I have a commercial property in Arizona, outside the valley. I have owned it for several years, and except for occasional late rent payments, the original tenant was friendly and easy to work with. He took pretty good care of the place, and I really didn’t worry too much about what went on day to day. He was an older guy, knew his business, and wouldn’t accept any foolishness from anyone.

He finally retired, and I rented the place to someone who had been working for him, a younger man. This guy had credit that was not acceptable to me, and so he partnered with a couple of other people and formed a company, and then I rented it to the company because at least one of his partners had credit I could tolerate.

After a year and a half, they finally went broke, and the place was left a shambles. Totally unrentable, I almost want to just scrape it off and start with a new building. I haven’t been so depressed about something like that in a long time — I just can’t imagine treating a place you make a living like these people did. Amazing.

So I have been thinking about what it really means to be a commercial landlord. I’ve been on both sides, having rented space from people and to people; and even participated as the agent on each side. Here is what I think:

When you lease space to a business interest, you are making an investment in their business. If you write a one or two year lease, then that, to some extent, quantifies your investment; if you are smart, you insist on the maximum security deposit, and the minute they are 5 days late on the rent you lock the doors until they come up with the rent.

What it doesn’t limit is your risk that they will trash the place. The property I leased was two acres, and in the last few months, the tenants turned it into a junk yard. Old washer dryers, an abandoned car, a refrigerator. A broken mini bike, countless damaged household appliances, all sorts of trash like beer cans, bottles, paper garbage, guts of some recliners, pieces of projects started and never finished, aluminum siding… it is not that different from the city dump. I’m getting estimates to get it cleaned up now, I’m sure it will run to the thousands.

I’m really glad I have 4 people who signed on the lease and agreed that the place would be kept clean. At least one of them will get to help pay for the work, the one with the good credit. Of course, this one person decided that he made a mistake after they got the lease and begged me to release him from the lease obligation. Not a chance of that, of course.

To be sure, commercial tenants are better than residential ones — they are easier to evict. And, when the water gets turned off the commercial tenants don’t usually just continue to use the facilities even though they won’t flush… I have many fun stories about residential tenants. But that is for another post.

–Patrick