Article written by Joyce Low, founder of industrialspace2u.com
Top Three Costly Mistakes You Want to Avoid when Signing the Tenancy Agreement for Industrial Property in Malaysia
From real estate agent who seals tenancy for 500,000 square feet of industrial space a year.
1. Get the Location Right
“Location, location location.”
This is probably the most overused phrase in real estate for good reason. Location is a make or break factor, particularly in distribution. The location of your warehouse has a direct impact on your haulage and distribution costs.
If the industrial property is used for the production of goods for the export market, the proximity to the Ports ie. Northport and Westport would make a lot of sense.
However, if the industrial property is used for the storage and distribution point for Fast Moving Consumer Goods, then the proximity to targeted densely populated distribution location is crucial. Locations with great connectivity in Shah Alam, Subang Jaya and Puchong for example would be ideal. The accessibility due to the availability of multiple highways and expressways cuts down transportation time which translates to savings in transportation costs.
Consult an experience real estate agent who is able to advise you the suitability of each location according to your requirements.
Now that you have determined a great location, the next step is to look into the tenancy.
2. Duration and its Renewal
In accordance to Malaysia National Land Code 1965, there is a difference between a tenancy as compared to a lease. A tenancy for a period of more than three years is a lease and the law requires a lease to be registered on the title document of the property.
Generally, in Malaysia a longer tenancy of nine years is structured via a primary tenancy of three years followed by subsequent renewals of three years each respectively. Be sure to discuss the rental renewal clauses upfront as this has a direct impact to the business in subsequent years. Landlord is in favour of longer tenancies and normally more willing to negotiate on rental per square feet.
Shorter tenancies of 3 years are more common and usually better for tenants because they provide greater flexibility. But how do you decide which length is best for you?
Consider how the tenancy reflects your business and expansion plans. For example, if you’re just starting out, a short tenancy may be preferable as it allows you to move on when your business outgrows the warehouse or factory. On the other hand, if you plan to invest a lot of money in the property (e.g. making major enhancement or customization) a longer tenancy may give you greater security.
3. Termination clause, First Right of Refusal and Rent free
An experienced real estate agent would be able to assist to guide you on the often overlooked critical terms.
While landlord is in favour for a fixed contract period with either party not being able to terminate the contract prematurely, the essence is to allow the real estate agent to assist you to negotiate a lower early termination penalty payment. This would give you, the tenant some peace of mind especially in these turbulent times during the COVID -19 global pandemic experienced.
A fixed contract period would tie both landlord and tenant such that the tenant commits to pay rental of the unexpired tenancy period if the tenancy is terminated pre-maturely. This may be a very costly experience unless both the landlord and tenant comes to an amicable settlement.
Including a clause to allow sub- letting would allow you to recoup your rental cost when you right size your space utilization. The first right of refusal to rent an adjoining unit belonging to the same owner for expansion is another important point to consider.
A landlord may not wish to lower base rent because it could lower the value future tenants are willing to pay, but they may still be willing to give the tenant a discount via rent free periods. On a 3 years’ tenancy, a single month rent free period per year will result in a total of an 8.3% discount on rent, for example.
Having a Trusted Real Estate Agent who has years of experience in the field of warehouse or factory tenancy transactions and negotiations, allows you to achieve the most attractive rents. Critically in the negotiation process, the key to success is experience and knowledge.
We would be pleased to provide solutions to your tenancy requirements for factory and warehouse including sublet. Do contact Joyce at +6017 333 8007 or joyce@industrialspace2u.com to learn more about the industrial property we have that is up for sale or rent!