Dennis Isong: How to Lease a Commercial Property

Sarah had been running her boutique consulting firm from a cramped apartment in Ikeja for three years when she realised it was time to move into a proper commercial space. Armed with her laptop and a budget she had been carefully building, she walked into a gleaming office complex on Victoria Island, ready to negotiate her first commercial lease. What she discovered in the following weeks would teach her more about commercial real estate than any business school course could.

Her journey, from that first viewing to signing the lease agreement, mirrors the experiences of thousands of entrepreneurs and established businesses navigating the dynamic commercial property market. Understanding how to lease commercial property, along with the associated costs and requirements, can make the difference between securing the perfect space for your business and getting lost in a maze of bureaucracy and unexpected expenses.

Understanding Commercial Property Market Dynamics

The annual rent for commercial properties varies widely, ranging from ₦25,000 to ₦50,000,000, depending on the location, size and specifications of the property. This broad range reflects the diversity of available commercial spaces, which include everything from small retail units to large corporate headquarters.

In high-end areas, the price of commercial properties can reach around ₦93,000 per square foot, whereas more affordable regions see prices ranging from ₦18,600 to ₦37,200 per square foot.

The market has undergone significant changes recently, with construction costs rising by an average of 10% in 2024 due to inflation. This inflation surged from 22.42% in May 2023 to 33.69% in April 2024. The increase in inflation has affected both rental rates and the overall cost structure of commercial leasing.

Types of Commercial Properties Available

Office spaces dominate the commercial rental market, ranging from serviced offices in business centres to entire floors in corporate towers. Small businesses often start with serviced offices, which include utilities, cleaning and sometimes reception services in the rental cost. Larger organisations typically prefer dedicated office spaces that allow for customisation and branding.

Retail spaces vary dramatically based on location and foot traffic potential. Ground-floor units in busy areas command premium rents, while spaces in dedicated shopping complexes may offer different pricing structures based on the centre’s overall commercial strategy.

Warehouse and industrial spaces are increasingly important as the economy diversifies. These properties often require specific infrastructure considerations, including power supply, loading facilities, and transportation access. Locations near ports or major highways typically command higher rents.

Mixed-use developments combine different property types, offering businesses the flexibility to combine office, retail, and sometimes residential elements. These developments often provide comprehensive facilities management and security services as part of the rental package.

Co-working spaces have emerged as a significant category, offering flexible terms and reduced upfront costs. While not traditional leases, these arrangements provide businesses with professional space without long-term commitments.

Essential Documentation Requirements

The documentation process for commercial leasing requires careful preparation and attention to detail. Written agreements are encouraged, detailing terms like rent, duration, and responsibilities, as a tenancy agreement is a legal document that outlines the terms and conditions between landlord and tenant.

Corporate documentation forms the foundation of any commercial lease application. Companies must provide a current Certificate of Incorporation, Memorandum and Articles of Association, and Form CAC2 (Annual Return). These documents establish the legal existence and current status of the business entity seeking to lease property.

Financial documentation requirements typically include audited financial statements for the past two to three years, bank statements covering recent months, and sometimes bank references or comfort letters. Landlords use this information to assess the tenant’s ability to meet rental obligations throughout the lease term.

Personal guarantees from company directors or shareholders are often required, particularly for smaller companies or those without an extensive financial history. These guarantees provide landlords with additional security and may influence rental rates and terms.

Tax compliance documentation, including current tax clearance certificates, demonstrates the business’s commitment to regulatory compliance. Some landlords require evidence of VAT registration where applicable.

References from previous landlords or business associates help establish the tenant’s reliability and business reputation. Professional references from lawyers, accountants, or other service providers may also be valuable.

Understanding the True Cost Structure

The advertised rental rate represents only part of the total cost of leasing commercial property. Understanding the complete cost structure helps businesses budget accurately and avoid surprises during the leasing process.

Security deposits typically range from six months to one year’s rent, depending on the property type and tenant profile. This deposit is held throughout the lease term and returned upon satisfactory completion of the tenancy, subject to any damages or outstanding obligations.

Legal fees for lease documentation and review typically range from 5% to 10% of the annual rent. Both landlord and tenant usually engage separate legal representation, and tenants should budget for their own legal costs regardless of who prepares the initial documentation.

Agency or brokerage fees, when applicable, usually range from 5% to 10% of the annual rent. Some properties are marketed directly by landlords, eliminating this cost, while others require payment of agency fees as part of the transaction.

Caution fees, representing a form of additional security, may be required in some cases. Typical structures include caution fees of 10% and legal fees of 10% of the annual rent, adding significantly to upfront costs.

Service charges cover common area maintenance, security, cleaning, and sometimes utilities for shared facilities. These charges vary widely but can represent 20% to 40% of the base rent in well-managed properties with comprehensive services.

Utility connections and deposits for electricity, water, and telecommunications services require separate budgeting. Power infrastructure costs can be substantial, particularly for businesses with significant electrical requirements.

