Commercial Lease Agreements in Kenya

This guide explains how commercial leases work, what to register, and the terms that matter most.

Who this guide is for

This guide is for businesses taking space, landlords letting commercial property, and developers and investors letting units. In addition, if you need to end a tenancy rather than grant one, see our guide to evicting a commercial tenant in Kenya. For the wider transaction, see our guide to conveyancing in Kenya.

Lease or licence: get this right first

The starting point is whether the document is a lease or a licence. A lease grants the tenant exclusive possession of defined premises for a term, and it creates an interest in the land. By contrast, a licence grants only a personal permission to use space, with no interest in the land and no security. However, courts look at substance, not the label, so calling a document a “licence” will not make it one if it grants exclusive possession for a term. In practice, the distinction matters because a lease can be registered, can bind a buyer of the building, and may attract the protection of Cap 301, while a licence does none of these.

Registration: which leases must be registered

A lease that grants a legal interest in land is registered under the Land Registration Act, 2012. As a general rule, a lease for a longer term must be registered to take effect as a legal interest and to bind third parties, while a short lease or periodic tenancy can operate without registration. In addition, registration protects the tenant against a later buyer of the building and is often required by the tenant’s own lenders. Therefore, confirm the exact registrable term for your lease before you decide not to register, because an unregistered long lease can leave the tenant with a weaker interest than it expected.

The controlled-tenancy trap

Landlords are often caught out by the Landlord and Tenant (Shops, Hotels and Catering Establishments) Act (Cap 301). In short, a tenancy of shop, hotel or catering premises is a “controlled tenancy” if it is not in writing, or is written for a term of five years or less, or can be ended within five years. For a controlled tenancy, therefore, the landlord cannot simply rely on the lease to end the arrangement; instead it must follow the statute and, if the tenant objects, the Business Premises Rent Tribunal. So the length of the term is not just a commercial choice. For example, a five-year lease and a six-year lease sit on opposite sides of an important legal line, which we cover in our guide to evicting a commercial tenant in Kenya.

The terms that matter

Beyond rent and term, a commercial lease lives or dies on its detail. In practice, the clauses we spend most time negotiating are:

Rent and rent review. How much, when it is paid, and how and when it goes up, whether by a fixed percentage, by open-market review, or by reference to an index.
Service charge. What the landlord can recover for common-area costs, and any cap, which is a frequent source of dispute in multi-let buildings.
Repair and dilapidations. Who maintains the structure, the interior and the services, and the condition in which the tenant must hand the premises back.
Permitted use. What the tenant may do at the premises, which affects licensing and any change of use.
Assignment and subletting. Whether, and on what conditions, the tenant can transfer the lease or share the space.
Break clauses. Whether either party can end the lease early, remembering that a break within five years can make a shop tenancy a controlled tenancy.
Security and reinstatement. The deposit or guarantee, and any obligation to remove fit-out at the end.

Feature	Short letting	Longer commercial lease
Creates a legal interest in land	Often not	Yes, once registered
Registration	Not generally required	Required to take full effect
Cap 301 (shops, hotels, catering)	Controlled if five years or less	Outside if fixed term over five years, no early break
Typical use	Pop-ups, short occupation	Offices, retail, industrial space

Stamp duty on a lease

A lease attracts stamp duty, charged by reference to the annual rent and the term. Broadly, a lease for a shorter term is charged at one per cent of the annual rent, and a longer lease at two per cent, with the duty assessed and paid within the statutory window. In addition, we cover the mechanics, and the property-transfer rates, in our guide to stamp duty on property in Kenya. Therefore, budget for it at the outset, because it is easy to overlook until registration.

Common questions

What is the difference between a lease and a licence? A lease grants exclusive possession and an interest in the land; a licence grants only permission to use space, with no interest and no security.

Do I have to register my commercial lease? Generally yes for a longer lease: it must be registered to take effect as a legal interest and to bind a buyer of the building. However, a short letting can operate without registration.

Is my five-year shop lease protected? Very likely, yes. A shop lease for five years or less is a controlled tenancy under Cap 301.

Who pays for repairs? In practice, whatever the lease says, so negotiate the repair and service-charge clauses carefully.

Is stamp duty payable on a lease? Yes, by reference to the annual rent and term.

Common pitfalls

The frequent mistakes are treating a lease as a licence, or the other way round; failing to register a long lease and leaving the tenant exposed to a later buyer; and granting a five-year shop lease without appreciating that Cap 301 then controls how it ends. Similarly, others accept an uncapped service charge, or a repair obligation wider than they realised. Finally, some forget stamp duty until it holds up registration.

What you should do now

First, decide whether you need a lease or a licence, and make the document match the substance.
Next, check whether the term and any break clause bring the tenancy within Cap 301.
Negotiate rent review, service charge, repair, assignment and break clauses before you sign.
Plan to register a longer lease, and budget for stamp duty.
Take advice on the lease before the deposit is paid, not after a dispute.

How OLM Law can help

Our real estate and corporate teams draft, review and negotiate commercial leases for landlords and tenants, from single shops to multi-let developments, and register them where required. We align the lease with the tenant’s business and the landlord’s investment, and we flag the Cap 301 and stamp-duty consequences before they bite. To discuss a commercial lease, contact John Maina, Partner, at OLM Law Advocates LLP.

This article is a general guide only and is not legal advice. Please seek advice on your specific circumstances.

Commercial lease agreements in Kenya