Commercial real estate (CRE) compliance 101 starts with tracking compliance rates at your property. For one, it ensures your buildings are running smoothly. On the other hand, compliance rates tell you what tenants are in check and the ones that are not. By measuring tenant compliance and certificate of insurance (COI) compliance rates specifically, you begin to reduce your property’s risk. Which simultaneously helps to bring revenue back to your buildings. 

Measuring tenant compliance and COI compliance rates are what set modern CRE property apart from the rest. With that, here are the specific metrics you should be measuring. 

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Tenant compliance rates 

Tenant compliance is crucial in maintaining the value of your property and fostering smooth building operations. Here are some metrics you should measure to ensure tenant compliance: 

Lease agreement compliance

Monitor whether tenants are fulfilling their lease obligations, such as timely payment of rent and additional costs (for example, in triple-net leases, any insurance, taxes, and/or maintenance), abiding by property use restrictions, or any other specific terms laid out in the lease agreement. 

Insurance coverage

Ensure tenants have an appropriate level of insurance coverage as stipulated in the lease agreement. This can include property insurance, liability insurance, business interruption insurance, and more. 

Maintenance responsibilities

If tenants are responsible for certain maintenance duties (as in a triple-net lease), keep track of whether they’re adequately fulfilling these obligations. 

Regulatory compliance

Monitor tenants’ compliance with all applicable regulations, such as environmental regulations, building and safety codes, health codes (for restaurants, for example), and any industry-specific regulations. 

Tenant improvement compliance

If tenants have made any agreed-upon improvements or alterations to the property, ensure these comply with the terms set out in the lease agreement, as well as with local codes and regulations. 

Behavioral compliance

Track incidents of disruptive behavior, nuisance, or violations of property rules and guidelines by tenants. 

By tracking these metrics, you can spot potential issues early, address them promptly, and maintain a successful tenant relationship while preserving the value of your property. Always remember, it’s crucial to keep a clear line of communication with tenants and to handle any non-compliance issues professionally, within the boundaries of the lease agreement and the law. 

How to measure tenant satisfaction: 4 best practices for success

Tenants are at the center of every building. And their satisfaction rates can help determine the success of a CRE property. One simple way to track tenant satisfaction is through surveys.

COI compliance rates 

COI management is critical and deserves its own set of metrics to track. That’s because many CRE firms have an insurance compliance rating under 50%. It’s a huge problem. If you’re out of compliance, you can risk multimillion-dollar claims. 

Keeping track of COIs for all tenants in a building can be a complex task. Here are some key metrics you should consider: 

COI collection rate

Track how many of your tenants have submitted their COIs. Aim for a 100% collection rate to adequately manage your risk. 

COI compliance rate

Not all COIs submitted will be compliant with the lease terms. Monitor the percentage of tenants whose submitted COIs meet the insurance requirements stipulated in their lease. 

Insurance coverage amount

Keep track of the coverage amounts for each tenant to ensure they match the required minimums. This could be a dollar amount (i.e., $1 million in liability coverage) or could be more specific (i.e., sufficient to cover the replacement cost of the tenant’s unit). 

Expiration dates

Each COI has an expiration date, after which the coverage is no longer guaranteed. Keep a record of these dates and set reminders to request updated COIs before the current ones expire. 

Endorsements

Some lease agreements require tenants’ insurance policies to include certain endorsements, such as naming the building owner as an additional insured. Ensure that these requirements are being met. 

Policy types

Ensure each tenant has all the required types of insurance. This typically includes general liability insurance and may also include property insurance, workers’ compensation insurance, business interruption insurance, and others, depending on the terms of the lease. 

When you track these metrics, you help to ensure your tenants maintain the necessary insurance coverage, thereby reducing your risk of financial loss due to accidents, property damage, or legal claims. 

Easy Ways to Simplify Certificate of Insurance Tracking

COI tracking is a major challenge for commercial real estate property teams. Download this free interactive infographic to learn how to automate your COI tracking – and how it can save you money.

How do compliance rates affect OpEx and vacancy rates? 

Did you know compliance at buildings also affects operational expenditure (OpEx) and vacancy rates? Here’s how: 

• Reduced legal costs: Non-compliance with lease terms, building codes, or regulations could lead to legal battles, penalties, or fines, all of which increase operating expenses. Ensuring tenant compliance can help prevent potential legal disputes. 
• Preventive measures: By tracking tenant compliance, you can take preventive measures before small issues become larger, more expensive problems. For example, a tenant not complying with a required maintenance schedule could lead to serious damage and costly repairs. 
• Lower turnover costs: Compliant tenants are more likely to be satisfied tenants, which means they’re more likely to renew their leases. This reduces turnover costs such as marketing expenses for new tenants, potential loss of rental income during vacancy periods, and renovation costs between tenants. 
• Insurance premiums: If tenants comply with safety regulations and keep the premises in good condition, this may help maintain or even reduce insurance premiums, thus saving on operating costs. 
• Tenant quality: Tracking COI compliance rates can help you identify responsible, compliant tenants. Such tenants are more likely to take care of their leased space, comply with other lease terms, and maintain a longer tenancy, all of which contributes to lower vacancy rates. 
• Reputation: Commercial properties with a history of insurance-related issues, property damage, or liability claims can develop a negative reputation. By enforcing COI compliance, you can maintain a positive reputation, making the property more attractive to prospective tenants. 

Tracking tenant compliance rates can play a big role in better management of OpEx. COI compliance translates to reduced OpEx as well and can also lead to lower vacancy rates. That’s because high compliance means your building is safer and well-maintained, making it attractive to potential tenants.  

Preventive maintenance: 6 metrics to measure building health

Keeping your CRE property in top performance condition means scheduling regular preventive maintenance tasks. It also means knowing what metrics to monitor in order to gauge the success of your maintenance performance.

CRE compliance 101 

A poorly executed compliance program can leave organizations at risk of reputational damage, costly fines and fees, or potential litigation and regulatory intervention. With that being said, tenant compliance and COI compliance rates aren’t the only metrics to measure at your properties. There are additional metrics every CRE property should track to bring themselves to the next level.  

For information on those metrics, download the free guide, “Metrics that matter for modern property management.”