What to Include in a Commercial Lease Agreement in South Africa

Whether you are taking on your first office space or expanding to new premises, a commercial lease agreement governs the relationship between landlord and tenant for the duration of the lease. Commercial leases are governed largely by the contract itself and the common law, which means the wording carries significant weight. But it is a mistake to assume no statute applies: where the tenant is a juristic person whose asset value and annual turnover are both below R2 million, the Consumer Protection Act 68 of 2008 applies to the lease. Many small business tenants fall inside that threshold without realising it.

Key clauses every commercial lease must address

1. Rental amount and escalation

The lease must specify the monthly rental, when it is payable, and the annual escalation rate. Escalation is typically fixed (e.g., 8% per year) or linked to CPI. Always confirm whether the rental is quoted inclusive or exclusive of VAT.

2. Lease period and renewal options

The commencement date, expiry date, and any renewal options must be clearly stated. A renewal option gives the tenant the right — but not the obligation — to extend the lease at agreed terms. Ensure the notice period for exercising a renewal option is practical; missing it by even one day can mean losing the right entirely.

3. Permitted use

The lease will specify the permitted use of the premises. Trading outside that permitted use can entitle the landlord to cancel the lease. If your business may expand or change its activities, negotiate broader permitted use wording from the outset.

4. Deposit and guarantees

Landlords typically require a deposit (usually one to three months’ rental) and sometimes a bank guarantee or personal surety. Understand your exposure before signing — a personal surety makes you personally liable for the company’s obligations under the lease.

5. Maintenance and repairs

The lease should clearly allocate responsibility for maintenance. Typically, the tenant is responsible for day-to-day maintenance and the landlord for structural repairs. Vague wording leads to disputes. Insist on specific allocation and document the condition of the premises at commencement with a signed inspection report.

6. Assignment and subletting

Most commercial leases restrict the tenant’s ability to assign the lease or sublet the premises without the landlord’s consent. This is important if you anticipate a business restructure, sale of business, or need to sublet part of the space.

7. Does the Consumer Protection Act apply to your lease?

This question is often overlooked and it materially changes the parties’ rights. The CPA applies to a lease where the tenant is a natural person, or a juristic person whose asset value and annual turnover are each below R2 million. Where it applies:

• Under section 14, the tenant may cancel a fixed-term lease at any time on 20 business days’ written notice, regardless of what the lease says about the fixed term.
• The landlord may impose a reasonable cancellation penalty, but must be able to justify it — typically lost rental for the reletting period and reasonable advertising costs. A penalty amounting to the full balance of the lease is unlikely to survive scrutiny.
• A fixed term may not exceed 24 months unless the tenant expressly agrees and there is a demonstrable financial benefit to the tenant.

Landlords drafting leases for small business tenants should assume the CPA applies unless they have confirmed otherwise, and tenants should check whether they fall within the threshold before accepting a punitive cancellation clause.

Common mistakes to avoid

Tenants frequently sign leases without understanding the full financial exposure, particularly around early cancellation penalties, reinstatement obligations, and personal surety. Having a lawyer review the lease before signing protects both parties.

At HvS Attorneys, we draft and review commercial lease agreements for businesses and property owners in Johannesburg. Contact us if you need assistance before you sign.

Legal Authority

• Consumer Protection Act 68 of 2008 — s 5(2)(b) (exclusion of larger juristic persons); s 6 (threshold determination); s 14 (fixed-term agreements, 20 business days’ cancellation on notice, reasonable cancellation penalty)
• Government Notice 294 in Government Gazette 34181 of 1 April 2011 — threshold determined at R2 million
• The common law of lease (huur gaat voor koop, landlord and tenant obligations)

Related reading:
If your business employs staff, read our guide on how to dismiss an employee fairly in South Africa.
If you are leasing premises for a newly registered company, understand that registering a company does not make you its owner — your shareholding must be separately documented.