Every developer and general contractor needs to be aware of circumstances in which their tenants can cost them significant amounts of money. Tenant mistakes can sometimes be extremely expensive if the developer or general contractor has to deal with the financial repercussions of those mistakes. Common tenant mistakes that can cost a fair amount of money include building renovation, tenant improvements, injury or other causes for liability on the premises, tenant cash flow problems, tenants who do not move in on time, and tenants who misrepresent themselves during lease negotiations.
Discussed below are some of these common tenant mistakes and ways that developers and general contractors can avoid them.
Building renovation and tenant improvements. Most tenant leases for commercial properties will include a provision or provisions that prohibit tenants from making renovations, changes, or improvements to the property without permission or approval from the owner of the property. In commercial construction projects, developers and construction management generally do not want tenants making decisions about the construction of the property without consulting them first. The reason for this is because tenants may add or renovate the property in such a way that could lower the value of the property.
This mistake can be prevented very easily, however, by reminding tenants when they sign the lease that they cannot make changes to the property without asking permission from construction management and the owners of the property. You should also consult with your attorney and include in the lease the provision that if the tenant does decide to make alterations, they will be responsible for paying for the work as well as for any financial loss suffered as a result of the changes. This will ensure that you are legally protected from the costs associated with tenants who make an unauthorized building renovation or tenant improvements.
Injuries on the property and other causes of liability. In some cases, if someone is injured on the commercial property, whether or not they are a tenant, you may end up suffering the consequences. For example, if a customer of a tenant gets hurt on the premises, even if the tenant caused the injury, the landlord or property owner may be liable for the damages from the injury. And if a tenant is hurt, especially as a result of a construction issue or during the commercial construction process, then the general contractor or construction management may be held liable for the damages from the injuries as well.
Although it must be negotiated carefully with the help of your attorney, you can construct certain lease provisions to limit your liability if a tenant or a customer of a tenant is injured on the property. You can also educate your tenants about ways to stay safe and to keep their customers safe on the property, and you should observe the commercial construction process closely to make sure the project is being done well and safely.
Tenant cash flow problems. Owners of commercial property rely on their tenants to pay their rent and any other fees or costs properly. If the commercial tenant is struggling financially, you may have a problem collecting rent regularly from the tenant.
As with many other tenant mistakes, you can put provisions into the lease that allow you to pursue certain remedies, like eviction or monetary damages, if the tenant does not pay rent on time. However, if the commercial tenant files for bankruptcy, you must proceed with caution. When a company files for bankruptcy, all legal proceedings against them are halted. If your tenant files for bankruptcy and you then try to evict the tenant, you will not be successful with the eviction until the bankruptcy proceedings are over, usually in a few weeks. If you suspect the tenant is about to declare bankruptcy, it is in your best interest to begin eviction proceedings against them before they file.
Not honoring the move-in date. Owners of commercial property often try to schedule tenant move in’s in such a way that the property will always be earning money. Although move-in dates are often negotiated when the lease is signed, sometimes tenants do not move in as scheduled. But by delaying the move-in date, a tenant could be costing you money, especially if part of the tenant’s rent comes from profits they make by operating their business.
To prevent this from occurring, you can put a provision in the lease that imposes a fee or a penalty if the tenant does not move in when they promised that they would. This can ensure that you do not lose the part of the rent derived from their profits if they are not prompt about moving into the commercial property that they are renting from you.
Tenants who misrepresent themselves during lease negotiations. Especially when negotiating provisions about rent, property owners and landlords often rely on the tenant’s business records to determine how much to charge for rent and any additional costs. But in some cases, a tenant may try to show a potential landlord that they are more successful than they are to get the desired location, or that they are less successful than they are to negotiate a lower rent.
When possible, check into the business’s success yourself before making any final decisions about leasing. Also, add to the lease that the tenant will be liable for any misrepresentations made during lease negotiations.
While some of the most common tenant mistakes, such as building renovation, tenant improvements, injuries on the property, tenant cash flow problems, not honoring the scheduled move-in date, and tenants who misrepresent themselves can end up costing you money, you can avoid these unnecessary expenses by taking precautions. You and your general contractor and construction management need to carefully write the lease, keep tenants informed, and pay careful attention to any renovations the tenant makes to avoid these issues once your commercial construction project is over and tenants begin to move onto the property.