Breaking A Commercial Lease

[pongosnodgrass]

Our business has been doing well and we are expanding and looking at taking up additional premises (office space).

However, because of the uncertainty of the political situation here, our foreign investors have asked us to find out if it possible to take out insurance cover in the event that we would need to break a lease before the lease is up. I am assuming that for commercial property in Thailand your liability is for the full term of the lease, not that you only lose your deposit, but I could be wrong. The lease is only for three years and we're very confident that we will be fine but we need to look at if we can manage the risk as anything could happen here in the next three years.

Does anyone have any experience of this?

Thanks for sharing.

[Seizetheday]

I work in Insurance in Australia and I've never heard of this type of insurance and I find it highly unlikely anyone would do it. Although TiT

[liveinlos]

Doing sound financial business projections, a risk analysis and a 3 year plan can tell you right away what your chances of success will be.

There is always risk and that is why we do these predictions and carefully analyze the data

An unstable political situation makes this risk analysis even more important

Signing a long term lease is not the smart move in my opinion

Sign something you can absorb the financial loss on at worse case (6 months or 1 year) and have a renewal clause for 3 years

The key to surviving shaky 3rd world ups and downs is to limit the monthly expenses as much as possible so that you are not forced to make money to survive when there possible is none

Instead of expanding, look at other ways you can use your current space, homes, etc to increase capacity while adding zero cost

After you have a track record for a year that the additional business is in fact there, then go ahead and expand to something you can afford to absorb the loss on

This way you will not gamble and lose it all like so many others before you

It is not just the protests that are a risk

The world wide economy will have an effect on Thailand

In previous years SARS had a serious effect on Thailand

There are many hidden risks that destroy businesses every year

#1 keep the expenses down where you are not forced into a no win situation

Expanding in an uncertain economic and political climate is probably not a smart move

[pongosnodgrass]

Thanks for the comments.

I am experienced in business and know the market very well so I did already do the business plan and analysis, which is how we attracted investors in the first place. In fact, our first year was all about keeping tight because of uncertainty from the GEC - we rented a serviced office for the last 12 months but have now outgrown it and we beat our first year projections. As serviced offices are expensive, part of our second year plan was to move into our own space. The difference is about 30% higher. We, of course, made provisions for the political situation but the destruction of buildings around Bangkok was unprecedented and has shaken confidence abroad. Everyone was taken by surprise and we're Thai - it's a tough call.

But our partners wanted to know if there was any get out clause, just in case - I asked because we don't know the ins and outs of property contracts in Thailand. Thanks, though, liveinlos for the suggestion of a shorter lease - the landlord is a big operator, it's probably the best commercial space at the moment and they won't go for it, unfortunately. We tried.

[quiksilva]

If its an established commercial building then chances are they and others like them will refuse to grant a lease of less than 3 years. Strictly speaking you are liable for the rental throughout the term of the contract, unless the contracts says otherwise (highly unlikely).

So taking out insurance, if available, is the prudent thing to do.

However, if its of any comfort I have managed to negotiate surrender terms on a number of commercial leases on behalf of clients where all that's been lost is the security deposit.

PM for details.

[pongosnodgrass]

Thanks for the exact answer I was looking for, Quiksilva. I checked your profile and, as we're using CBRE, it's only fair that I should get them to do this on our behalf. If we don't get any joy, I'll pm you.

[quiksilva]

Its only fair if CBRE suggested it!

**rethinks practice of providing advice on forums only to have posters ask original their brokers to implement my suggestions**

[pongosnodgrass]

Good point, that man! I meant it more from the perspective that should earn their money. Actually, I asked her today and she knew her stuff.

Don't stop being nice - I appreciated the advice!

Edited June 21, 2010 by pongosnodgrass