The risks associated with owning commercial property

12 September 2022

Owning commercial property can be an excellent investment, but there are pitfalls and risks of which prospective and current landlords alike need to be aware. In this guide, learn the different problems that you might face as a landlord of commercial real estate. With the tips below, you’ll be able to protect yourself from risk and maximise your yield.

Tenant damage

While it’s reasonable to expect a level of day-to-day wear and tear to diminish the appearance of your property, malicious and serious damage from tenants can cause you to lose out – both in terms of money and potential new tenants if the issues cannot be fixed easily.

Commercial landlord insurance could help you to recover the costs of the repairs and protect your assets and cashflow. To stop the problem from happening in the first place, though, make sure to carry out full reference checks on prospective tenants; create a complete inventory of items, areas, and appliances; and carry out routine inspections which ensure that any issues are quickly nipped in the bud.

Building faults

It’s important to check that your property or the property that you’re purchasing passes all relevant health, safety and quality checks to reduce the risk of it become uninhabitable or being shut down.

Getting a proper site inspection performed is a key part of this. According to building consultancy Bradley-Mason LLP, some of the most common issues found in surveys include timber decay, damp, cracks in walls (which can be a symptom of issues like subsistence), problems with flat roofs, and incorrect or illegal cladding. Armed with this information, you will be able to take action to repair the problem – or avoid purchasing the property entirely.

Empty space

Depending on for what you use your property, there may be periods where it is vacant – during which you’ll lose out on potential income. Indeed, 2022 research from infinitSpace found that 62% of commercial landlords are finding it difficult to attract tenants.

Protecting yourself from tenancy voids requires pre-planning. Budget for voids so that the loss of income doesn’t affect your finances or ability to pay your mortgage. Consider forms of landlord insurance, which can cover lost rent. And make the most out of the empty period: perform repairs, redecorate and refurbish so that the property is more appealing to prospective tenants.

Injury cases

If a tenant or third party sustains an injury on your property, you may be liable to pay compensation and any medical bills incurred. Prevent this from happening by inspecting your property and carrying out repairs on any features that could cause injury – and protect yourself with an insurance policy that covers compensation and legal fees.

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