Commercial Lease Kenya: Gross, Net and Turnover Rent

A commercial lease in Kenya usually follows one of three rent structures: gross, net, or turnover. Which structure a Nairobi landlord chooses decides who carries rising costs and how predictable the income is. In a gross lease the tenant pays a single all-inclusive figure and the landlord settles service charge, rates and insurance from it. In a net lease the tenant pays a base rent plus those running costs separately. In a turnover lease, common in Nairobi malls, the tenant pays a base rent plus a percentage of monthly sales.

For a Nairobi landlord or investor, that choice shapes cash flow for years. This guide explains each structure in plain terms, the numbers you can expect on the ground, and the Kenyan legal and tax rules that sit behind every commercial lease you sign.

What is a commercial lease in Kenya?

A commercial lease is a written agreement letting non-residential space, an office, a shop, a warehouse or a restaurant, to a business tenant for a fixed term at an agreed rent. Two Kenyan laws matter most.

Under the Landlord and Tenant (Shops, Hotels and Catering Establishments) Act, Cap 301, a tenancy becomes a “controlled tenancy” if it is not put in writing, or if it runs for five years or less (the Act says a period not exceeding five years), or if it allows termination within five years for reasons other than breach. Controlled tenants get strong protection through the Business Premises Rent Tribunal, which is why many Nairobi landlords grant terms of five years and one month to sit outside that control.

Under the Land Registration Act, 2012, a lease running for more than two years must be registered against the title. A term of two years or less is not a registrable interest, though it should still be in writing to be enforceable and clear.

Gross lease: one rent, fewer surprises for the tenant

In a gross lease, the tenant hands over a single monthly figure. The landlord uses part of that money to cover service charge, land rates, building insurance and often common-area upkeep. The tenant knows the exact cost each month, which small businesses like.

The risk sits with the landlord. If service charge, insurance premiums or county rates climb during the term, the landlord absorbs the gap unless the lease includes a rent escalation clause. A typical office lease in Nairobi builds in an annual escalation in the region of 7.5 to 10 percent to protect the landlord against exactly this. Gross leases suit smaller office suites and single-tenant buildings where running costs are easy to predict.

Net lease: the tenant carries the running costs

A net lease splits the money. The tenant pays a lower base rent, then pays outgoings on top. These come in three broad grades:

• Single net: tenant adds land rates to the base rent.
• Double net: tenant adds land rates and building insurance.
• Triple net, often written as NNN: tenant adds rates, insurance and service charge or maintenance.

Triple-net thinking drives most larger office leases in Nairobi and nearly all modern retail space. The landlord receives a cleaner, more predictable base rent while the tenant carries the variable costs. In practice a Nairobi tenant on a net lease budgets for base rent, a service charge of roughly KES 150 to 400 per square metre each month for common-area maintenance, plus utilities, business permits and insurance.

Turnover rent: paying a share of sales

Turnover rent ties the landlord’s income to how well the tenant trades. The tenant pays a modest base rent that guarantees the landlord a floor, then adds a percentage of gross monthly sales once turnover passes an agreed level. A retail lease in Kenya inside a mall such as Two Rivers or Garden City often runs this way, with anchor and line-store rents that vary widely. Market reviews such as the Knight Frank Kenya market update put prime mall rents in the region of USD 25 to USD 55 per square metre a month, depending on the size and position of the space.

Turnover rent gained real ground after several Nairobi malls saw rent arrears pile up. Landlords began offering sales-linked deals so a struggling shop pays less in a quiet month and more when footfall returns. It shares risk, but it asks the landlord to trust and verify the tenant’s sales figures, so a good turnover lease sets out reporting, audit rights and a clear definition of what counts as gross sales.

Gross, net and turnover compared

Feature
Gross lease
Net lease (NNN)
Turnover lease

Who pays running costs
Landlord
Tenant
Shared

Rent predictability for tenant
High
Medium
Varies with sales

Income predictability for landlord
Medium
High
Rises and falls with trade

Common use in Nairobi
Small offices
Offices, warehouses, retail
Malls and high-street retail

Main landlord risk
Rising outgoings
Void periods
Weak tenant sales

What every commercial lease in Kenya should spell out

Whatever the structure, a sound lease sets out the term, the rent and escalation, the deposit, the permitted use, repair duties and the exit terms. A few Nairobi norms are worth knowing.

