Land Leasing my property, requesting financials from lessee. Atypical?

Question

I own land on a very busy street. Walmart, Starbucks, etc are all on this busy road. I have an individual who would like to lease my land for 15 years (triple net lease) with three 5 year options. This individual has started, developed, and sold many franchises. We have negotiated and agreed to initial LOI terms. The interested party agreed to share financials upon reaching consensus and signing the LOI.
We have asked to see a balance sheet and profit/loss from the interested party. My real estate agent said that usually land owners do not ask for financials. She said it is not common to ask for such detailed financial documents.
If I go to the bank I am required to provide a profit and loss, balance sheet, credit report, bank statements, etc. The individual renting my land will be tearing down our old buildings and developing the land, which is a lot of risk for this developer. However, I feel as though there is also risk for us as well. I will be on the hook for a 6-figure commission to the real estate agent for this commercial transaction. I would like to ensure that it is a successful endeavor.

Is it atypical for a land owner to want financials from a potential land lessee?

Thank you kindly for your input.

Is it atypical for a land owner to want financials from a potential land lessee?

Thank you kindly for your input.

Steve Daddeo · Answer

Hi Susan - It's completely reasonable (and smart) to ask for financials from a potential land lessee, especially when you're talking about a long-term triple net lease and significant development plans.

You're essentially becoming a long-term business partner with this tenant, and just like a bank does its due diligence before lending, you have every right to do your own. A balance sheet and profit/loss statement are basic documents that give you a clearer picture of the lessee's financial strength and track record, especially since they’ll be making big changes to your property.

It’s true that not every landowner asks for this level of detail, but that doesn't mean it's wrong to do so. When leasing directly to an individual, it’s even more important, because unlike a national tenant (like Walmart or Starbucks), you can't just Google their credit rating or public filings. I’d also recommend pulling a credit report and asking for a list of other developments they’ve completed so this helps you verify that they not only have the means, but the experience to successfully complete and operate the project.  We ask for this information from all our tenants.

Now, if the prospective tenant refuses to provide a balance sheet or profit and loss statement, it’s your call whether to move forward. There may be a good reason, or it might signal a lack of transparency or financial stability.  What is helpful here is that if the tenant defaults and you need to evict them, you'll have a list of assets you can attach. Trust your gut and weigh the risk carefully

A couple of other tips that can help protect you:

• Make sure your LOI is non-binding. This gives you room to walk away if the tenant's financials or background check raise any red flags. Don't let the LOI lock you into a deal too early.
• Structure your broker’s commission payments to be performance-based. For example, instead of paying the full commission upfront, agree to pay 50% of the monthly rent collected toward the commission until the full amount is paid off. This way, if the tenant stops paying rent or defaults early on, you’re not stuck having already paid the entire commission out of pocket with no income coming in. It's a safer approach that aligns everyone's incentives

Make sure your LOI is non-binding. This gives you room to walk away if the tenant's financials or background check raise any red flags. Don't let the LOI lock you into a deal too early.

Structure your broker’s commission payments to be performance-based. For example, instead of paying the full commission upfront, agree to pay 50% of the monthly rent collected toward the commission until the full amount is paid off. This way, if the tenant stops paying rent or defaults early on, you’re not stuck having already paid the entire commission out of pocket with no income coming in. It's a safer approach that aligns everyone's incentives

You're being wise in asking the right questions and protecting your downside. Don't let anyone make you feel like you're being too cautious, you're the one holding the land, and you’ve got every right to safeguard your investment.

Susan Anderson · Answer

Specifically, the interested party refuses to share a balance sheet. He will provide a tax returns.