Risks are an inevitable part of owning or managing a commercial property, in fact the bigger the property the higher the risk.
There is a daunting list of dangers when one possesses a commercial property from natural causes like fire, flood or severe weather to man-made hazards like vandalism, theft or pest infection. This is not it, to top it all commercial properties come with a series of threats related to business practices like wrongful eviction followed by lengthy lawsuits or disputes with tenant or contractor to name a few.
While most of these risks can’t be eliminated or avoided, the best way to deal with the unforeseen is to have an effective commercial property risk management strategy so that the effects can be mitigated. It could be surprising to know what great benefits can be yielded by just a few risk-proofing practices.
The most common threat faced by commercial property owners are created due to rowdy and unruly tenants. So it is imperative to put in place a system for thorough screening of prospective tenants. Commercial properties are mostly rented out to small businesses, companies or offices so the process includes several steps. The tenants must be diligently checked i.e. a full-fledged credit and background verification of the primary lease-holder must be done. All information related to their business/employment, permanent residence and former tenancy should be obtained and corroborated beforehand. Once the deal is complete, the tenants should also undergo police verification process, any leniency in that can lead to bigger hassles in the future.
The next crucial step is a well-crafted rental contract. A properly drafted rental agreement not only protects the property but also makes the eviction process easier—after all nobody likes problematic tenants in their property. The contract must have all pointers from both landlord’s and tenant’s end. Also, the agreement should be signed and put into effect before the tenant shifts in.
Another important factor to mitigate risk is a proactive and pre-emptive insurance cover policy. In a situation when risks can’t be avoided, one must take robust steps to deal with it. To start with the least, commercial property owners should possess property, liability, loss of rental income/business interruption, flood, and premises liability coverage, along with this you should also have real estate owner and developer coverage for containing the cost and reducing disruption.
There are an array of bundle coverages for example the property coverage includes ordinance and law to cover losses caused due to construction or repairs of other building or the umbrella coverage that provides extra safety to general liability and protect the asset.
Commercial properties are also often exposed to economic changes like economic downturns that results in people saving up on discretionary spending during inflation. If the retail industry takes the hit, the repercussions are evident on commercial properties so the owners must always gather expert market knowledge and plan the risk management strategy appropriately.