Tenancy Agreement vs Commercial Lease Agreement

Choosing the right agreement for occupying property in Nigeria is more than just a paperwork exercise. Whether you are renting a flat, opening a shop, or taking a warehouse for your business, the legal document you sign shapes how long you stay, who pays for repairs, how rent changes, and what happens when the relationship ends. Two terms you will commonly encounter are tenancy agreement and commercial lease agreement — they sound similar but serve different purposes and operate under different commercial and legal expectations.

What Is a Tenancy Agreement?

A tenancy agreement is a contract that grants a person the right to occupy premises for living purposes. It is primarily used where the property is a house, flat, apartment, or serviced accommodation. Tenancy agreements are usually simpler in format and content because residential tenancies typically involve shorter stays and more standardised regulatory protections.

Typical Purposes and Uses

Tenancy agreements are used for:

• Renting apartments, single rooms, or family houses

• Serviced or short-stay accommodations (guest flats, Airbnb-style lettings)

• Staff housing provided by employers

Common Duration and Renewal Patterns

In Nigeria, residential tenancy terms are typically short. It is common to see:

• Fixed short-term tenures: 6 months or 12 months (most common)

• Rolling monthly arrangements after an initial fixed term

• Or a periodic renewals on mutually agreed terms (yearly tenancy)

Because people move more frequently than businesses, tenancy agreements emphasise flexibility: shorter initial terms, simple renewal processes, and standard procedures for ending the tenancy with reasonable notice.

Typical Clauses and Tenant Protections

Residential tenancy agreements generally deal with:

• Rent amount, payment frequency (monthly/quarterly/yearly), and mode of payment

• Security deposit and conditions for return

• Repair and maintenance responsibilities (minor repairs typically borne by tenant; structural repairs by landlord)

• Utility payments (electricity, water, refuse) and how meters are billed

• Use restrictions (no business activity without consent)

• Notice periods for termination and forfeiture provisions for breach

Many states in Nigeria also have tenancy or rent control laws that offer additional protections for occupants — for example, the Tenancy Law of Lagos State regulates eviction procedures, deposit limits, or required notice periods. These local rules can affect the enforceability of certain clauses, so parties should check relevant state law.

What Is a Commercial Lease Agreement?

A commercial lease agreement is a tailored contract governing the letting of property for business purposes. This covers retail shops, offices, warehouses, factories, hotels, and other premises used to carry on trade or provide services. Commercial leases are typically more detailed, negotiable, and longer in term than residential tenancy agreements.

Typical Purposes and Uses

Commercial leases are used for:

• Office space and co-working premises

• Retail units, showrooms and shopping mall tenancies

• Industrial facilities, storage yards and processing plants

• Hospitality and leisure properties

Typical Duration and Renewal Patterns

Commercial landlords and tenants usually agree longer terms to reflect the investment and stability businesses require. Typical durations in Nigeria include:

• Medium-term leases: 2–5 years (common for small businesses and short-term projects)

• Long-term leases: 5–10 years or more (standard for anchor tenants, warehouses, manufacturing sites)

• Ground leases and build-to-suit arrangements: 15–99 years (used for large capital projects or when substantial improvements are made)

Longer durations give tenants confidence to invest in fit-outs and equipment. Landlords benefit from predictable income and the ability to amortise property upgrades over time.

Detailed Provisions Found in Commercial Leases

Commercial leases cover a wider range of commercial and legal issues:

• Rent structure: base rent, service charges, percentage rent (retail), and escalation clauses (CPI or fixed increase)

• Repair and maintenance: who pays for structural repairs, routine maintenance, and fit-out obligations

• Fit-out and tenant improvements: approval processes, ownership of improvements on expiry, cost allocation

• Service charge and operating expenses: apportionment of utilities, security, waste management and common area maintenance

• Insurance and indemnities: requirements for tenant insurance and landlord’s insurance; liability for third-party claims

• Assignment, subletting and change of use: whether and how a tenant may assign or sublet the premises, and restrictions on certain trades

• Rent review and market rent clauses: mechanisms to reset rent at review intervals to reflect market conditions

• Termination, break clauses and forfeiture rights: negotiated exit options and consequences of default

• Security: cash deposit, bank guarantee, or parent company guarantee for larger tenants

• Regulatory compliance: obligations to keep premises compliant with licences, statutory approvals and health & safety laws

Because commercial leases directly affect a business’s operating costs and flexibility, they are heavily negotiated and often supported by legal and commercial counsel.

