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3 ways commercial building lessors can avoid bad transactions

On Behalf of | Jun 28, 2023 | Commercial Real Estate |

Many people find financial success by entering the world of commercial real estate.

In areas like Pittsburgh, which has a competitive downtown vacancy rate, cutting any corners to get a space filled may lead to trouble down the road. Before signing on the dotted line, consider the following to help avoid a bad transaction.

1. Perform due diligence

In this day and age, data rules. That includes data revolving around potential lessees. Considering that most commercial leases last around three to five years, lessors need to perform due diligence. Along with doing a thorough credit check and obtaining references, ask the guarantor and lessor for financial statements and asset information. Additionally, request a security deposit and obtain a personal guaranty.

2. Specify uses, limitations and responsibilities

The type of business looking to lease a space makes a big difference. Lessors need to consider other tenants’ businesses to avoid competition that may result in a new tenant going under. After drawing up a lease agreement, ensure that it includes a detailed list of each party’s responsibilities. That may include cleaning, utilities and hazardous waste storage.

3. Ensure adequate insurance

Any owner of any property knows the importance of having insurance. While that provides some coverage, the lessor also needs to obtain the proper amount of tenant insurance to cover third-party liabilities. As a lessor, ensure that the insurance stays up-to-date and gets included in the contract.

While owning property comes with benefits, it also means facing potential risks. Taking appropriate steps beforehand to find the right lessees may prevent unneeded headaches down the road.