"Covenant" is the property industry's word for how reliable a tenant is at paying the rent and meeting its lease obligations.
How covenant is assessed
- Published accounts: turnover, profit, net assets and cash
- Credit ratings from agencies such as Dun & Bradstreet or Creditsafe
- Trading history and the importance of the site to the business
- Any parent company guarantee
Ways to improve security
- Rent deposit: cash held by the landlord, often several months' rent.
- Guarantor: a parent company or individual who pays if the tenant cannot.
- Authorised guarantee agreement: on assignment, the outgoing tenant guarantees the incoming one.
Why it matters for value
Investors pay more for income they trust. Two identical warehouses can be valued very differently if one is let to a national company and the other to a small start-up. See commercial property yields explained.
This guide is general information, not financial, tax or legal advice. If you are unsure whether an investment is right for you, speak to a regulated financial adviser.