Leasing commercial properties is a popular practice in Nigeria, where landlords rent out their properties, such as office spaces, retail outlets, warehouses, hotels, and industrial buildings, to businesses for profit or as operational workspaces. These arrangements allow businesses to occupy strategic commercial locations without incurring the heavy cost of outright property ownership, while landlords generate income from rental payments.
Although Nigeria’s Land Use Act of 1978 does not expressly categorize leases by their commercial nature, commercial leases are generally governed by the tenancy laws of each state in the federation.
Entering into a commercial lease agreement requires careful consideration. The lease outlines the rights, responsibilities, and expectations of both the landlord and the tenant. A poorly negotiated lease can severely impact a business’s operations and future prospects. Below are the key factors to consider before leasing a commercial property in Nigeria:
13 Factors to Consider Before Leasing a Commercial Property in Nigeria
1. Type of Commercial Property
The first step is to identify the kind of commercial property that best suits your business needs. Commercial properties in Nigeria range from retail shops, office spaces, warehouses, and industrial sites to multi-use commercial complexes. Some are standalone buildings, while others are part of a larger commercial development. The size, layout, and location of the property must align with your business goals and operations.
2. Location
When choosing a commercial property, consider how close the location is to your suppliers, customers, and key transportation routes, as this can affect the efficiency and cost of your operations. Also, take into account any local regulations or zoning laws that may affect your type of business. Ensuring the location is both convenient and legally suitable for your activities can help your business run smoothly and avoid future complications.
3. Lease Term (Duration)
Commercial leases usually span a minimum of three years, although parties can negotiate longer terms depending on their business needs. There is generally no maximum limit, provided the lease duration does not exceed the term the landlord holds under any superior title or head lease. Therefore, businesses should consider their current needs and future plans to choose a lease term that works best for them.
4. Option to Renew and Termination
Check whether the lease agreement includes an option to renew upon expiration. This provision allows tenants to extend the lease, subject to the landlord’s consent. Also, consider if there are any early termination clauses that allow you to end the lease before the agreed term. These clauses can give your business flexibility to adapt if circumstances change, such as needing a bigger space, downsizing, or relocating.
5. Rent and Payment Terms
Rent is an important component of any commercial lease. Carefully review the rental amount to ensure it fits within your business’s budget. Also, pay close attention to any provisions for rent increases, such as annual increments or adjustments based on market rates. These increases can have a significant impact on your long-term expenses, so it is important to understand when and how rent may change during the lease period.
6. Prohibited Uses
Some commercial leases impose restrictions on the type of activities that can be conducted on the property. It is important to verify that your intended business use is permitted under the lease, such as operating hours, noise levels, etc. Violating usage restrictions can lead to legal disputes or termination of the lease.
7. Tax Obligations
Commercial leases may contain provisions regarding tax liabilities, such as Value Added Tax (VAT) at 7.5% and withholding tax on rental income. Before leasing that commercial property, you should consider and clarify who is responsible for these taxes, either the landlord or the tenant, to avoid unexpected financial burdens.
8. Right to Sublease or Assign to another Tenant
A tenant generally has the right to sublet or assign their lease unless the lease agreement states otherwise. However, such actions often require the prior written consent of the landlord. This clause is particularly important if your business may need to downsize, relocate, or exit before the lease term expires.
9. Service Charges
Commercial tenants may be required to pay service charges for property maintenance and shared amenities, such as security, cleaning, water supply, and generator fuel. The lease should detail the scope of services provided and how the cost is apportioned among tenants. Confirm these details and budget accordingly before renting that commercial property.
10. Insurance Obligations
Both the landlord and tenant have insurable interests in a commercial leased property. However, it is usually the landlord who insures the building against structural damage or major risks, with the option to recover the insurance cost from the tenant. Tenants may also be required to insure their own fixtures, fittings, and stock. Therefore, it is important to understand what type of insurance is required for your business operations within the leased space.
11. Planning and Regulatory Compliance
Any commercial use of property must comply with local planning regulations. Before leasing a property, ensure it has the required permits for your intended use. In some cases, tenants must seek the landlord’s written consent before applying for additional planning approvals or structural changes.
12. Quiet Enjoyment
This is a standard covenant in lease agreements, guaranteeing that the tenant will be able to use the premises without disturbance from the landlord, provided they comply with the lease terms. Ensure this covenant is included to protect your business operations from undue interference.
13. Repairs and Maintenance
Responsibility for repairs is a major point of negotiation during a commercial lease of property. Some leases require tenants to handle all repairs, including structural ones, while others assign structural repairs to the landlord and internal repairs to the tenant. Understand who is responsible for what, and ensure this is clearly stated in the lease agreement.
Conclusion
Commercial leases offer flexibility and strategic advantages for businesses, but they can also come with legal and financial obligations. Given the complexities involved, it is important to consult a lawyer with experience in commercial real estate before signing any lease agreement.
A real estate lawyer can help you understand the terms and conditions, identify any hidden obligations or unfavorable clauses, and ensure that your rights and interests are fully protected. Are you looking to rent a commercial property today? Schedule a consultation with Resolution Law Firm today and let their team guide you through the leasing process.
By Resolution Law Firm Team
Email: info@resolutionlawng.com
Leave a Reply