Factory lease contract: Definition and sample

1.What is a factory lease contract?

A factory lease contract is a legally binding agreement between a factory’s owner and an organization or individual that sets out the rights and obligations of leasing an existing property that is specifically designed and equipped for manufacturing or production activities.

To serve the production demands, companies and individuals who need a specific manufacturing factory can either choose to build their own private firms or rent out existing factory spaces that are available for rent. By signing the factory lease contract, the factory’s owner grants companies the right to use their properties in exchange for an amount of fee, while the tenants are allowed to utilize the lessor's building spaces and necessary production facilities, including specialized machinery or equipment.

In the case where the tenant wants to set up their own manufacturing factory, they might need to rent an empty land for construction purposes. This will require the involved parties to establish a land lease for factory contract, which basically enables the landowner to lend a piece of land that can be used to construct a factory or manufacturing facility from scratch.

Factory lease contract allows the factory’s owner to lend companies and entrepreneurs their industrial building along with production facilities.

In a factory lease contract, the two primary parties involved are the landlord (or the lessor) and the tenant (or the lessee). The landlord is the owner of the factory property who can be an individual, a corporation, or a real estate investment business; while the tenant may be an entrepreneur, a manufacturing company, or an established corporation looking to expand its operations. Normally, companies that engage in manufacturing or assembly business lines such as electronics, automotive manufacturing, food processing or textile production… are the ones who most likely have demand for a production factory.

Factory lease contract is a crucial document in factory leasing, as industrial buildings and factories are real estate property that requires complex regulations governing the behaviors of both the lessor and lessee. Typically, it outlines the terms and conditions that ensure the lessor fully provides the lessee with the stated conditions, meanwhile the lessee must adhere to the requirements of operating and maintaining the factory. In addition, the factory lease contract also serves as a legal ground in case any party violates the terms and conditions.

2.Common sections in a factory lease contract

Factories and industrial buildings are special properties that might evoke negative issues when being leased for business activities and can damage the relationship between involved parties. Therefore, it is extremely vital that both the lessor and lessee understand thoroughly the factory lease contract and what must be included to ensure the mutual benefits in the collaboration process.

The detail sections in each factory lease contract may vary according to business lines, usage purpose and specific demands of involved parties, however, they will typically contain the following elements:

a. Details about the factory for rent:

The primary component that a factory lease contract needs to provide is the information about the factory space that is being leased. This section should define the important details, including: physical location, area size of the space, layout and configuration of the factory, and any unique features or amenities such as equipment or utilities that are included in the lease.

In addition to the basic details, this section may also set out any restrictions or limitations during the lessee’s use of the factory space. Besides, the contract may also present details about the condition of the factory space at the time of lease signing. In case there are any alterations or improvements to the factory that either party wishes to make, the contract should also specify who is responsible for making these changes and pay for the related costs.

Details and related features about the factory space being leased must be determined clearly in the factory lease contract.

On the other hand, in the scenario where a business or individual wants to rent a plot of land to build their own factory, the land lease for factory contract must specify details about the land plot, including: area size, type of land, legal status of the land and any relevant properties attached to the land. As the land plot leased for building a factory can affect the long-term operation of the business activity, it is necessary that the lessee thoroughly understand every aspect of its legal status and any conditions related to the use rights of the land.

b. Rent cost and related expenses:

The rent cost and related expenses section of a factory lease contract outlines the financial provisions of the lease agreement. This typically includes information on the rent amount that the lessee will be required to pay, along with any other expenses that may be associated with the lease such as utilities, property taxes, insurance, repairs, and any common area fees. The factory lease contract should set out the payment schedules, prepaid fee (if applicable), regular due dates and security deposit requirements. Furthermore, this section may also cover terms for rent cost adjustment after a specified time, if mutually agreed upon by both parties.

