the appropriate commercial lease application form to find the right tenant for your property.
Landlord-Friendly Commercial Rental Application Form
Putting together your first or your updated commercial rental applications can be a big task, but you don’t have to do it alone. We’ve put together a template, which you can view below that will help set you on the right track.
Once you have read over the template, keep reading to find our guide covering the details of this application form. The guide will explain why you need to gather certain details and what you should do with those details when you receive an application.
|Commercial Lease Application|
Basic Company Information
First, you’ll want to collect the following basic info:
- Company name
- Main office address
- Corporate number and employer ID
- Type of company
- Year established
- Type of business
- Number of employees
With this information, you will have a basic idea of what the company is, how they operate, and what type of business they would be operating on your property. This is important for your property management responsibilities.
Will the business fit with the property type? Will it fit with your goals for the property? Can you envision a good partnership with their business type? All of these questions can begin to be answered with this basic information.
Verifying Company Details
The company’s corporate number and Employer ID code should be cross-referenced with the state. By calling your state’s business bureau, you can ensure that the company is in good standing with the state in things such as taxes.
Additionally, this information will give you the ability to run a company credit check. The company credit check will give you what is called a PAYDEX score, which represents the business’s historical ability to pay. The higher the PAYDEX score, the better. You will want to use this information to make your decision.
Gross Annual Revenue
Quickly asking for the gross annual revenue in the rental application is essential. With this number, you can immediately get a sense for whether or not this business is successful. Depending on the property type and what they want to do there, this number might not be as important, but it is informative.
Gathering the name and phone numbers of the main contacts for the company is important so that you can quickly get answers to any questions that you may have about confusing or missing information on the application.
Additionally, being able to reach the contact person(s) will help you begin to build a business relationship with them.
Commercial Rental History
Asking about their past rental history or where they are currently renting from can help you to get an idea of the types of locations that their business has operated in. Additionally, you can ask them about why they decided to move on from that location. With this info, you can find out if your property fits their business.
You also will want to find out who their previous property manager was. Be sure to call their contact number and ask for a basic confirmation of if they were based there and if they paid rent in a timely manner. This can help you get a sense for how they work with landlords, which will, in turn, help you decide about their application.
It would help if you also asked for how much the monthly rent was at previously commercial rental locations. Understanding how much they were paying and how much their business has grown since that time will help you to figure out whether or not they will be able to reasonably afford rent and operating costs as necessary at your location.
Another important set of data that you need to gather is their banking reference. While nobody wants to assume that applicants for their commercial properties are lying to you, it’s better to be able to confirm whether or not the business is legitimate.
Once you have the banking reference and the business’s contact person has sent an approval letter to the bank, you will be able to get an idea from the bank about whether or not they believe it would be wise to approve their application.
You cannot get this information without permission. Additionally, it is helpful to remember that the banking reference is only part of the larger picture of their business. Whether or not the bank finds them to have the appropriate money in the account, the revenue, credit, and business plan are also important factors to consider.
Your application should have a section dedicated to collecting the names, social security numbers, birthdates, and addresses of all principals backing the business’s lease. This information will be used if they will be using a personal guarantee to back the lease, and it will also be used to run personal background checks on the principals.
If the business itself hasn’t sold you on the risk of accepting the application, you may want to consider accepting a personal guarantee from one or more of the principals if they have strong credit.
A personal guarantee ensures that even if something happens to the business, the principal(s) will continue to pay the lease until the lease period is up.
In this section, applicants should be asked to provide at least two forms of established credit history for the business. This could be in the form of a credit card, loan, or any other credit-building establishment.
Gathering this information allows you to find out about the business’s established creditworthiness. While credit can always be improved, the business’s credit history can tell you something about how they conduct themselves. If the credit turns out to be worse than you expected, you may want to take their application under the magnifying glass one more time.
In order to run the previously mentioned credit checks on the principals of the business, you will need clear authorization from them. This section of the lease application will give you permission to use a third-party service to run personal credit checks on each of the principals.
On average, most commercial landlords prefer that all personal credit checks for commercial tenants come back with a minimum score of 700. While this is higher than you might be used to looking for if you previously managed residential properties, commercial properties tend to carry more risk and liability, so a higher amount of credit is required.
Final Notes & Tips
In addition to preparing this rental application, you will also want to make sure that you are checking out the information that you gather. With the names and permissions that you received, you should run both a business credit check and a personal credit check on the owners.
The application sets you up to quickly and easily decide about the trustworthiness of this potential commercial tenant. All of the information that you need to verify or look into can be found in the application itself, so you should be able to do your research and make a decision quickly.
Hopefully, today’s example template and guide have given you a better idea of how to approach applications for commercial leases. Remember that you can always refine the form as you learn about what type of questions you want to ask clients!