Risk Management in Commercial Property

Commercial property used for office, residential, or business operations faces several risks that emanate from a failure to pay rent on time or total default in rent and accruing charges payment, misuse of property, and degrading the property by the tenants. Thus it’s prudent for property managers to develop impeccable management plans (Xia, Zou, Griffin, Wang, & Zhong, 2018). Therefore, the key elements that must be considered in the management plan are having a contractual agreement in place, setting rent and charges payment timelines, use of the apartment for lease purposes, maintenance of the property in secure and safe conditions, and regular upgrade of the apartments.

Through having a contractual agreement in place, both the apartment’s owner and tenants agree to adhere to terms set in the lease agreement minimizing the risks. In the agreement, the tenant is made aware of the time they should honor their rent payment and the implication of failure to pay in time. Moreover, they are given leeway to register their inability to pay rent and other charges on time given the time they will honor their commitment (Altuntas, Berry-Stölzle, & Hoyt, 2011). As such, the risks related to default or arrears in rent payment are eliminated. The contract also ensures that the tenant commits to use the apartment for the intended purpose failure to which they attract penalties or eviction notice is issued. This eliminates the risk of property degradation and conflicts with legal agencies.

The contractual agreement between the tenant and the landlord creates a room that mitigates risks of having property in a sorry state since the owner commits to repair any destroyed heating and air conditioning systems, sewers, water, and garbage collection systems in the apartment (Xia, Zou, Griffin, Wang, & Zhong, 2018). Hence the apartments are regularly upgraded and maintained making them attractive to customers. The contractual agreement and the several clauses as a way of managing risks are applicable even in retail properties.

References

Altuntas, M., Berry-Stölzle, T. R., & Hoyt, R. E. (2011). Implementation of enterprise risk management: Evidence from the German property-liability insurance industry. The Geneva papers on risk and insurance issues and practice36(3), 414-439.

Xia, N., Zou, P. X., Griffin, M. A., Wang, X., & Zhong, R. (2018). Towards integrating construction risk management and stakeholder management: A systematic literature review and future research agendas. International Journal of Project Management36(5), 701-715.

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