Do you know the financial health of your commercial tenants?

Cost of living, inflation, high interest rates are some of the reasons commercial tenants may be feeling the squeeze at the moment. 

And if you’re the landlord of commercial property, it’s important to keep an open dialogue with your tenants about any challenges they may be facing. 

But there may be a myriad of reasons why that’s easier said than done…you may not have direct contact with your tenant, particularly when they are part of a large corporate group or the decision makers are overseas. 

Let’s face it, when times are tough, that’s sometimes a conversation that people put off rather than face head on. 

So as a commercial landlord it can be difficult to understand the financial position of your tenants, particularly if you are geographically distant from the property you’re letting.  Here, we try and give you some tips for how you can monitor the financial position of your tenants and some early warning signs to watch out for. 

Check your tenants financial results 

It can be unusual for tenants to volunteer their financial results to their landlord but, if your tenant is a UK company or LLP, you can view their latest filed accounts at Companies House.

Depending on the size of your tenant, these accounts give a varying degree of detail but your accountant may be able to point out some areas to be aware of such as the net asset position on the balance sheet and whether this is improving or deteriorating.

Early warning signs:  late filing of financial statements or confirmation statements 

Follow your tenants 

Now I don’t mean keeping tabs on your tenants but you can set alerts to be sent to your email when they make any filings at Companies House. For example, this will let you know when their accounts are filed or when there are other changes lodged at Companies House such as a change in directors. This may give you earlier insights into changes taking place than you might otherwise become aware of. 

Things to look out for: unexpected changes in directors and/or shareholders. 

Warning signs: striking off notices or resolutions to wind up. 

View your tenants credit reports 

There are several reputable credit agencies that you can get credit rating reports from.  In fact, your accountant might be able to get them for you. 

These can give insights into the market perception of the financial security of the tenant and whether there have been any material changes in their circumstances. A note of caution is to talk to someone who can interpret these reports, ideally alongside the financial statements as there are different influencers to credit scores, some of which may be more important to you than others (e.g. how quickly your tenants are paying their suppliers). 

Warning signs: Set alerts for changes in credit rating of your tenants, which could give early warning signs as to any change in financial circumstances. 

Keep an eye on social media 

In a digital world, most business are good, if not great, at pumping out the good news messages but tend to go quiet when things aren’t looking quite so rosy, particularly if their socials are managed as this can often be one of the early expenses to be sacrificed when times get tough. 

So, follow their social media accounts and connect on social media. 

Pay them a visit 

And of course, nothing beats a good old face to face catch up. Accepting that you’ll need to give your tenant notice and find a mutually convenient time, seeing how the space is being used, whether it’s busy or not, and it’s state of repair can all be valuable indicators as to the financial health of the occupier. 

If you would like help interpreting financial statement of credit reports contact our experts today  by email or phoning 0330 124 1399.