Business Financial Statements and Requirements for a Commercial Lease
A commercial lease is an arrangement between a property owner and a business owner, and these two parties can make their decision to work together based on any criteria they like, as long as they are acting legally. Some property owners ask prospective lessees for financial statements in order to get a sense of whether the individual and the business are capable of meeting the financial obligations that would come with a business lease. This disclosure of information is a voluntary arrangement between the two private parties rather than a legal obligation.
A property owner who asks to see a company's financial statements before agreeing to a financial lease is interested in determining whether the business has sufficient cash flow to cover rent payments and whether it is earning enough money to be financially self-sustaining over the course of the lease period. A balance sheet provides necessary information about the overall financial well-being of the prospective tenant, and a profit and loss statement shows whether its financial resources come from a viable business model.
A property owner who asks for financial statements from a business owner before extending a commercial lease will be interested in information that is directly relevant to the tenant's ability to meet his rental obligations. A landlord may ask to see documents and financial information outside the scope of this prospective financial arrangement, such as the owner's personal tax returns; however, such a request may justifiably raise a red flag for the prospective tenant because it is not directly relevant to the lease.
A landlord's criteria for evaluating the information included in a prospective tenant's financial statements will depend on the period of the lease and the leasehold improvements that the tenant expects to make. A tenant interested in moving in a pile of inventory and creating a temporary holiday popup shop will likely only have to demonstrate that he can pay his rent during the time he anticipates using the space. A tenant interested in opening a restaurant and installing plumbing, electrical upgrades and a ventilation system will need to demonstrate more substantial resources.
Financial statements that a prospective tenant provides to a prospective commercial landlord should be confidential. A tenant has the right to request a signed agreement stating that the information on his financial statements will be treated confidentially and not used for any purpose other than to verify eligibility for the lease arrangement. A landlord should not unreasonably withhold this consent.