COMMERCIAL LEASE AGREEMENTS
Commercial lease in Nigeria is a form of lease agreement where the landlord leases his property for commercial purpose.
Also, a commercial lease is an agreement between the landlord and the enterprise regarding property lease. Most organizations will decide to lease property instead of obtaining it because it requires less capital.
Commercial lease agreements are more complex than residential leases because these terms are negotiable and the differences between leases vary greatly. Before signing a commercial lease, it is important to understand the lease terms that define the rights and responsibilities of both parties.
The duration of a commercial lease depends on the understanding of the parties involved..
In the case of state distribution or government directly granting restrictive real property benefits, the period of caution for the state as the grantor is any period, usually not exceeding 99 years.
- FEATURES OF A COMMERCIAL LEASE
Commercial premises can be independent or part of a small or large commercial complex. Depending on size, the following are examples of clauses that can be used in commercial leasing
- Parties: The full name and address of the lessor and lessee
- Premises: a complete description of the property / property in order to correctly identify the subject of the lease. In addition to the address, this can also include the floor on which the property is located and its dimensions (in square meters).
- The Terms: this explains the duration of the lease, including the start date and whether the lease has a fixed duration. If it is a fixed-term lease, once the lease term ends, it will not terminate, and there is no assumption or automatic renewal like the annual lease. If the tenant wishes to remain in the property after the time limit expires, he must formally request a new lease that the landlord may or may not approve.
- Use: this explains the only use or type of use allowed by the lease.
- Prohibition: this clause highlights other prohibited uses in addition to those normally excluded from the “licensed use” clause.
- Rent and rate: this illustrates the annual rent and the total rent that should be paid in advance as agreed by the parties.
- Tax: A lease agreement may include clauses reflecting payment of certain taxes such as VAT and withholding tax.
- Rent review and upgrade terms: this explains the time period during which rents will be reviewed to increase rents. It may also set an upper limit on the increased percentage to protect tenants from a substantial increase.
- Security deposit: this is the deposit required by the lessor to ensure that the lessee complies with its obligations during the lease term. This is usually expressed as a percentage of rent and can be refunded in full at the end of the lease, provided that the lessee has no debt to the lessor and has vacated the house and maintained it in good repair.
- Service fee: Some commercial lease agreement usually contain provisions that determine the services provided by the lessor for the general maintenance of the property and the common interests of the tenants. This usually refers to the service fee budget to be prepared regularly, from which each lessee will allocate their service fee costs in proportion.
- Interruption clause: this is the date of the lease agreed by both parties. The lease can be “suspended” without anyone being punished. In addition, the lessee can end the lease early with the consent of the lessor and transfer the lease to another person, although the landlord may require the tenant to act as a guarantor of the new lease to ensure that the new tenant fulfills its obligations. If the lease is not terminated early in accordance with the lease terms, the lessee will continue to bear the rent payable under the lease. However, the interruption clause is not common in Nigeria because tenants usually pay for the entire lease period, rather than making periodic instalments during the lease period.
- Alienation: According to this clause, unless the written consent of the lessor is obtained, the lessee shall not give up owning the house by transferring the lease or subletting it.
- Full repair and guaranteed lease: lessee should keep the rented houses in good repair. Therefore, many commercial leases are full repair and insurance leases. In this way, the tenant will be responsible for all repairs during the lease and the insurance fees related to the use of the property (occupier’s responsibility). The lessor usually keeps the shared area and facilities in good working condition, and then recovers the cost from the tenant through the service fee.
- Insurance obligation: because the owner of the property is legally responsible for the accidental injury of the visitor, the lessor usually requires the lessee to purchase third-party liability insurance to cover the lessor in this case. The lessee will also insure the landlord’s insurance costs for the building in proportion to the area occupied by the lessee. The idea is that it is the tenants who use and occupy the property are more likely to put them at risk. This is called the responsibility of the occupier. In fact, a policy can cover the landlord ’s building insurance and the tenant ’s liability. The cost may be shared between the landlord and the tenant according to the agreed ratio.
- Planning: this clause usually requires the lessee to comply with all planning laws and regulations that affect the intended use of the leased property, and obtain the written consent of the lessor before making any planning application.
- Quiet enjoyment: on the premise of paying the rent and observing the other terms in the lease, the lessee will enjoy the premises peacefully without interference from the lessor or other persons who are based or entrusted to him.
- Choose to renew or accept a new lease: this clause gives the lessee the option to renew or request a new lease, usually by notifying the lessor in writing before the lease ends.
- House damage / destruction: usually, where the property is damaged or destroyed, the lease continues to exist. The idea is that this does not automatically mean that the property cannot be returned to the rentable state. There are usually insurance obligations that cover such situations. However, if the property is not restored within the time agreed in the lease agreement, or there is no reasonable prospect, the lease will be determined.
Commercial leases are always for long duration or period of rents in Nigeria. Such lease often starts from three years and above.
Although long-term rental of commercial properties may not be an ideal choice for most companies, it may be the perfect solution for others.
The important clauses in commercial lease agreements have been highlighted above. The list is non-exhaustive. It is advised that a prospective tenant of a commercial lease engages the service of a real estate attorney to negotiate and advise on all the clauses of such an agreement.
By Real Estate Law Team at Resolution Law Firm