Key Differences at a Glance

While both documents create legal obligations between landlord and occupant, the differences are practical and material:

Purpose and use: Tenancy agreements are for residential occupation; commercial leases are for trade and business activities.

Length of term: Tenancies are usually short (6–12 months); commercial leases range from short (2–5 years) to very long (10–99 years) depending on the nature of the business.

Complexity: Residential agreements are relatively simple; commercial leases are comprehensive and bespoke.

Flexibility and security: Residential tenants expect flexibility and statutory protections; commercial tenants expect longer security of tenure to justify business investment.

Risk allocation: Commercial leases transfer more responsibilities (e.g., repair and insurance) to tenants, while residential tenancies place core property repairs on landlords.

Financial structure: Commercial leases commonly include service charges, percentage rent, and complex review mechanisms; tenancies usually feature a flat rent and a security deposit.

Enforceability and registration: Commercial leases with long terms or significant rights may require formal execution, stamping and registration at a Lands Registry to be fully enforceable and to protect against third-party claims. Residential tenancies are rarely registered but should be stamped for evidential purposes.

Legal and Practical Considerations

Land Use Act and Title Issues

The Land Use Act (1978) underpins land ownership in Nigeria. It vests land in state governors to hold in trust for the people. Practical consequences include the need to ensure the lessor has proper authority to grant leases and that any title documents are verified. For commercial arrangements, confirming the landlord’s title, survey plans and consent of other stakeholders (e.g., mortgagees) is essential.

Stamp Duty, Registration and Evidence

Many states require stamp duty on leases and deeds; some require registration at the Lands Registry for leases exceeding certain durations or where third-party rights must be protected. Stamping the agreement and, where necessary, registering it helps make the lease admissible in court and preserves priority against competing claims. Parties should confirm state stamp duty schedules and registration procedures.

Rent Control and State Tenancy Laws

Certain states—Lagos being the most prominent example—have tenancy laws and rent control frameworks that affect residential lettings, eviction procedures and deposit regulations. Commercial leases are generally governed more by contract law, but local regulations may still affect business licences, signage and permitted uses.

Tax and Service Charges

Commercial tenants should factor in property taxes, local rates and potential service charges. Landlords often recover some of these operating expenses through service charge provisions. Both parties should ensure the lease clearly allocates tax liabilities to prevent disputes.

Negotiation Tips for Landlords and Tenants

For tenants negotiating a commercial lease: insist on clear definitions (what the premises include), a fair rent review mechanism, a reasonable repair covenant (e.g., tenant responsible for non-structural repairs only), the right to quiet enjoyment, and a negotiated break clause if flexibility is required. Request the landlord’s repair and compliance obligations be made explicit for structural and statutory issues.

For landlords: ensure adequate security (deposit, guarantor), clear permitted uses to prevent nuisance or illegal activity, the ability to recover service charges and rates, and robust default remedies. Consider including a schedule for permitted alterations and a removal clause for tenant improvements at lease end.

For residential landlords and tenants: adopt a clear inventory and condition report at the start, set out deposit and refund mechanics, agree notice periods consistent with local law, and specify permitted uses (no commercial activity unless consented).

Dispute Resolution and Practical Safeguards

Lease disputes in Nigeria can be expensive and time-consuming. Including a clear dispute resolution clause—mediation followed by arbitration or litigation—can speed resolution. Where practical, require periodic inspections and keep communication channels open to resolve maintenance issues early.

Both parties should retain a copy of the stamped agreement, receipts of rent payments, notices exchanged, and any ancillary documents (e.g., consent for alterations, guarantor undertakings).

Conclusion

A tenancy agreement and a commercial lease agreement may both grant occupation rights, but they answer different commercial needs. Tenancy agreements prioritise flexibility and tenant protections geared towards living arrangements; commercial leases prioritise stability, investment protection and detailed risk allocation suited for business operations. In Nigeria, the choice between the two affects not only the length of occupation but also tax exposure, regulatory compliance, repair obligations and the ability to recover or assign rights.