Tenant Lease Default - How To Spot Them Before They Happen

The Early Warning Signs Of Tenant Lease Defaults 

Tenant lease defaults usually come at the worst possible time.

Just when you think everything in your property is running smoothly, when you’ve finally reached that magical 100% occupancy number, you get a phone call informing you that a tenant is defaulting on its lease.

No doubt about it, tenant lease defaults can catch you by surprise.

But often times there are early warning signs that will let you spot potential tenant lease defaults before they catch you off guard. 

Know Your Tenant Patterns

Before you can begin to accurately predict if a tenant is going to default, you need to know what the tenant’s normal patterns are.

You should know by memory these tenant patterns:

• What date you normally receive the rent check
• What are their normal business hours
• Who normally runs the shop or office
• How prompt are they in returning messages
• How often do they complain, and what do they complain about

Once you understand what your tenant’s normal behavior pattern is, you can then keep an eye out for changes in tenant behavior, changes that might be a sign of pending tenant lease defaults.

When there's a change in behavior, you should understand well enough what the tenant's normal behavior is, to say to yourself, "That's odd . . . .".

To be sure, one or two changes don’t necessarily mean anything, but if you start to notice a change in the overall behavior pattern of your tenant, you’re probably going to have a tenant default on your hands. 

Tenant Lease Default Examples

Here are a few situations where I’ve found early warnings signs to be a reliable predictor that a tenant may start to have trouble paying the rent:

Increasing number of complaints from the tenant

Usually if business is slow and people have trouble paying the rent, they’ll look for an outside source to blame.

That source is often going to be you, or the property that they’re renting from you.

One early warning sign of tenant lease defaults is when the tenant starts to complain – a lot – about things like landscaping, the neighboring tenants, or little things that were never an issue before that are suddenly a big deal.

Forgetting to pay the rent

Everybody forgets to do things.

You’ve probably forgotten to pay a bill once or twice in your life.

I know I have. But not that often.

If your tenant forgets to pay the rent statement once, make a mental note of it. It may be nothing, or it may be an early warning tenant default sign.

Watch to see if a pattern of forgotten rent payments develops. Often you’ll see one ‘forgotten month’, followed by a few ‘remembered months’, then back to a forgotten month.

Complaints about the condition of your property

If you’re following a property management routine similar to the one we describe in The Basic Property Management eBook, your property management is probably going like clockwork, and any issues that might come up are quickly taken care of.

Your property is presentable, attractive to your tenants and their customers, and lets you maximize the rental income.

In other words, the condition of your property is pretty much the same, day in and day out.

With this in mind, if you start getting complaints from a tenant about -

• Parking
• Trash pickup
• Water pressure
• Tenant next door

All of the little things that haven’t changed since the complaining tenant moved in but that are now suddenly a Big Deal,

You’ll want to start watching the tenant carefully to see if there are other early warning signs of a tenant lease default.

Click to learn more about tenant management in The Basic Property Management eBook

Jeffrey Roark
Basic Property Management Blog