Hidden Costs When Renting a Factory for Lease with Good Infrastructure in Vietnam

The rental of a factory for lease with good infrastructure is an object of interest for companies that wish to achieve a sustainable operation in Vietnam. Despite the capabilities of modern equipped facilities, unseen costs tend to surprise new occupants. These unexpected expenses can also overburden budgets and project schedules and for that reason, foreign investors need to be informed and plan for them before their occurrence.

This blog explores common hidden costs, the reasons behind them, and strategies to avoid such pitfalls when seeking a factory for lease with good infrastructure.

Common Hidden Costs When Renting a Factory for Lease with Good Infrastructure in Vietnam

1. Maintenance and Repair Costs

Despite having good infrastructure, factories still require continuous maintenance to operate. Unanticipated repairs to equipment, building structural deterioration, or facility modernisation may arise while tenants have occupancy of a building, which may accrue over time. In general, problems like a bad-conditioned HVAC, or a damaged track in the industrial area can arise at any time (as an unannounced problem).

Landlords sometimes fail to show in their entirety the breadth of maintenance and repair possibilities, which are ultimately left to the tenants to consequently pay for unexplained expenditures. For instance, a tenant could be required to repair leaky water pipes or wiring that did not come to the attention of the inspector before the inspection. This can lead to cash flow problems and, especially for businesses with thin profit margins, it can lead to significant financial strain.

For risk reduction purposes, tenants are encouraged to request the maintenance history and to examine the condition carefully before signing a lease. It is also necessary to state in the lease contract precisely and identify the parties’ responsibilities of maintenance, and equitable cost sharing.

2. Utility Fees

Utility charges are, not surprisingly, one of the major cost components of factory for lease with good infrastructure operation. Nevertheless, a factory for a lease having adequate facility provision is generally able to secure the utilities, but electricity, water and waste management charges are much more expensive than they should be. Tenants may encounter unexpected rate hikes or additional charges for services like wastewater treatment or energy usage during peak hours.

In some instances, land agents reimburse infrastructure-associated charges, i.e., they deliver state-of-the-art utility meters or a power grid infrastructure to the residents. Without proper budgeting, these expenses can disrupt financial planning.

It is, if nothing else, worthwhile for the tenants, at a minimum, to examine utility clauses in the lease and request a historico utility rate. Based on the hope of discovering “stealth fees”, it is possible to get an approximated monthly pattern. There is another approach to understanding the factory for lease with good infrastructure cost is to select factories in that region with an open pricing mechanism.

3. Administrative and Legal Fees

Administrative and legal measures are an important aspect of factory leasing in Vietnam. However, tenants often underestimate the associated costs. These are expenses for licensing fees, renewal fees (i.e., renewal of titles), or adherence codes (i.e.,.)

On the other hand, there may be the situation that certain plants will need to acquire a greater number of compliance certificates just to meet environmental or safety requirements. If these variables are not considered when negotiating a lease, unexpectedly high costs may be born by renters.

Foreign investors are advised to be accompanied by lawyers having deep experience in the industrial law and/or regulation of Vietnam. It ensures the full and correct capture of all types of administrative costs. Do not attempt to or to avoid subjective dispute and unexpected payments (e.g., by including, in the itemized amount of the lease costs, an itemized estimation of the lease cost, and specifically offer an itemized quote of the lease cost).

4. Transportation and Logistics Costs

Plants in highly connected industrial areas usually feature a promise of easy access by transport. However, tenants might still face hidden logistics costs due to external factors. Congestion at access roads, toll charges, or insufficient public utility infrastructure outside the industrial park may increase operating costs.

For example, a factory for lease with good infrastructure might still require tenants to invest in upgrading surrounding transportation routes to meet specific delivery needs. Likewise, tenants could incur unintended warehousing or third-party logistics expenses if on-site capabilities are inadequate.

To overcome these challenges, tenants are advised to carry out a logistics network analysis during the site selection. Identifying locations with existing links to ports, road and rail networks has the potential to minimise chronic wear and tear.

5. Custom Modifications and Fit-Outs

Plants of course need one or another alteration, to suit individual operational needs. Although landlords usually supply the minimum necessary infrastructure, the tenants may be required to spend on further fit-outs and upgrades to have the space fully usable. This may involve the fitting of specialist equipment, the replacement of ventilation systems, or the implementation of cleanrooms where appropriate to specific industry sectors.

The expense of these customizations is considerable and, as a rule, is underestimated at the time of first budgeting. For example, tenants could find themselves in a position where the current factory layout is not able to accommodate their production lines and costly restructurings are required.

To avoid surprises, tenants are advised to perform a comprehensive analysis of the factory’s applicability for them before the lease agreement is signed. Requests to estimate the extent of necessary alterations and the negotiation of common costs with the landlord can help reduce the financial burden.

