Commercial Lease Agreement Explained​

Commercial Lease Agreement

A commercial lease agreement pertains to a property used for commercial purposes. Within this category, one would find offices, showrooms, clinics, and other properties licensed for commercial purposes. A lease agreement does not transfer ownership to the lessee but grants the right to use the property according to the agreed-upon terms and conditions.

What Makes An Agreement Valid

Despite the Private Rent Law introduced in 2020, commercial properties are not covered by this law. The agreement does not need to be registered to be considered valid. For a commercial lease agreement to be valid, it must be signed by both the lessor and lessee and contain the following items.

Essential Clauses Of A Commercial Lease Agreement

Essential clauses of an office space rent agreement:

  • Details of the property (address, name of area, etc.);
  • Use of the property;
  • Period for which the property is leased. In Malta, there are two “periods” used for commercial rent agreements:
    • Di Fermo: The mandatory minimum period

    • Di Rispetto refers to the optional period after the expiry of the Di Fermo. During this period, the tenant may terminate the lease with X months’ notice without penalty.

  • Whether or/and how the lease can be extended and how the parties should be notified
  • Total amount of rent; how the rent is to be paid; and how the payments shall be done.
  • Security Deposit. The deposit should be paid immediately after signing the agreement. Usually, the deposit amounts three to six months’ rent, and shall be refunded in full if no damages are made to the property.
  • Additional monthly or/and annual costs (if any). Such as: Communal Area Maintenance, including lift maintenance, HVAC servicing, cleaning, security and receptionist services (if applicable), and car park maintenance (if applicable). This is usually paid with rent.
    Utilities: water, electricity and internet. The costs depend on the size and consumption and are paid by the tenant with rent.
    VAT. Most landlords charge VAT in addition to the monthly rent. Depending on your business, this may be offset.
    Agency fee: This is the fee paid to the agency for services rendered in finding the rental office. The fee is 10% of the annual rent plus VAT for both parties. Both the lessor and lessee must pay this fee immediately after signing the agreement.
  • How the agreement can be terminated, except when the period fixed in the agreement has expired. Generally speaking, this refers to the events when one of the parties fails to fulfil its obligations.

 Recommended Clauses Of A Commercial Lease Agreement

  • Inventory. Even though it’s not required by law, we recommend drawing up an inventory of the movables found on the property. Take your time describing their state, and adding it as an annex to the agreement. That should save time and prevent future disagreements between the parties.
  • Permits. It is always important to make sure that the permit for a commercial property is valid and that no works that can affect lessees’ operations in the building are scheduled. If such works are planned, it is important to discuss the conditions under which the lessor will compensate the lessee for any inconvenience caused by these works.
  • Insurance. The lessor must have a property insurance policy covering the exterior and structure of the property in place. The lessee must have a property insurance policy covering the rental unit. 
  • Alterations and Finishes. If the tenant desires to finish a rental property to a certain standard, the agreement must stipulate who is willing to take on the works and expenses and whether the tenant will be granted some grace (rent-free) period to finish off the property. If the property is in a shell state at the present time, the lessor is normally responsible for the basic fittings. For example, flooring, soffits/ceiling, HVAC systems, electrical wiring, plumbing, etc. However, the tenant is usually responsible for the cabling and furnishing the property. If parties agree that the tenant will finish the property, the agreement must outline the conditions for reverting the property.

Documents Required For An Agreement

To sign the rental agreement, the landlord or agent will typically request the necessary personal/business details. This includes providing proof of ID, such as Maltese ID cards or passports of the company’s directors and all shareholders with more than a 25% interest in the business. Additionally, you’ll need to provide the address of the registered company or person(s) signing the lease, along with the company registration number and VAT number if applicable.

It is always recommended that landlords conduct their own due diligence on clients before signing a lease agreement to avoid unpleasant surprises in the future.To complete the due diligence, the lessor may require the submission of the following documents: a brief disclosure form disclosing the company structure, beneficial owners, business operations and declarations. Certificate of Incorporation: issued by the Maltese Registrar of Companies. Proof of Primary Address: a utility bill, bank statement or government letter addressed, dated within the last three months. Source of funds (usually required when renting expensive offices, starting from €10,000 per month).

Legal teams on both sides should always carefully review the commercial rent agreement. This will ensure that both sides are fairly protected. Whether you do not have your legal team to help, you can reach out to us, and our team will prepare, revise, and look over your rental agreement. This last step can be time-consuming, as there is usually a lot of back and forth between the parties. We therefore recommend setting deadlines in advance as to when or how long the changes should take. Once both parties finalise and sign the agreement, the tenant must pay an agreed deposit, the first month’s rent, and, if applicable, the agency fee. Subsequently, the lessor hands over the keys to the lessee, and the agreement begins.

Contact Us If You Need Help With A Commercial Lease Agreement

Read other recommendations related to commercial real estate in Malta or contact us for personal assistance. Our team of experts is dedicated to providing you with tailored solutions and ensuring a smooth and successful transaction. Don’t hesitate to reach out to us for any inquiries or assistance you may require.