REALWorld Law

Commercial leases

Initial costs

What costs if any, other than rent, are payable by a lessee at the start of a lease?

Angola

Angola

Except if otherwise agreed, the lessee is responsible for the payment of charges and expenses regarding the supply of goods or services (eg water, electricity, gas, telephone or internet).

The lessee is only responsible for other expenses if it is expressly agreed between the parties.

The lessor is responsible for the payment of the sanitation rate, insurance fees, Property Tax (Imposto Predial Urbano) and the stamp duty of the contract.

Australia

Australia

It is common practice for tenants to be liable for stamp duty, registration fees, mortgagee consent fees and head lessor consent fees. Liability for costs associated with the preparation and negotiation of the lease or agreement for lease and the landlord’s legal costs can be negotiated between the parties and will depend on the bargaining power of the parties, although they are not recoverable from retail and residential tenants.

All jurisdictions no longer require payment of stamp duty on leases (unless a lease premium is payable). Registration fees are usually less than AUD200 but there can be further costs associated with ensuring the documents are in registrable form. For example, in South Australia, a survey lease plan, prepared by a surveyor, must be attached to the lease for registration. Mortgagee consent fees can range from AUD300 to AUD600 and head lessor consent fees can be several thousand dollars as they usually include lawyers’ fees.

Belgium

Belgium

Most lease contracts contain a provision providing that all costs and rental charges, including taxes relating to the leased premises, are to be covered by the tenant. The tenant normally pays either a regular fixed amount or a provisional amount, subject to adjustment after the landlord supplies details of the costs and charges actually incurred.

Under the Regional pop-up regulations, unless otherwise agreed in the pop-up lease, the taxes affecting the leased premises are assumed to be covered by the rent.

Bosnia-Herzegovina

Bosnia-Herzegovina

Each tenant pays a proportion of the service charge based on the size of their unit in relation to the total size of the leased building. Some expenses will be excluded from the service charge, such as the cost of the initial development of the building.

Canada

Canada

The costs payable upon lease commencement are governed by the terms of the lease. Most leases provide for the first fixed rent payment to be made upon signing the lease, together with the delivery of any required security deposit.

China

China

A security deposit and deposits for utilities and/or management fees may be required.

Croatia

Croatia

There is no stamp duty. In the case of a lease in the form of a notarial deed, the notarial fee is calculated by reference to the amount of the rent.

Czech Republic

Czech Republic

A security deposit or a bank guarantee and deposits for rent and/or utilities may be required.

Denmark

Denmark

A deposit will normally be required.

France

France

All commercial leases of more than twelve years must be registered. Such leases must be entered into before a notary and shall be recorded with the locally competent mortgage office (Service de la Publicité Foncière). This involves the payment by the tenant (it being specified that the lessor is however jointly liable for the payment of such fee) of a fee amounting to approximately 0.715% of the total rent and service charges due for the entire period of the lease (within the limit of 20 years).

Germany

Germany

Often the tenant is obliged to pay a deposit, often equal to the sum of three net monthly rental payments.

Hong Kong, SAR

Hong Kong, SAR

A half share of the stamp duty and registration fee is payable by the lessee on execution of the lease. The lessee may also have to pay a deposit on the rent, management fee and air-conditioning costs. Stamp duty is calculated at rates which vary with the term of the lease as follows:

Term Rate
Not defined or is uncertain 0.25% x of the yearly or average yearly rent
Exceeds Does not exceed  
  1 year 0.25% x of the total rent payable over the term of the lease
1 year 3 years 0.5% x of the yearly or average yearly rent
3 years   1% x of the yearly or average yearly rent
Key money, construction fee etc mentioned in the lease 4.25% of the consideration if rent is also payable under the lease. Otherwise, same duty as for a sale of immovable property
Duplicate or counterpart lease HK$5 each copy

Further to the above, the lessee is also responsible for the fitting-out cost.

Hungary

Hungary

These include charges for common services (including property-related taxes, sometimes even the local business tax payable by the landlord) and some form of security (typically a security deposit or bank guarantee). Retail leases in shopping malls commonly require tenants to pay an upfront sum as 'key money' or as an 'opening fee'.

Ireland

Ireland

Service charge, insurance costs, local authority rates, water charges (if applicable) and any other outgoings as set out in the lease.

Italy

Italy

The Italian tenancy law provides a list of the services which can be charged to the tenant. The general principle is that tenants can be charged with the full cost of anything done for their benefit, while anything done partly or solely for the benefit of the landlord must be partly or entirely paid for by the landlord. It is advisable to define in the contract what kind of expenses are to be charged to the tenant.

