When an owner has an apartment property near the campus of a University and they mainly rent apartments for student housing, there are particular problems. The competitive situation dictates that leases be offered for one semester of nine and a half months. A twelve-month lease for students is virtually unheard of. That means there are lots of vacancies as soon as final exams have ended. (This does not apply to a few University communities where there is always an apartment shortage. In those few places, the student must lease for   12 months or have no lodging.)

There are ways that might help turn the months of vacancies into extra rental income.
First, during graduation week, the vacant apartments are rented to parents and guests, by the management company, on 3-day or 5-day leases. The parents like being closer to the activities and a close place to rent is more attractive than an outlying motel or hotel.
Second, summer students taking courses at the university welcome the chance to rent an apartment on a week-to-week basis. This is particularly true of students and employees from other colleges who don’t have the time to search out living arrangements for, say, a six-week summer course.

The property manager provides the tenant applicant with the lease application that must be filled out for the interview. A leasing agent may assist during the review process, but the final selection of tenants is ultimately the property manager and owner’s responsibility.

All leasing personnel should be informed that the company does not discriminate on the basis of an applicant’s race, sex, color, creed, or national origin.

The screening process helps determine the prospect’s desirability and verifies financial and nonfinancial qualifications. When all information has been received, the applicant’s file should be given to the property manager and/or owner for final review. Decisions made during this process are based on the following criteria:

• Impressions created by the prospect when interviewed;
• The prospect’s employment history if the prospect is applying for residential space; company or business history if the prospect is applying for commercial space;
• Information gathered from verifying the prospect’s references and from the completion of a credit check;
• Compatibility of the tenant to the property type.

When the application is approved, the property manager should prepare the lease and other appropriate documents that require the applicant’s signature. Commercial tenants will probably have an attorney review the lease, which may require a certain amount of negotiation. Upon approval, the lease is signed, and security deposits and rent payments are collected as specified in the lease.

When an applicant is disapproved, he/she should be promptly notified. If the disqualification resulted from a credit check, the law requires that the applicant be informed of this. To protect against possible litigation, rejected applications should be kept on file with complete statements about why applications were rejected.

Commercial property goes in cycles from full occupancy to overbuilt with vacancies. When it has been difficult to rent, various concessions have been made to get tenants in and paying rent.

Free rent concessions have been used sometimes to help fill a building. This may have created more problems than it solved.

As an example, suppose there is a building where office space is offered at $25 a square foot on a five-year lease. The lease can be renewed for an additional five-year term at a negotiable renewal rate. To get tenants into the property, the owner gives a concession of free rent for the first two years. This may sound like an acceptable, though extreme solution, but might not be good for either the owner or the tenant.

The bookkeeping and tax preparation for these two years can be a major problem for both the tenant and the owner.

The landlord has no income from this tenant during the two-year period of the rent concession. This can create a cash flow problem for him.

The tenant’s cash flow is incredible during the first two years, since he is paying no rent at all. Then it jumps up to the $25 a square foot level for the remainder of the lease. This can cause a cash flow crisis for the tenant.

Since the property has such a severe vacancy problem that the owner considered the free rent concession in the first place, he might consider a new manager, or a sit down session with the current manager on how to solve this vacancy problem with some creative ideas other than free rent.