A major international developer of warehouse property decided to enter the Russian market. The company thought of acquiring several land plots in Moscow oblast, and relying on its vast experience of operating all over the world, immediately began building objects on a turnkey basis and letting them out on long-term leases. However, the foreigners encountered serious difficulties in obtaining construction permit documents. After spending almost two years (!) on attempts to come to agreement on the documents themselves and to obtain the necessary permits, it still could not enter the Russian warehouse property market.
The whole point is that the foreigners had not taken into account the complexities and specific features of Russian law and dealing with bureaucracy. One of the most important factors seemed to them to be their well-functioning connections with the regional administration and their own experience. But their lack of knowledge of the legal procedure, standards and rules had led to serious problems. The company had been on the point of giving up its plans in Russia.
All ended well. This was because a Russian consultancy company recommended the foreign developer to acquire land plots already prepared for development. There are also other ways of solving such a problem; for example, to acquire land, the owner of which is prepared, maybe for a separate payment, to obtain the necessary agreements and permits to implement the construction project. In Russia, you have to know the existing rules and fit in with them.
A major international holding was seeking premises to lease in Moscow oblast. The company’s choice fell on an incompletely-constructed warehouse complex located on the first lane of a motor road not far from a Federal highway. All the points of the preliminary leasing agreement were agreed to the mutual satisfaction of the parties. But for work to begin, the lessee had to finish laying the internal engineering services and lay the floors in the building. However, problems arose with this. And the carrying out of the project was suspended. As a result, the lessee was unable to use the premises. And he had to spend more in looking for a new place.
The difficulties arose because the parties had not recorded important details of their obligations under the leasing agreement in writing. A professional approach to conducting business negotiations enables such unpleasantnesses to be avoided. Consultancy specialists will clarify all possible aspects in various documents, to protect the client against any surprises or losses. Furthermore, I would definitely recommend lessees to have a back-up plan in the event of problems with finishing or repairing a building, utilities or approach roads.
At the construction stage, significant penalty sanctions for breach of agreements should be written into the leasing contract. But even if a lessee gets his deposit back and receives compensation for non-observance of the contracted time schedule, he will still suffer considerable losses due to the stoppage. Therefore it is important to know the prehistory of the incomplete construction of interest to you, to become acquainted with the people taking the decisions, and constantly to monitor the progress of the construction work. Consultants with the right profile will help lessees solve all these complex questions.
An Asian company servicing freight carriers and freight handling on Russian territory participated in a tender for the provision of logistics outsourcing services. When the deal was concluded, the company started to select a warehouse complex for the new client. The leasing contract was concluded with a major player in the Russian market, who was completing the construction of a storage block in the Moscow region. However, a delay occurred in obtaining a certificate of ownership of the constructed building. Because of this, the company occupied the premises only after a significant delay, and was forced to pay a large fine to the depositor...
Foreign companies which intend to conclude an agreement to lease premises in uncompleted buildings should know that the scheduled time for handing over an object for use is sometimes not met in Russia. Problems can arise with financing or with drawing up the property rights to real estate. And then the lessee will not be able to carry out his obligations to his partners and contractors. To avoid coming up against such unpleasantnesses, it is necessary, before concluding the agreement, for the lessee to carry out a thorough check on the reputation of the owner of the real estate object and the general contractor. On the Russian market, such services are provided by professional consultants with work experience. It makes sense to organize your own technical supervision of the construction with the assistance of a specialist company. This will require additional expenditure, but it will minimize the risk of being left without premises when the time to occupy it approaches.
A major international investor acquired a land plot not far from the A-107 Federal highway with the aim of attracting a developer as a partner in a project for building a warehouse complex. But when the deal was concluded, it was not taken into account that an object of similar purpose was already being built in the direct vicinity. Furthermore, the acquired plot had considerable restrictions on its use (engineering networks and a gas pipeline with a wide health safety zone ran along it). Only several years later did the investor succeed in starting to develop his plot and attract clients to construct buildings on a turnkey basis. More investment had to be made in shifting the engineering networks, setting aside an area for parking space, etc.
The reason for the problems was the foreign company’s unjustified confidence in its approach in an unfamiliar market.
To reduce the risks of the project to a minimum, it should have assessed the competition for three to five years ahead and carried out deep due diligence of the sector. Found out from the project initiators what measures should be taken to implement the project, assessed costs. If the foreign company is only entering the Russian market, it would be logical to make use of the experience of professional consultants and brokers. A serious market of such services exists in Russia, Both local companies and missions of international consultancy firms are represented in it, so there is plenty of choice. Consultants can also help in working out a strategy for winning the first client by logical price formation and special commercial terms.