What if you signed a lease that seemed perfect, only to find out later that your rent would double in two years? This happens more often to people than you think.

Many business owners make one crucial mistake that costs them thousands, and that is signing a commercial lease without fully understanding it. Hidden fees, confusing clauses, and unexpected rent hikes can turn a promising location into a financial trap.

Don’t let that happen to you. In this guide, we’ll break down everything you need to know about commercial leases. By the end, you’ll know how to protect your business and avoid costly surprises.

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Key Takeaways

• A commercial lease is a legal agreement between a landlord and a business owner for a business space.
• Commercial lease is of different types, and each type affects your payments and responsibilities differently.
• In order to avoid being trapped after signing a commercial lease agreement, always negotiate the lease terms to avoid being trapped by costly clauses.

What Is a Commercial Lease? 

A commercial lease is an agreement between a landlord (the owner of a property) and a tenant (a business) to rent a property for business use. It’s like renting a house, but instead of living there, you run your business there.

Unlike renting a house, commercial leases are more complicated. They have different rules, longer terms, and fewer protections for tenants. This means it’s important to know what  

Not all commercial leases are the same. Here are the main types you might come across:

• Gross Lease: In a gross lease, you pay a fixed rent each month, and the landlord covers most expenses like taxes, insurance, and maintenance. This is the simplest type of lease because you know exactly what you’ll pay every month without extra surprise costs. It’s a good option if you want predictable expenses.
• Net Lease: A net lease requires you to pay rent plus extra costs like property taxes, insurance, or maintenance fees.  
• Percentage Lease: In a percentage lease, your rent is based on a percentage of your business’s sales. This means that as your business earns more, you pay more rent. This type of commercial lease is common for retail stores in malls or shopping centers. 

Understanding which lease type you’re signing will help you avoid unexpected costs and plan for the future.

What to Look For in a Commercial Lease Agreement in Nigeria

When signing a commercial lease in Nigeria, certain elements are critical for the agreement to be valid and functional. These components include:

1. Description of the property premises 

The lease should clearly describe the space you’re renting. This includes the rooms, offices, or storage areas you’ll have access to. 

It’s important for you to know this before signing, as certain spaces that aren’t listed won’t be available for you to use later.

2. Lease Duration

How long will you rent the space? This is what you should know before agreeing to the lease’s terms. Commercial leases tend to be longer, often lasting 3 to 10 years with options for renewal. 

Shorter leases give you flexibility, while longer leases provide stability, but make sure you can commit to the entire term.

3. Rent and Payment Terms

The commercial lease should clearly state how much rent you’ll pay and when it’s due. Check if the rent will increase during the lease and how often. 

Knowing this helps you check your financing options in order to prepare for future expenses.

4. Security Deposit

Most landlords ask for a deposit from the tenant to cover damages or unpaid rent. Find out how much the security deposit is and under what conditions you can get it back. 

If possible, ask for a clear timeline for its return in order to avoid problems when you decide to exit.

5. Responsibilities for Repairs and Maintenance

Some commercial leases make you responsible for repairs, while others place this duty on the landlord. Clarify who handles what before signing to avoid surprise repair costs later.

6. Use Clause

The use clause tells you what kind of business you can run in the space. For example, if the lease says it’s for retail use, you can’t turn it into a restaurant. 

This clause mostly protects landlords, but it also limits you as a tenant, so make sure it fits your business plans.

7. Renewal Clause 

Most commercial leases offer a chance to renew the lease at the end of the term. However, the terms of renewal may not be the same as the original agreement. It’s important to discuss and agree on renewal terms early. 

This way, you know if your rent will increase and by how much. Renewing a commercial lease gives your business stability and avoids the hassle of moving to a new location.

8. Notice Period

Whether you plan to renew or end the lease, you usually need to give the landlord written notice. This period is often 6 months but could be longer, depending on the lease. 

Failing to give notice on time could result in financial penalties or being forced to stay longer than you planned. To avoid this, set reminders so you don’t miss the deadline.

9. Permitted Use

The permitted use clause outlines what kind of business activities can happen in the leased space. For instance, you might only be allowed to run a retail store, not a restaurant or warehouse. 

This clause ensures that you use the space for its intended purpose. If your business plans change, you’ll need the landlord’s approval to modify the permitted use.

