by 
30th July 2024
Top Three Costly Mistakes to Avoid When Signing an Industrial Property Tenancy Agreement in Malaysia
As a seasoned real estate agent managing tenancy agreements for over 500,000 square feet of industrial space annually, I’ve seen firsthand the impact of making mistakes during the leasing process. Here are the top three costly mistakes you should avoid when signing a tenancy agreement for industrial property in Malaysia:
1. Get the Location Right
“Location, location, location.”
This phrase is often overused in real estate, but it holds immense importance, particularly in the industrial sector. The location of your warehouse or factory can significantly affect your haulage and distribution costs.
For properties used in exporting goods, proximity to major ports like Northport and Westport is crucial. Conversely, if the property serves as a storage and distribution point for Fast Moving Consumer Goods (FMCG), being close to densely populated areas with excellent connectivity—such as Shah Alam, Subang Jaya, and Puchong—is essential. These locations benefit from multiple highways and expressways, reducing transportation time and costs.
Consult with an experienced real estate agent who can help you evaluate the suitability of different locations based on your specific needs.
2. Duration and Its Renewal
Under the Malaysia National Land Code 1965, there is a distinction between a tenancy and a lease. A tenancy lasting more than three years is considered a lease and must be registered on the property’s title document.
Typically, in Malaysia, a long-term tenancy of nine years is structured as an initial three-year term with subsequent three-year renewals. Discuss rental renewal clauses thoroughly, as they will impact your business in the future. Landlords generally prefer longer tenancies and might offer better rental rates, while shorter tenancies (e.g., three years) provide more flexibility.
Consider your business’s growth plans when deciding the length of your tenancy. If you’re just starting, a shorter tenancy allows flexibility. However, if you plan significant investments in the property, a longer tenancy can offer greater stability and security.
3. Termination Clause, First Right of Refusal, and Rent-Free Periods
A skilled real estate agent will help you navigate critical yet often overlooked terms in the tenancy agreement.
Landlords typically prefer fixed-term contracts that prevent early termination. However, negotiating a lower early termination penalty can provide peace of mind, especially in uncertain times like the COVID-19 pandemic. A fixed-term contract might require you to pay the remaining rent if you terminate early, which could be costly unless you reach a settlement with the landlord.
Including a clause allowing sub-letting can help recoup rental costs if you need to adjust your space utilization. Additionally, securing the first right of refusal for renting an adjoining unit can be advantageous for future expansion.
Landlords might not lower base rents but could offer rent-free periods as a discount. For instance, one month of free rent per year in a three-year tenancy could result in an 8.3% discount.
Having a trusted real estate agent with extensive experience in industrial property leasing can ensure you achieve the best possible terms. Expertise and knowledge are crucial in negotiating favorable rents and terms.
Unlock the Best Deals with Expert Guidance
Avoid costly mistakes and make informed decisions by consulting with a seasoned real estate agent. For more insights and personalized advice on industrial property tenancies, contact us today.
So, if you’re looking for a reliable and professional industrial real estate agency in Malaysia, choose MyIndustrialSpecialist. Contact us today to learn more about how we can help you achieve your business goals.