Navigating the Tenancy Law Framework

The Rent Control and Recovery of Premises Law of Lagos State 1997 provides the applicable legal framework governing commercial tenancies. Understanding this framework helps both landlords and tenants navigate their rights and obligations effectively.

All landlords are obligated to issue rent payment receipts to their tenants upon receiving rent payments, and these receipts must include specific required information. This requirement provides tenants with important documentation for tax and business purposes.

The law addresses various aspects of the landlord-tenant relationship, including notice requirements, rent increases, and termination procedures. Commercial tenants should understand these provisions to protect their business interests and ensure compliance.

LASRERA (Lagos State Real Estate Regulatory Authority) operates mediation centres in 10 Local Government Areas, including Surulere, Agege, and Epe, where most cases are settled within 30-60 days. These centres provide accessible dispute resolution mechanisms for commercial tenancy issues.

Lease agreements should clearly specify maintenance responsibilities, permitted uses, alteration rights, and renewal options. Professional legal review helps ensure that agreements protect the tenant’s business interests while complying with applicable laws.

Dispute resolution mechanisms, including mediation and arbitration clauses, can provide more efficient alternatives to court proceedings. Including these provisions in lease agreements helps preserve business relationships while resolving conflicts effectively.

The Lease Negotiation Process

Successful lease negotiation begins with thorough market research and a clear understanding of business requirements. Comparing similar properties helps establish market rates and identify negotiation opportunities.

Rental rates often have negotiation flexibility, particularly for longer lease terms, larger spaces, or tenants with strong financial profiles. Understanding the landlord’s position and property specifics helps identify areas where concessions might be possible.

Lease terms beyond just rental rates offer significant negotiation opportunities. Break clauses, renewal options, rent-free periods, and tenant improvement allowances can substantially impact the overall value of a lease agreement.

Fit-out contributions from landlords can reduce tenant setup costs significantly. Some landlords prefer to provide turn-key solutions, while others offer cash contributions toward tenant improvements.

Service charge negotiations focus on understanding exactly what services are included and whether the charges reflect reasonable market rates. Some tenants negotiate caps on service charge increases to provide budget predictability.

Early occupancy arrangements sometimes allow tenants to begin operations before formal lease commencement, providing operational advantages, particularly for businesses with seasonal requirements or tight startup timelines.

Due Diligence and Property Inspection

Physical inspection of commercial properties requires systematic evaluation of structural condition, electrical systems, plumbing, air conditioning, and other building systems. Professional inspections may be warranted for larger spaces or longer lease commitments.

Title verification ensures that the landlord has a clear legal right to lease the property. This process typically involves reviewing the Certificate of Occupancy, survey plans, and any encumbrances or restrictions affecting the property.

Building permits and approvals should be verified to ensure the property is properly authorised for its intended commercial use. Required documents for commercial building permits include survey plans and proof of ownership, and tenants should verify that these are properly in place.

Environmental considerations, particularly for industrial or manufacturing uses, may require specialised assessments. Understanding any environmental restrictions or requirements helps avoid future compliance issues.

Zoning compliance verification ensures that the intended business use is permitted in the property’s location. Some commercial activities have specific zoning requirements that must be satisfied.

Infrastructure assessment focuses on power supply reliability, telecommunications connectivity, transportation access, and parking availability. These factors significantly impact business operations and should be thoroughly evaluated.

Post-Lease Considerations and Ongoing Management

Insurance requirements typically include general liability coverage and may require specific coverage for business contents, public liability, and sometimes business interruption. Understanding these requirements helps ensure adequate protection while avoiding over-insurance costs.

Compliance obligations may include obtaining business permits, tax registrations, and industry-specific licenses. Some of these requirements depend on the specific property location and business activities.

Relationship management with landlords and property managers affects the ongoing leasing experience. Establishing clear communication channels and understanding management procedures helps resolve issues efficiently.

Renewal planning should begin well before lease expiration to allow adequate time for negotiation or alternative space identification. Market conditions at renewal time may differ significantly from initial lease negotiations.

Exit planning considerations include understanding restoration requirements, notice periods, and any penalties associated with early termination. Planning these aspects helps avoid unexpected costs and complications.

Record keeping for lease-related expenses, correspondence, and compliance documents provides important protection and supports business operations. Proper documentation supports tax deductions and helps resolve any disputes that may arise.

How to lease commercial property in Lagos requires understanding both the opportunities and complexities of one of Africa’s most dynamic commercial real estate markets. From Sarah’s initial nervousness walking into that Victoria Island office building to her confident signature on a lease agreement six weeks later, the journey involves careful research, professional guidance, and strategic thinking.

The costs and requirements for commercial leasing are with premium locations commanding premium prices but offering unparalleled business opportunities. Success in this market comes from understanding not just the immediate costs but the complete framework of legal requirements, market dynamics, and strategic considerations that determine long-term business success.

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