Why Hidden Costs Occur in Factory for Lease with Good Infrastructure’s Leasing

1. Lack of Transparency in Leasing Agreements

Unclear or incomplete leasing contracts often reveal contingent or residual costs. Landlords can have major failings concerning what maintenance jobs should be carried out, what facilities should be provided, and share the costs with tenants in respect of unexpected costs. In some cases, incidental charges are a surprise to tenants only after signing the lease (which might have unexpected financial consequences).

In an effort not to fall into these traps, it is necessary for tenants to carefully examine the terms of a lease. The identification of fine print, silently hidden pricing) is a paramount recruiting of legal thought leaders. A transparent view of every obligation covering finances is necessary for an open contract, and therefore, it should be defined in a straightforward vision.

2. Overpromising by Landlords or Developers

One of the most frequent problems is that landlords tend to overestimate the quality of the infrastructure that they will provide, and/or that of the service that they will offer. For example, a factory for lease with good infrastructure point of view might advertise the use of factory-of-the-future-type facilities and meanwhile, in reality, the tenants are in an operation deficiency after moving in. There can also be this discrepancy, which further results in further costs for the repair or an enhancement.

Landlords’ claims should always be matched with onsite visits and offsite examinations. Verifying the infrastructure’s ability early on prevents a huge amount of money and suffering later on.

3. Limited Understanding of Local Regulations by Foreign Investors

Foreign investors do not uncommon to have difficulties related to the lack of understanding of the regulatory framework in Vietnam. This unawareness has the consequence of not accounting for compliance costs, penalties, or delays in having the required permits obtained.

Nevertheless, tenants should be encouraged to seek help from local advisors (consultants or lawyers) when needed. Turning regulatory factors in advance can allow investors to expect and avoid related costs, and address the likelihood of legal disputes.

Strategies to Identify and Avoid Hidden Costs

1. Conduct Thorough Due Diligence

Thorough due diligence is critical for identifying hidden costs. Tenants are encouraged to tour the premises, request a maintenance history, and also have the opportunity to check out the provided utility system before subleasing. Analyzing the historical trend of project cost and past performance of previous projects is desirable for risk assessment.

In addition, the process of actually carrying out factory-level (i.e., inspector-based) third-party factory status inspection can itself serve as a disincentive to discover it after the fact. The factory for lease with good infrastructure should be able to provide the required operational needs itself and not a large building expansion.

2. Engage Local Experts

Working with local experts, i.e., industrial real estate brokers or lawyers, can advise tenants on Vietnam’s leasing market. According to these experts, it is possible to provide context, which allows market trend interpretation, legal aspects, and additional reductions in costs.

3. Negotiate Comprehensive Contracts

A well-negotiated contract of the factory for lease with good infrastructure is essential for minimizing hidden costs. Tenants should be mindful of the need to make sure that the lease is very detailed in its provision for such maintenance charges and utility charges as well as for other running expenses. Clear terms help prevent disputes and unexpected charges.

During the same period, there should also be tried by the tenants to “negotiate” about the cost-sharing in major repair/renovation. For the variable cost, i.e., utility cost, margins set downwardly present more financial stability.

4. Plan for Contingencies

Planning for contingencies for the factory for lease with good infrastructure is vital to managing unforeseen expenses. Renters are best advised to put aside a bit of money to cover things that may prove to be unexpected, like repair costs in a bad moment or the consequence of regulatory changes.

Industrial insurance, specifically designed for industrial work, can, however, also offer a further layer of protection. At the strategic level, it shall be ensured that companies are prepared for financial shocks.

Read more:

• Choosing a Factory for Lease with Good Infrastructure in Vietnam: Top 6 Benefits to Think of
• How to Choose the Best Factory for Lease with Good Infrastructure in Vietnam
• 16 Essential Questions for Choosing a Factory for Lease with Good Infrastructure in Vietnam

When a factory for lease with good infrastructure is leased with the necessary facilities, there are several benefits, but these will become a prescription for foreign investors due to their so-called hidden costs. By gaining the potential outlay, doing the due diligence, and clearly defining the terms, a tenant can lower the risk and succeed. Industrial partnerships with the driving thinkers and planning for interruptions make the functioning process of the industrial sector in Vietnam smoother.

Are you seeking for a factory for lease with good infrastructure in Vietnam? CORE5 Vietnam provides premium industrial facilities that are appropriate for expanding your operations. Having prime locations for convenient access, spacious layout and advanced facilities, their factories are ideal for optimization operation efficiency.

CORE5’s exclusive support team is always available to make the leasing process an easygoing one and to ensure long-term satisfaction. Staying abreast of what they have next in order to find a facility that works to your way of doing business. Go on a factory village tour and find the right solution for your needs. Utilizing high-quality infrastructure and superior quality customer service, CORE5 Vietnam serves as your reliable agent when searching for the perfect space to grow in Vietnam’s industrial landscape.