Registration tax (imposta di registro) is payable no later than 30 days after the signing of the lease contract. This tax is charged at 1% of the total anticipated rent for the duration of the lease, or 1% of the annual rent if it is to be paid on an annual basis. The law provides for payment of registration tax to be split equally between the parties, while any other expenses, stamp duties or taxes related to the lease are normally paid by the tenant.

In the case of a business branch lease, this does not apply, so registration tax is usually paid by the tenant.

If the landlord and the tenant enter into an agreement amending an existing lease which only reduces the current rent, the registration of the amendment agreement will not be subject to the payment of any registration tax or stamp duty.

Japan

Japan

Security deposit

In most cases, a lessee is obliged to pay a security deposit when executing a new lease. The security deposit amount differs depending on the location of the premises and on the nature and type of lease involved (eg residential, office, restaurant or hotel).  In the case of a residential lease, the amount is often equivalent to two to three months' rent.

Key money (residential lease)

For a residential lease, the lessee is sometimes required to pay the lessor key money in an amount often equivalent to one to two months' rent.  Key money differs from the security deposit in that key money will not be returned to the lessee upon expiration of the lease.

Insurance premium

Lessees are often required to purchase home insurance to protect their own personal property in the event of fire damage and/or to protect against claims by third parties.

Stamp duty (land lease)

In the case of a commercial building lease, stamp duty is not payable.  However, in the case of a land lease, stamp duty is payable and the amount levied depends on the amount of the key money paid.

Netherlands

Netherlands

Lessees are usually required to pay service charges and less often required to pay promotion costs (eg for leased space in a mall).

Nigeria

Nigeria

There is no statute imposing costs on the lessee of property or exempting the lessor from responsibility to pay the costs usually payable by the lessor. Property taxes (land use charges) which comprises the municipal land rates (ground rents), tenement rates and all land based rates are by law the obligations of the lessor to pay. The lessor may before commencement of the lease, negotiate with the lessee that the stamping costs of the lease agreement is to be borne by the lessee and the land charges which ordinarily is the responsibility of the lessor is either borne by the lessee or shared by both the lessee and the lessor in a proportion to be agreed by the parties.

The Stamp Duties Act as amended by the Finance Act 2020 requires lease agreements to be stamped within 30 days from the date of execution before it is received in judicial proceedings. The lessee has responsibility for stamping of the lease agreement, the obligation is usually not enforceable against the lessee except expressly agreed in the lease agreement. It is usual that for short term leases, a lessor bears the cost for stamping to enable the document to be received in judicial proceedings.

The law requires that leases of terms over three years should be registered at the State Land Registry. The costs for consent, stamping and registration are the responsibility of the lessee, purchaser, or person whom the property or lease interest is vested.

The lessor will usually insist that its solicitor is responsible for the preparation of the lease agreement and the lessee is to bear the costs for the solicitor’s fees for legal services rendered. The parties may however, agree to bear their own costs and pay for the services of any professional retained by them. The Tenancy Law of Lagos State 2011 which provides for each party to pay the fees of any professional engaged by it is only applicable in areas not considered to be highbrow locations.

Norway

Norway

There are no costs other than the initial rent at the start of a commercial lease, unless otherwise agreed.

Poland

Poland

A landlord will usually require a cash deposit or rent guarantee equivalent to three months' rent (plus VAT) and three months' service charge (plus VAT).

Portugal

Portugal

The tenant is responsible for the payment of charges and expenses regarding the supply of goods or services related to the property (for example: water, electricity, gas, telephone, internet).

The tenant is only responsible for other expenses if it is expressly agreed between the parties.

The landlord is responsible for the payment of the sanitation rate, insurance fees, Tax on Real Estate and the Stamp Duty of the contract. 

Romania

Romania

As a rule, there are no additional costs to be paid by the tenant at the beginning of the lease term. However, in order for leases to be enforceable against subsequent owners, these must be registered in the Land Book and the registration taxes must be paid by the tenant.

Slovak Republic

Slovak Republic

No fees are payable to the state or local authorities in relation to the lease itself. The cost of utilities, such as energy, water, sewage etc, is normally paid by the landlord, but will be reflected in the rent. In addition, a security deposit may be required.

Spain

Spain

Most service charges, including taxes, will be passed on to the tenants or occupiers.

These taxes include VAT, payable at 21 percent of the rent charged if the tenant is using the premises to develop its business activities, and personal income tax (impuesto de la renta de las personas fisicas), which takes the form of a retention of 19 percent of the rent, if the landlord is a private individual.

In most cases the tenant will enter into direct contracts with utility providers.

