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5 things Malaysians must know before renting a space at shopping malls

2020-01-18 495282a8 0b1a 41c9 adbb 5b04da481d30 Matdura S.

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This article is for general informational purposes only and is not meant to be used or construed as legal advice in any manner whatsoever.

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It’s the weekend. You’re out window shopping at a pretty popular mall, when you see a notice from a distance— “CHEAP SHOPLOT FOR RENT”. 

The signs are all there—this is your calling to finally start your own retail business! You look around and make a rough estimation on the number of people who shop in that mall during the weekday. You notice the mall is frequently visited by many customers, which makes it a great place to open up your very own clothing boutique.

Without further hesitation, you head to the manager and ask for further info on renting a lot in the mall. Fast forward one month, you’re a proud owner of a new boutique in the mall. But your hopes and dreams almost popped, when you received a letter from management, asking you to make ADDITIONAL payments for renovation works done to your boutique. 

If you’re looking into renting space in a Malaysian mall, this article is specifically written for you. Starting a business would depend on numerous things (read this article to know which business is best for you)—but when it comes to setting up a business in a mall, there are several regulations and requirements you need to comply with first. 

So to make your life (and your dreams) turn into reality, here are 5 things you should know before opening a new business at a Malaysian mall. 

 

1. Rent is calculated based on your monthly sales

GIF from Giphy

Here’s something you need to take note of first: Renting a mall space isn’t the same as renting office spaces or houses in Malaysia. One of the first things you’d have to do if you’re planning to rent a mall space, is to sign a contract/agreement with the mall management (a.k.a the landlord). This establishes a landlord-tenant relationship between you and the mall management. 

There are several things that will be laid down in the agreement—some include the monthly rent, opening hours of the mall and termination clauses (all which will be covered in this article).So when it comes to rates of rental charges in a mall, mall managements set rates according to certain factors such as, the location of the mallsize of the mall space and traffic flow of customers—to mention some. 

Rental rates are normally calculated based on monthly turnover rates (profits made). The rates are either calculated based on the percentage of the tenant’s gross turnover or this formula below:

Base rent + Service charges + Promotion charges + % (e.g. 1%) of gross sales = Rental rates

In non-financial terms, the monthly rental rate for mall spaces will depend on the monthly profits made (sales), any promotions carried out, the services offered and the minimum rent agreed by both parties. The mall management can also have access to the financial records of the tenants (ie: the receipts, invoices and audit reports). 

Now what happens if you don’t make profits because your outlet was closed? Well here’s some news: You can’t close your outlet, unless the mall management allows you to do so...

 

2. You might have to open your outlet everyday

GIF from Giphy

If you’re a frequent mall “visitor” aka kaki lepak, you’d notice how most of the shops in the mall (including the anchor tenant), open at the same time. So here’s the thing, tenants of the outlets in a mall are expected to operate their outlet according to the business hours set by the mall management.

Most major malls, particularly in the Klang Valley are open 7 days a week from 10am to 10pm—including public holidays. So if a tenant does not follow the regulations set by the mall management, he will have to pay damages (monetary compensation) for breaking what’s been stated in the contract. 

[READ MORE: 5 basic things you should always do when signing contracts in Malaysia]

 

3. Tenants must make a deposit for renovation works

Image from Lowyat.net

Whether you decide to open a boutique or a restaurant—you’d definitely need to do some fit-out works to start your business. Apart from forking out money to pay contractors and buy the necessary equipment, there’s another party that you will be required to pay, too.

Assuming that you made the right guess: It’s the mall management. It’s common for new tenants to modify and renovate the mall space. But this is usually done on a few conditions from the management. The new tenant would have to make a renovation deposit  to the mall management and the revamping must be done within a specific time. 

Once the renovation is completed, the management will refund the deposit to the tenant. But if there are any penalties for the tenant, some mall managements deduct the amount from the tenant’s deposit. Here’s a clause we found that states as such: 

“Owner/Tenant shall pay to the Management the below mentioned deposit and abide to the following terms and conditions…
 i. Deposit Deductible for any sum of Outstanding Fees or Penalties - The Management reserves the right to deduct any sum from the fit out & renovation or move in/move out deposit collected to cover any outstanding fees or penalties...”—Jaya One’s Fit Out and Renovation Guide.

Sometimes things may not always go as planned—Your contractor might need more time or you need to make some additional fittings which will prolong the completion on your outlet. In circumstances like this, there is a possibility for the management to give you penalties—unless you negotiate the clauses of your contract to avoid losses.

[READ MORE: What can you do if your landlord doesn't return your deposit, in Malaysia?]

 

4. You can’t change the name of the outlet without permission

GIF from Square Enix

One of the few things you’d need to think about when renting a mall space, is the name of the outlet. Generally, you’d need to check with Companies Commision Malaysia (SSM) first, to see if the name you chose for your company is available or not.

SSM will then determine if the name is suitable, as per the rules under Section 26 of Companies Act 2016. The proposed name will be approved by the SSM if:

  1. The name available is not undesirable or unacceptable. – Which means, you can’t pick a name that will most likely offend anyone or any part of the community.
  2. The name cannot be identical/similar to an existing company. – No two companies can have the same name.
  3. A name that the minister has directed the Registrar of Companies not to accept for registration. – You can’t use names that are connected with the Royal families or international organizations such as “Asean” or “Nato”.

The name you choose for your company should generally comply with the Act, but the ultimate decision shall be made by the Registrar of Companies, ROC for short. So before you decide to register your outlet with the mall management, you’d have to go through other authorities to approve your company name. 

[READ MORE: Can two companies register similar names in Malaysia?]

Once you sort that out, you can apply to rent a mall space. But here’s something to take note of: Once you enter into a rental agreement with the mall management, you’re not allowed to change the name of your outlet without approval from the management—and authorities like SSM. 

 

5. Closing your outlet might end the agreement

GIF from Tenor

Let’s assume the worse in this situation: Your business is failing and you’re in the midst of bankruptcy. You have no choice but to close your outlet to save yourself. 

But you’re not the only one who’s afraid of losing in this case. The mall management will be worried too—as they’re losing a tenant in their mall space. So in order to safeguard their interests, the management would set a clause in the contract—stating that an early termination of the agreement is a breach of contract. 

So if you end your agreement by closing your outlet for good, you will have to pay damages (monetary compensation) in the form of a rent—for the remaining term you didn’t occupy the mall space. 

However, the mall management would have to prove that they suffered losses when you closed down your outlet—and that the amount is reasonable.

But here’s something to take note of: You can always negotiate with the management to avoid having to pay huge penalties. Most big malls now, are pretty open to negotiating the tenancy agreements. But it’s always best to check on the terms of your agreement before signing a contract in Malaysia. 

[READ MORE: What happens if you sign a contract without reading it in Malaysia?]

 

Tags:
tenant
agreement
shopping mall
mall management
renting mall space
mall outlet
rental rates
renovation deposit
495282a8 0b1a 41c9 adbb 5b04da481d30

About the Author Matdura S.

Very aunty-social.

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