5 Negotiation Tips for Thailand’s Factory and Warehouse Rental Contracts

 Selecting a factory and warehouse for rent is an integral part of your business success.  In Thailand, successful negotiations in factory and warehouse rental contracts foster positive outcomes for both parties as well as help your business run smoothly throughout the rent term.  However, we often find most rental contract terms in Thailand aim the promote the interests of the lessors since the lessors or their associated parties prepare them.

 In this article, we aim to illustrate crucial negotiation tips, which help derive a fair, acceptable rental contract between you and your landlords. We will highlight key areas in the rental agreements that you should look out for, and negotiate accordingly with your landlords to protect your immediate and future interests. Therefore, before you rent a factory or a warehouse in Thailand, you should read this article to help you get fairer rental contract terms.

1. Duration of the lease

In Thailand, the typical duration of an industrial property lease is more extended than residential leases-houses, condominiums, and apartments. The timespan of a factory or a warehouse lease would consist of 3 years or more. Therefore, if you find a suitable rental property with a 3-year rental contract, in some cases, you can negotiate with the landlord for a slightly shorter rental term.  Some landlords can offer flexible rental terms, while others only demand definitive rental lengths. It depends entirely on the negotiation between you and your landlord. If you need rooms for future adjustments in your business, you should look for a factory or a warehouse for rent that provides such flexibility. You should not engage in lengthy contracts with strict, uncompromising terms.

On the other hand, your business may require you to put significant, long-term investments, such as factory modifications, decorations, and machinery, into these rental properties. It is complicated for you to move to another location.  In such a scenario, a longer contract term can prove very advantageous to your business since you can prearrange the future rental price, and prevent obsessive price increases by the landlord. Both parties can specify how much rental increases, if any, would occur throughout the rent.

Moreover, the relocations of factories are challenging and costly. You should have basic ideas of your business futures, and you should rent a factory or warehouse with contract terms that best fit your requirements.

2. Compare the rent with the market rate.

The rental price is another significant component when evaluating a suitable factory or warehouse for rent.  You can have a better understanding by investigating the rental price of similar listings. You should explore the rental costs of nearby factories and warehouses. Crucially, you should take into consideration factors, such as locations, conditions of the rental properties, their ages, functionalities, specifications, and design layouts.  Also, you should consider other elements-i.e. utilities, additional after-sale services. The accumulation of these factors helps you gain some insights on the appropriate price level. This wholesome evaluation enables you to evaluate the pricing scheme of your interested property.

Besides understanding the market rate, you can use the duration of your lease as your leverage.  Typically, landlords in Thailand would want more extended contract periods because they do not have to find new tenants for the property. If your business can engage in a more prolonged contract period, you can obtain better pricing for the rental warehouse and factory.

3. Look for hidden costs

In many factory and warehouse lease agreements, tenants would have to pay for other changes-maintenance fees, standard fees, and utility surcharges.   In Thailand, these conditions would differ from landlords to landlords; there is no consistent practice.  You should understand these charges fully before engaging in the rental contracts. Also, you can negotiate with the landlords on the terms of these fees in advance. 

More specifically, if you realize that the landlord of your prospective rental property does not bear responsibility for maintenance charges, you may offer a slightly higher rental fee in exchange for their maintenance and repair responsibilities.

Also, we have written an article, which extensively covers the costs associated with Thailand’s rental factories and warehouses. Please click on the following link to read: 8 Significant Expenses Related to a Factory and Warehouse Rental in Thailand.

4. Deposit and advance payment

In Thailand’s warehouse and factory rental contracts, the landlords would require the payment of deposit money when signing the contract.  The landlords would return the deposit when the agreement is complete, with all conditions satisfied. The deposit amount typically ranges between 2-4 times of monthly rent for a standard 3-year rent contract. If you find the landlord is asking more than this usual amount, you should negotiate with the landlord for more reasonable terms.

Another expense that you may encounter when renting a factory or a warehouse in Thailand is the advance payment. This payment must be paid in conjunction with the deposit, and it would usually cover the first month or the last month of the rental contract. The rationale behind advance payment is that the landlord expects you to commit your stay until the end of the contract. However, if you leave beforehand, you forfeit this payment.  The advance payments range between 1-2 times the monthly rent. When you find the landlord is demanding more than this typical amount, you should negotiate accordingly. The capital allocation for both deposit and advance payments is substantial; you should have ample room in your cashflow to pursuit your business goals.

5. Check the contract terms thoroughly.

You should pay special attention to the terms on default and cancellation very carefully. An excellent rental contract should provide specific details on the penalties and conditions when you terminate the contract prematurely. Also, the contract should offer information on the timeframe and procedures for early terminations.

In some businesses, you may have to invest heavily in modifications and machine installments, and thus relocation is not an appropriate option. You should negotiate with the landlords beforehand on renewing contract terms and subsequent rental prices. These contract conditions can play pivotal roles affecting your business financially and operationally.

The most crucial thing you should do is read your lease contract carefully and understand it fully.  The terms help you understand the benefits as well as the responsibility of the tenant. We have written an article on Thailand’s factory and warehouse rental contracts.  Please follow the link to read: 8 Things to Consider in a Factory and Warehouse Rental Contract in Thailand.

In summary, renting an excellent factory or a warehouse is an integral part of your business.  This article aims to help you obtain a fair rental contract that is satisfactory to both parties. It outlines areas you should look out for and what areas you can use to your advantage during the negotiation. The duration of the lease, rental prices and associated costs, deposit payments, and contract terms are some of the areas you should consider. We hope you find this article relevant and applicable in helping you evaluate Thailand’s various rental factories and warehouses.  

Finally, if you are interested in renting a high-quality factory or warehouses in Thailand, please feel free to contact us anytime. Our properties have complete functions, and they are in excellent locations. Plus, we support our customers with free repair services throughout the leases as well as a full range of customer support services. Our projects have high-security systems with 24-hour security guards, and CCTVs. 

Sources:

https://www.legalzoom.com/articles/5-tips-for-negotiating-a-commercial-lease

http://bit.ly/39NhoB1

https://bit.ly/34DYrPq 

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