The rent cost and related expenses section of the lease contract is important for both the lessor and the lessee, as it helps to establish clear expectations and prevent misunderstandings that could lead to unwanted disputes. Thus, it is essential for both parties to carefully review and understand these terms before signing the factory lease contract to ensure that they are financially prepared and able to meet these obligations.

c. Rights and obligations of involved parties:

The responsibilities of each party stated in the factory lease contract are freely agreed upon by both parties, provided that they do not violate any general provisions of the Civil Code, Law on Real estate Trading and Law on Commercial of Vietnam.

Factory lease contracts shall outline the rights and obligations of the involved parties to protect their interests.

The responsibilities of involved parties outlined in the contract may include some or all of the following common rights and obligations:

Lessor's rights and obligations:

Lessee's rights and obligations:

d. Term and renewal:

The provisions related to the term and renewal are agreed-upon by the involved parties on their own initiative. Before signing the factory lease contract, both sides should discuss thoroughly on the length of the contract as well as the procedures and conditions under which it can be extended.

The lease term can be a fixed period (typically years) or an open-ended length, negotiated by the involved party according to the demands of the lessee and the lessor’s ability to meet those needs. In case there is no specific lease term outlined in the contract, both parties have the right to terminate the contract at any time but must give notice to the other party before a reasonable period of time.

The terms and conditions for renewing the lease, along with the procedure to make the renewal agreement should also be outlined in the factory lease contract, typically by signing an appendix attached to the original contract. In addition, any adjustment or changes regarding rent price in the new period must also be established in the renewal agreement. As the length of the lease term can affect considerably in the operation of the business, the lessee should comprehend these clauses thoroughly before signing the agreement to avoid interruption in the manufacturing activity.

3.Some regulations and notes regarding factory lease contract

a. Requirements for involved parties and the factory being leased:

- Requirements for involved parties: Both parties in the contract should satisfy several conditions to ensure legal compliance in the lease.

For the lessor:

+ Establishing enterprises or cooperatives with alegal capital not smaller than 20 billion VND.

+ Making tax declarations and payments in accordance with law.

+ Having authority to sublease the excess factory in the case the factories are built on leased land.

For the lessee:

+ Having a similar business line to the lessor’s and ensuring their operations do not cause environmental pollution.

+ Having an appropriate operation scale that does not affect neighboring enterprises.

+ Complying with all legal procedures such as labor regulations, collective labor agreements, salary scales, payroll, and employer declaration reports…

- Requirements for the factory being leased: These conditions are outlined in Article 9 of the Law on Real estate Trading 2014, specifically:

• Having registered ownership rights in accordance with the law on land.
• Having no dispute about use rights and ownership rights.
• Not being distrained to ensure judgment enforcement.
• Still being within their use term and ownership period.

b. Do factory lease contracts need to be notarized?

Governed by the Law on Real estateTrading, factory lease contracts must be made in writing or in other forms of equivalent legal validity. The contracts are not required to be notarized or authenticated and will be agreed upon by the involved parties. However, in order to avoid unnecessary disputes as well as to ensure maximum benefits for both parties, the contract should be notarized by a competent authority. In the case a factory lease contract is notarized, the validity of the contract will be determined at the time of notarization.

4.Factory lease contract & sample

Currently, Vietnamese law does not provide any specific factory lease contract. The lessor and lessee can negotiate the terms and build the contract on their initiative, as long as the provisions of the contract do not violate the law related to real estate trading and commercial activity.

To safeguard the rights and interests of all parties in the lease, the contract should specify the information mentioned above. During the negotiation process, the parties involved should also seek advice from reputable legal units with experience in real estate and leasing to be guided with factory lease or land lease for factory contract samples. To obtain an overview of the details required in the contract, businesses can also refer to the factory lease contract sample below.

Factory lease contract sample for reference

Conclusion

Factory lease contracts are essential legal documents that set out the provisions to protect all parties involved in the lease and ensure a smooth leasing process. However, there may be unwanted legal issues and complications if the contracts lack any minor important information. Therefore, it is recommended for both lessor and lessee to seek legal advice from reputable professionals before signing a factory lease agreement in order to ensure the contract is fair and mutually beneficial.

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