Sweden

Sweden

No costs are payable by the tenant other than the initial rent. However, parties are free to contract as they wish and the landlord can sometimes require a guarantee, such as a bank guarantee, a guarantee from the tenant's parent company or a deposit.

Thailand

Thailand

In general commercial practice in Thailand, a ‘rent premium fee’ is often payable by the lessee.

United Arab Emirates - Abu Dhabi

United Arab Emirates - Abu Dhabi

Lessees are normally responsible for paying all utility charges and possibly the dues for registration of a lease with a contractual term of over four years (the responsibility being dependent on the outcome of contract negotiations). See Types of leases.

Lessors are however, responsible for the costs of registering leases of four years and under (and the applicable registration fees are different). In the Abu Dhabi Global Market free zone, the landlord is responsible for registering the lease (however, the parties are free to contractually agree responsibility for payment of the registration fees) with the Abu Dhabi Global Market real property Registrar. Registration fees are payable as follows:

  • Lease with a term of less than 10 years (including any renewals) is AED 100 per year
  • Lease with term of 10 years or more (including any renewals) is 2% of total value of contract (subject to no maximum)

Service charges for common services/repairs have historically been paid by the lessors out of rent received. Newer buildings are being let on net rents with typical service charge levies running at 15–18 percent of rents annually.

United Arab Emirates - Dubai

United Arab Emirates - Dubai

A 'short-term' lease must be registered on the Ejari register. The fee to register a lease is approximately AED 160 and if a lessee registers through an authorized DLD typing centre, an additional AED 35 is payable.

Registration of a usufruct/musataha/'long-term' lease must be undertaken at Dubai Land Department. The fee to register a usufruct is 4% of the property value, for a musataha (a right to use and exploit land belonging to another person, along with the right to build on that land) 1% of the contract value and a long-term lease 4% of the rental value.

Tenants are usually responsible for paying all utility and telecommunications charges associated with the property and, generally speaking, a connection fee will be charged in each case. It is also common for a landlord to require an 'on account' payment of service charge.

UK - England and Wales UK - England and Wales

UK - England and Wales

Generally, stamp duty land tax (SDLT) is payable by the tenant on completion of the lease or occupation of the premises, whichever is first. For non-residential real estate, there will be an SDLT charge where the tenant makes an initial capital payment for the grant of the lease and/or where the tenant pays a rent under the lease. SDLT is charged at 2% on the part of the capital payment falling between £150,000 and £250,000 and 5% on any part of the capital payment above £250,000. A 1% charge applies to the net present value of any rent payable during the term of the new lease for rents with a net present value of between £150,000 and £5,000,000, with the rate increasing to 2% for the part of the net present value exceeding this threshold. 

The amount of SDLT payable can be calculated online at the website of HM Revenue & Customs. For Welsh properties, see the Welsh Revenue Authority website: there are different rates and thresholds and the tax is referred to as land transaction tax.

Tenants will normally pay business rates to the local authority. This is calculated as a proportion of the rental value of the premises.

UK - Scotland

UK - Scotland

Land and Buildings Transaction Tax (LBTT) (charged at 1% to the extent that the net present value of the total rents payable during the period of the lease is between £150,001 and £2,000,000 and at 2% to the extent that the net present value exceeds £2,000,000) ) is payable by the tenant on commencement of the lease.

Special LBTT rules apply where the exact amount of rent is unknown.

If a capital payment is due on the grant of the lease, LBTT is also charged on that sum, starting at 1% for non-residential properties on any part of the capital payment between £150,001 and £250,000 (or on any part of the capital payment between £0 and £250,000 if the annual rent is £1,000 or more) and rising to a rate of 5% on any part of the capital payment in excess of £250,000.

The tenant is also liable for all other outgoings relating to the premises, including payment of business rates and charges for electricity, water, gas, telephone lines and other utilities.

Ukraine

Ukraine

As a rule, the lessee is obliged to pay for utilities (water, electricity etc), to reimburse the lessor for operational expenses (garbage disposal, cleaning etc) and land tax (if a stand-alone building is leased). These payments may be included in the rent or may be payable separately. All these issues are dealt with by the parties in the lease agreement.

United States

United States

The costs payable upon lease commencement are governed by the terms of the lease. Most leases provide for the first fixed rent payment to be made upon signing the lease, together with the delivery of any required security.

Zimbabwe

Zimbabwe

There are no further costs payable by a lessee at the start of a lease, apart from the deposit and the rent. For the duration of the lease, the lessee will be responsible to pay rates to the local authority, such as water, electricity, municipal rates and service charges.

If the lease is registered with the deeds office in terms of the Deeds Registries Act, stamp duty will be payable.