Sri Lanka Factory Lease Costs: Deposit, Stamp Duty and Power Upgrades

A Sri Lanka factory lease is never just a monthly rent number. Budget for at least six separate costs: landlord rent, deposit, lease stamp duty and registration, fit-out approvals, water and power connections with capacity upgrades, and sometimes a road reinstatement charge. For each, settle the same three things before signing: who pays, on what basis, and when.

You have viewed a few buildings. Every rent the landlords quote sits inside your budget, so the conversation moves on to the rent-free period. The disagreement usually arrives in month three or four: power is not connected, water pressure is too low, the contractor says the substation is yours to build, and the water board says the road outside the gate has to be cut, with a reinstatement charge on top. None of it was a line on the first quotation.

Four assumptions cause most of the damage here. All of them only become visible after you have paid.

Why is the dollar figure on a BOI land table not a factory rent?

Plenty of people open the BOI vacant land table, see a figure per acre, and assume that is what industrial park space costs per month.

It is not. That table lists land use rights: a one-off lease premium plus an annual ground rental. Two payments, two different things. On the BOI vacant land table, for example, plots at Katunayake are listed at US$150,000 per acre premium plus US$12,500 per acre annual ground rent; developed plots at Koggala from US$35,000 per acre plus US$6,225 per acre per year; Horana at US$45,100 per acre plus US$5,650 per acre per year. These figures are revised with each release, so work from the latest vacant land table published by the BOI (https://investsrilanka.com/).

Feed those numbers into a monthly cash flow and you will understate the upfront lump sum and overstate the monthly cost at the same time. More importantly, the land price excludes the cost of constructing the factory, the design fees and the approval timeline. If you are leasing an existing building, that table does not belong in your cost list at all. If you are taking land and building, it is the first payment, not the whole bill.

The park says "water and power to the plot" — do you still pay inside the fence?

Yes, and it can be the largest item on your list. The plot description reads as if supply reaches each industrial lot, so the site looks ready to occupy.

What the BOI table actually says is that water supply and power supply will be provided up to each industrial lot — up to the boundary. Everything inside that line may still fall to the tenant: internal distribution, the transformer, internal pipework, capacity upgrade works, and any line running beyond the standard distance.

On electricity, the CEB Allowed Charges published by the PUCSL (current version effective 1 February 2026) provide that for ordinary retail connections the distributor bears the cost of LV/MV network construction outside the boundary, capped at Rs.400,000 per customer; works inside the boundary, works beyond the standard distance and non-standard works can still be estimated case by case at standard construction cost (https://www.pucsl.gov.lk/).

Under-budgeting by a few million rupees is the small problem. The bigger one is treating the signing date as the start date. A rent-free period is negotiated; the grid does not move faster because you are not paying rent.

The old building has a meter — can you plug in and run?

Not necessarily. Many ordinary industrial buildings in Sri Lanka are wired for basic low-voltage supply only, and high-load equipment needs a separate application.

Under the CEB's current connection guidance, applications above 42 kVA go to the Commercial Engineer at the provincial Deputy General Manager's office — a different route from the simplified small-capacity process (https://www.ceb.gov.lk/). A tenant can apply in its own name, using a lease agreement or rent agreement as proof of occupancy. If the line has to cross third-party land, that party's written consent, certified by the local authority, is required as well.

This is the item most likely to swallow your rent-free period. Survey, design, construction and inspection move in months, not weeks. Set the rent-free period too short and rent starts running in month two while the machines are still outside the gate. Capacity is not a formality you tidy up after signing either — it decides the day your equipment can actually turn.

Beyond the deposit, what else do you pay before signing?

The deposit is one line among several, and there is no official standard for how many months it should be — the lease sets it. Three to six months' rent is common in the market, and higher for a building that comes with fit-out and equipment. Beyond it, expect at least the following:

• Lease stamp duty. A lease agreement attracts stamp duty, in practice calculated as a percentage of total rent over the term (1% is the general current practice); the applicable rate and method are governed by the latest IRD rules (https://www.ird.gov.lk/).
• Notarisation and registration. Leases of more than one year are normally executed before a notary and registered at the local land registry. What an unregistered lease can and cannot be enforced against is a question for a local lawyer on your facts.
• Electricity meter deposit. Large industrial connections normally carry a refundable deposit calculated from estimated consumption; the amount comes from the CEB or LECO quotation.
• Fit-out and approvals. Inside a BOI zone, fit-out and alteration drawings go to the BOI Engineering Division; outside, to the municipal council or Pradeshiya Sabha. Environmentally sensitive processes also need an EPL, and fire certification is issued separately.
• Water connection and road reinstatement. A new or upgraded connection from the NWSDB requires proof of ownership or the lease, company registration documents, a site plan, and a daily water demand calculation certified by a registered architect or engineer. Per the application form, site inspection and quotation take up to 7 days, and connection up to 4 days after payment and signing. If the road surface has to be cut, a reinstatement charge is payable to the road or local authority, not to the water board (https://www.waterboard.gov.lk/).
• Make-good at exit. The standard you must restore the building to decides whether the deposit comes back in full.

Running short of cash is the small problem. The expensive one is a lease that never says who pays. Meter deposit, capacity works, road reinstatement, make-good at exit — leave four blanks and you have four negotiations when you move out.

Pre-signing checklist: who gets paid, and on what basis?

Cost item	Paid to	Fixed or variable	What to pin down before signing
Monthly rent	Landlord or park operator	Variable — area, location, term	Whether service charges are included; how escalation is triggered
Deposit or security	Landlord	Variable, market practice 3–6 months	Refund conditions, what it can be set off against, whether it earns interest
Lease stamp duty	Tax authority	On total rent over the term	Who files and pays; which valuation applies
Notarisation and registration	Notary, land registry	Per lease and registration requirements	Whether a lease over one year must be registered; who bears the cost
Fit-out and alterations	Designer, contractor	Variable — scope of drawings	Who handles BOI or local council approval; whether an EPL is needed
Power connection and capacity upgrade	CEB or LECO	Variable — existing capacity and scope of works	How many kVA exist now; whether demand exceeds 42 kVA; who builds inside the boundary
Meter deposit	CEB or LECO	Refundable, based on estimated consumption	How many months of consumption it is based on; how it is refunded at exit
Water connection	NWSDB	Variable — pipe size and distance	Whether pressure and pipe size are adequate; who produces the demand calculation
Road reinstatement	Road or local authority	Variable — length of excavation	Who applies; whose name goes on the invoice
Make-good at exit	Landlord	Variable — lease standard	Whether the exit standard is written down

When a quotation for a factory lands on your desk, do not start by comparing totals. Sort the one-off costs into three buckets — payable before signing, payable during construction, payable before power and water are energised — and you will find that some cheap quotes are cheap because the second and third buckets are empty. Then ask three questions: who is this paid to, how is it calculated, and who absorbs the overrun when site conditions turn out to be different from what was assumed.

Costs like these usually only line up when the landlord, the engineering contractor, the CEB or NWSDB, and a local lawyer are working from the same schedule. MMD's role in projects like this is to connect requirements, document lists and local resources, and to sit in on those conversations; formal opinions on approvals, lease terms and tax treatment come from licensed professional firms.

This article is general information only and is not legal, tax or immigration advice. Specific requirements are governed by the latest position of the relevant Sri Lankan authorities and your appointed licensed professional advisers.