Lease Application
All interested prospects, whether residential, industrial, or commercial, should be required to complete a written lease application. The manager should retain these completed applications for the term of the tenancy. The forms should be saved even if the Tenant does not lease as they can provide written evidence that the Manager has accepted Tenants based on sound business reasons, and not in an illegal discriminatory way. This is particularly important in residential leasing. The lease application form is critical as the Manager requires additional information before making a final decision to lease to this particular applicant. The form should be clear, concise, and consistent and cover as many topics as necessary for the Manager and Owner to make an informed decision to accept or reject this applicant. When dealing with a company or organization, the Manager should always attempt to work with the person who has authority to enter into contractual agreements on behalf of that company or organization.
A residential lease application gathers information and also includes acknowledgment from the Tenant that the Landlord may verify all information found on the application. The application includes permission to verify not only rental history but also court and criminal records.
All Tenants must be financially sound, but especially commercial and industrial Tenants because of the greater net worth of the lease. The application asks for business location, organizational structure, and banking references. Space requirements and any other special needs should be discussed before starting the lease application.
Evaluation of Data
Identity
It is important to verify the identity of a residential or commercial applicant. At the very least, the prospect must provide some form of identification (individually or as a company or organization), a rental history, financial status, and several references. Residential prospects can supply a government-issued picture ID. Business prospects may be asked for a summary of their long-range business objectives. Most lease applications include a request to all the Manager to check not only the applicant’s credit history but also their criminal history.
Rental History
The stability of the Tenant’s rental history will influence the Manager’s or Owner’s final decision. Unless there are valid reasons for doing so, a family or a company moving frequently is often considered a poor rental risk. It is expensive to have a constantly changing pool of Tenants, so the Manager should seek a family or company that will stay for a long time.
Financial Status
It is in the Owner’s best interests to verify references given on the application. The rationale behind validating a prospect’s financial references is simple. Slow or erratic payers generally retain this pattern when making mortgage or rental payments, whereas prompt and steady payers are consistent in meeting their obligations. A prospective Tenant with a history of erratic and delinquent payments should be turned down. If there are only one or two lapses in an otherwise satisfactory record, though, the prospect should be invited to explain these lapses before a final decision is made.
Residential
Brief phone calls to banking and employment references used to be sufficient, but today most Manager rely on a credit report. To avoid any appearance of any illegal discriminatory practices in violation of Fair Housing laws, the Manager must show consistency. In other words, the Manager should require a credit report from every applicant if required of one.
Credit Report
A credit report may be obtained legally only with the applicant’s consent and is a history of how a person pays his or her bills. Therefore, the Property Manager must set up a procedure for obtaining permission (a permission form is usually completed as part of the application paperwork). Many Managers charge a non-refundable “application fee” to help defray the costs involved in obtaining a credit report. If the fee is non-refundable, then this should be stated clearly on the application form.
The credit bureau will send the Manager a report on the financial reliability of the prospect. This statement is an itemization of the status of the prospect’s past and current accounts, usually identified by industry (e.g., bank and department store). The report will note bankruptcies, collections, charge-off accounts, and current obligations. The quantity and dates of all payments are listed on the report along with an indication of their regularity. The letter indicates the type of account (open, revolving, installment) and the number refers to the payment pattern.
Managers want to know even more about the prospect. A number of companies specialize in searching public records on behalf of the Owner or Property Manager. These searches can include past rental performance history, nationwide credit reports, and outstanding bad check reports, as well as criminal history reports. Rental performance histories contain information such as evictions, past due balances, noise complaints, insufficient funds checks, and damages to the rental unit.
