Commercial lease in Nigeria is basically an agreement between the Landlord and a business or enterprise in which the landlord leases his property for commercial use. Here, the landlord lets his property out to an enterprise or organization for a particular period of time in exchange for a payment.
In Nigeria, leases are generally regulated by the tenancy laws of each state. The laws do not distinguish between commercial and residential leases. However they are not the same, one key difference between the two is that while commercial lease, also called business leases are specifically for tenants who will use the property for business or other commercial use (such as offices, warehouses and so on), the residential lease agreement is used for only residential purposes.
What you should know: In lease agreements, the lessor is the owner of the assets that is being leased or rented, that is the landlord. While the lessee is the party that pays for the lease or renting of the property, that is the tenant.
Typical Law provisions of Commercial or Business Lease
Before signing a commercial lease in Nigeria, it is very important to understand the lease terms. The terms of a lease are contractual and as such courts have the right to uphold the terms of both parties agreements. The typical provision of commercial or business lease include;
Length of Term: This is the duration of the lease which is typically a minimum of two years. The lease may be renewed upon agreement by both parties. Note that a lease generally is expected to terminate upon the expiry of the agreed term called effluxion. However, a lease may also be terminated where a party is in material breach of the lease agreement and fails to remedy the breach within a given grace period.
Rent Increment: The review or upgrade terms 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. Both parties are expected to include a clause in the agreement typically for rent increase like at an interval of about two years.
Tax: A lease agreement may include clauses reflecting payment of certain taxes such as VAT and withholding tax. In Nigeria, the tax payable by the lessee includes VAT 7.5% and stamp duty with withholding tax of 10% paid by the lessor.
[READ MORE: What You Should Know About Commercial And Residential Real Estate]
Insurance: In a commercial lease agreement, the insurance is typically undertaken by the lessor who may recover the costs of the insurance from the lessee.
Repairs: When a commercial property is damaged, destroyed or in need of repairs, the lease continues to exist because of the idea 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.
In conclusion, commercial lease in Nigeria are always for a long duration and this is also dependent on the understanding of the parties involved. This may be tricky because some companies or businesses may not like the idea of a long term rental since these leases typically start from 2-3 years. However, it might also be a great choice for other companies or businesses.
There is indeed a wide range of important clauses in commercial lease agreements which is why it is advised that a prospective tenant of a commercial lease engages the service of a real estate lawyer or solicitor to negotiate and advise on all the clauses of such an agreement.