Deposits usually run to two or three months of rent. Escalation of 7.5 to 10 percent a year keeps rent in step with costs. The lease should name who insures the structure and who insures the tenant’s fit-out and stock. It should also state whether rent is quoted inclusive or exclusive of VAT, because that single line changes the real cost by 16 percent.

Repairing obligations deserve care. A “full repairing and insuring” lease pushes upkeep onto the tenant, which pairs naturally with a net structure. Break clauses, rent-free fit-out periods and reinstatement duties at the end of the term are all negotiable and all worth pinning down before signing.

Tax and registration costs to budget for

Three Kenyan charges apply to commercial premises and every landlord should plan for them.

Value Added Tax is charged at 16 percent on rent for non-residential buildings. Residential letting is exempt, but offices, shops and warehouses are not, so VAT sits on both base rent and, generally, service charge.

Stamp duty applies when the lease is stamped and registered. The rate is 1 percent of the annual rent for a lease of three years or less, and 2 percent of the annual rent for a lease of more than three years. Where the rent varies, the highest annual rent under the lease is used.

Registration itself is required for any lease over two years, filed against the title at the relevant land registry. Skipping it can leave a long lease hard to enforce against a later buyer of the building.

Rental income is also taxable, so keep clean records of rent received and allowable expenses for your annual return.

How Real Management Services helps

Getting the structure right is where an experienced manager earns their fee. With 30 years of managing property across Nairobi, Real Management Services drafts and reviews commercial leases, benchmarks rent and service charge against live market data, handles Business Premises Rent Tribunal matters, and keeps registration and tax obligations on track. We manage the full cycle, from finding and vetting tenants to collecting rent and running service-charge accounts, so your building stays let and your income stays steady.

If you own or plan to buy commercial space in Nairobi, talk to us before you sign. Call 0735 281 111 or email sales@real.co.ke and we will walk you through the option that fits your property and your goals.

Frequently asked questions

What is the difference between a gross and a net commercial lease in Kenya?
In a gross lease the tenant pays one all-inclusive rent and the landlord settles service charge, land rates and insurance out of it. In a net lease the tenant pays a lower base rent and then pays those running costs separately. Net leases, especially triple-net, shift the risk of rising costs onto the tenant and give the landlord more predictable income.

How does turnover rent work in Nairobi malls?
Turnover rent combines a base rent with a percentage of the tenant’s gross monthly sales above an agreed threshold. The base rent guarantees the landlord a minimum, while the sales percentage lets the rent rise in strong months and ease in quiet ones. It is common in malls such as Two Rivers and Garden City and relies on clear sales reporting and audit rights.

Does a commercial lease in Kenya need to be registered?
Yes, if the term is more than two years. Under the Land Registration Act, 2012, a lease exceeding two years is a registrable interest and should be filed against the title. Leases of two years or less are not registrable but should still be in writing to be enforceable.

Is VAT charged on commercial rent in Kenya?
Yes. Rent on non-residential buildings such as offices, shops and warehouses attracts VAT at 16 percent. Residential letting is exempt. Always confirm whether a quoted rent is inclusive or exclusive of VAT before you sign.

What is a controlled tenancy under Cap 301?
A controlled tenancy is a commercial tenancy that is not in writing, or that runs for five years or less (the Act says a period not exceeding five years), or that allows termination within five years other than for breach. Controlled tenants are protected by the Business Premises Rent Tribunal, which is why many landlords grant terms just over five years to fall outside that protection.

Related reading

• Commercial property management in Nairobi
• Our property management services
• Commercial premises to let
• Contact Real Management Services

External references: the Landlord and Tenant (Shops, Hotels and Catering Establishments) Act on Kenya Law and the Land Registration Act, 2012.