10. Sublease

If you plan to share or rent part of the space to another business, check if you are allowed to  sublease. In many cases, tenants must get the landlord’s approval before subletting any part of the property. Many landlords require written permission before you are allowed to sublease.

Legal Consideration For Commercial Lease in Nigeria

Commercial lease agreements in Nigeria are governed by specific laws, mainly the Tenancy Law and the Land Use Act. These laws protect both the landlord and the tenant by outlining their rights and responsibilities. Here are some key legal considerations you should be aware of:

• Stamp Duty: Before a lease is legally binding, the tenant must pay stamp duty. This is a government-required fee, and if it’s not paid, the lease can’t be enforced in court. 
• Registration of Lease: If a commercial lease lasts for more than three years, it must be registered at the appropriate land registry. This registration creates a public record of the lease, protecting both the tenant and the landlord.
• Force Majeure Clause: This clause protects both the landlord and the tenant in case of unexpected events like natural disasters, pandemics, or government actions that prevent business operations. 

To avoid potential legal issues, it’s wise to hire a lawyer to review the lease before you sign. A lawyer can spot potential problems and help you negotiate better terms.

How to Negotiate a Commercial Lease in Nigeria

Almost everything in a commercial lease is negotiable. If you see something you don’t like, you can ask to change it. Here are some tips to help you get a better deal:

• Understand Market Rates: Before signing a commercial lease, research rental rates for similar properties in the area. This helps you know if the rent is fair or overpriced. Use this information to ask for a better deal.
• Ask for a Rent-Free Period: Some landlords offer a rent-free period to help new tenants set up their business. This period may last 1 to 3 months, and it can reduce your starting costs.
• Negotiate for Cap on Rent Increases: Many commercial leases increase rent every year. Ask for a cap or limit on how much it can increase. This protects you from steep rent hikes that could hurt your business.
• Check the Exit Clause: Can you leave the lease early if your business struggles? If not, you could be stuck paying rent for a space you no longer need. Ask for an exit option with fair terms.
• Get Professional Help: Commercial leases are full of legal language that can be confusing. A lawyer can spot tricky clauses and help you negotiate better terms. It’s a smart investment that could save you money later.

Don’t be afraid to ask for better terms. Landlords want good tenants, so they’re often willing to negotiate. However, don’t be afraid to walk away if the terms don’t favour you.

Common Mistakes to Avoid When Signing a Commercial Lease

Whether you are buying or renting a home, there are certain mistakes you should avoid. When it comes to signing a commercial lease, here are the mistakes to avoid:

• Not Reading the Full Lease: Skipping parts of the lease can be costly. Take the time to read everything, especially the fine print.
• Ignoring Hidden Fees: Ask for a list of fees like maintenance, utilities, and taxes. Some leases have extra charges that aren’t obvious.
• Skipping Negotiation: You don’t have to accept the first offer. Ask for better terms on rent, security deposits, and lease duration.
• Overcommitting to a Long Lease: A 10-year lease might sound good, but if your business needs change, you could be trapped. Try to get a break clause in case you want to leave early.
• Not Getting Legal Advice: A lawyer can spot hidden risks and protect your business from costly mistakes. So, consult a lawyer to review the commercial lease terms before you sign. 

Benefits of Commercial Lease in Nigeria

Despite the challenges, commercial leasing remains an attractive option for businesses. Here are some benefits to note:

• Flexibility: Unlike residential lease, commercial lease gives businesses the ability to operate without committing to property ownership, which can free up capital.
• Location Advantage: Leasing allows businesses to secure prime locations in commercial hubs, which might be expensive to buy. Being in a high-traffic location can increase visibility, attracting more customers.
• No Maintenance Hassle: Depending on the type of lease, landlords handle major repairs and maintenance, reducing costs for tenants. This arrangement allows you to focus on running your business without being distracted by property maintenance issues.

Final Thoughts

Signing a commercial lease is a big step for your business. It’s more than just paying rent but it’s about protecting your investment and ensuring your business can grow.

If you understand the key terms, avoid mistakes, and negotiate smartly, you can get a lease that helps your business thrive. Remember, you don’t have to do it alone. Get help from a lawyer or real estate expert. Take your time to ask questions, and sign the agreement with confidence.