Deposits, damages and other disasters: a guide for commercial landlords

Commercial property is an exciting investment – not just down to the potential returns, but because of the part commercial landlords play in the development of other businesses. Striking the balance between supporting your tenants and protecting your investment is a tough, but essential, part of your business.

Build a relationship

Start by drawing up a contract that covers as many eventualities as possible. Taking the time to discuss any additional terms with your future tenant ensures that key terms are covered, but also that your tenant believes you are considering their needs as well as your own. Issues for discussion should include whether utilities are included in the price, who has the right or responsibility to modify or renovate the premises, and inclusion of clauses offering your tenant first refusal on any new space within the building. You may also want to request a personal, parent company or third party guarantee of rent payments, or a letter of credit/bank guarantee, from which you can recoup any unpaid rent or the cost of damages. Further advice is available from the British Property Federation's code of practice for commercial leases.

Take rent deposits

An alternative to contractual guarantees, deposits can be a vital safeguard against unpaid rent or damage to your property. They are worth considering, particularly if the client has a weak financial history, a poor track record of paying overheads, or few UK-based assets. Placing deposits in a separate, joint account with the tenant or an independent deposit scheme, and including terms in the contract clarifying that all interest accrued on the deposit belongs to the tenant, show good faith.

Insure yourself

Finally, it's vital to make sure that your commercial property insurance covers all eventualities. Most commercial landlord insurance policies cover you against:

• fire and smoke damage
• storm damage
• theft
• malicious acts and vandalism
• water damage
• riots, strikes and political disturbance.

Other issues such as accidental damage, or specific issues relating to the activities of your clients, will be offered as optional extras. So always read your insurance policy thoroughly, and discuss any missing areas with your insurer.

If you have tenants with rent arrears or unpaid damages, always seek help. Get in touch with our Debt Advisors to find out what we can do for you.