A residential tenancy is usually a two-page agreement and a month's notice. A commercial lease is a longer document with a longer commitment, and most of what it will cost you is not in the headline rent. Two offices quoted at the same rate per square foot can differ by a large share of the total bill once measurement, service charge, escalation and fit-out are counted.
This guide covers what to check before you sign for an office, a shop or a godown. It does not replace an advocate's review, which on a multi-year commercial commitment is money well spent.
How the rent is quoted, and what the area means
Commercial rent in Kenya is commonly quoted per square foot per month. Before comparing two quotes, ask what area the rate is applied to:
- Net lettable area: the space you actually occupy.
- Gross area, or a share of common areas added on: corridors, lobbies, washrooms. Sometimes called a load factor.
The same office can be quoted on either. A lower rate on a grossed-up area can cost more than a higher rate on the net area. Ask for the measured area in the lease, and if the space matters, have it measured.
Then ask whether the quote includes VAT. Commercial rent can attract VAT where the landlord is registered for it, and a quote that leaves it out is not the price you will pay.
Service charge is a second rent
Most commercial buildings charge a service charge on top of rent for security, cleaning, common-area power, lifts, generator, water and management. It is often quoted per square foot too.
Ask:
- What it covers, item by item.
- How it is apportioned between occupiers, and on what area.
- Whether it is a fixed figure or a share of actual costs, reconciled at year end. If it is reconciled, ask to see last year's reconciliation.
- Whether it includes a sinking fund for major works, and what that fund currently holds.
- How it can increase, and on what notice.
A landlord who cannot show you how last year's service charge was spent is telling you how next year's will be handled.
Escalation compounds
Most commercial leases include an annual escalation: the rent rises by a fixed percentage each year, or by a review mechanism. A fixed escalation compounds. Over a multi-year lease, the rent in the final year is meaningfully higher than in the first.
Work out the rent in every year of the term before you sign, and budget against the average, not the first year. Check whether service charge escalates separately.
If the lease uses a rent review rather than a fixed percentage, read exactly how the new rent is set, and whether it can go down as well as up.
Fit-out and rent-free periods
You will rarely move into commercial space as it stands. Offices need partitions, cabling and finishes. Shops need shelving, signage and frontage.
Ask for a fit-out period when you do not pay rent, or pay reduced rent, while you prepare the space. Agree it in writing in the lease, with a start date and an end date. Check whether service charge is payable during it.
Find out what you must undo at the end. Many leases require the space to be returned to its original condition, which can mean paying to remove the fit-out you paid to install. Get a schedule of condition with photographs on the day you take the space, so there is no argument later about what "original" meant.
Check what needs consent. Alterations, signage and changes to the frontage usually need the landlord's written approval, and sometimes county approval too.
Deposit, term and getting out
The deposit is commonly expressed as a number of months' rent, sometimes with service charge on top. Ask what it covers and when it comes back.
The term is commonly several years. Look for:
- A break clause letting you end early at a set point, and what notice it requires.
- Assignment and subletting. Can you transfer the lease if the business moves or is sold? See subletting.
- Renewal. Is there an option to renew, and on what terms?
Statutory protection may apply. Certain business tenancies in Kenya fall under a statute that restricts how they can be ended or changed and provides a tribunal. Whether yours does depends on the premises and the lease terms. See controlled tenancy.
Registration and stamp duty. Longer leases may need to be registered, and stamp duty may be payable on the lease. Ask your advocate who pays and budget for it.
The questions to ask at the viewing
- What area is the rate applied to, and can I see the measurement?
- Does the quote include VAT?
- What is the service charge this year, and can I see last year's accounts?
- How often has the power or water failed in the last year, and what backs them up?
- What escalation applies, and to which charges?
- How long is the fit-out period, and is service charge payable during it?
- Who else is in the building, and which units are vacant?
- How is parking allocated, and is it charged?
Vacancy is worth asking about. A building with many empty units may negotiate more. It may also be empty for a reason.
Where to look
On our commercial property to let marketplace, browsing and enquiring are free. Whether you find space there or elsewhere, compare every option on the full annual cost, not the headline rate.
Common questions
How is commercial rent calculated in Kenya?
Usually as a rate per square foot per month, multiplied by an area that may be net lettable or may include a share of common areas. Service charge, VAT where applicable, and annual escalation are added on top, so compare spaces on total annual cost.
What is a fit-out period in a shop or office lease?
A period at the start of the lease, agreed in writing, during which the tenant prepares the space and pays no rent or reduced rent. Confirm whether service charge is payable during it and what has to be removed at the end of the lease.
Is service charge included in commercial rent?
Usually not. It is a separate charge for running the building and is often quoted per square foot. Ask what it covers, how it is apportioned and whether it is reconciled against actual costs.
What is a typical commercial lease length in Kenya?
Commonly several years, often with annual escalation. Look for a break clause, the right to assign or sublet, and any renewal option before committing to a long term.
Does a commercial lease need to be registered?
Longer leases may need registration, and stamp duty may be payable. Your advocate can confirm what applies to the term and type of lease you are signing.
