Last Updated May 23, 2019

Law and Practice

Contributed By MMC Africa Law

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MMC Africa Law was established in 1995 and is headquartered in Spring Valley, Nairobi, with a full-service office in the coastal city of Mombasa. The firm is made up of 12 Partners and over 30 lawyers with expertise in a wide variety of legal matters. As well as being a member of ALFA International, a global network of independent law firms, it has a close association with the leading global law firm of Orrick, Herrington & Sutcliff LLP. MMC Africa Law’s dedicated real estate team comprises three partners and 12 lawyers who pride themselves on their extensive experience handling sophisticated and complex transactions such as those relating to mixed-use developments, an emerging market in real estate. The team also offers specialised services in urban regeneration projects, construction law, REITs, hospitality and hotels, residential developments, commercial and farmland leases, land use and planning, environmental compliance, contractual agreements, conveyancing and conducting due diligence on property.

The two ways by which real estate can be occupied for a short term are by way of a lease and a licence. A lease entitles the lessee to exclusive use and quiet enjoyment of the property, while a licence is permission to use the premises. A licence does not grant exclusive use of premises.

The various types of leases under the LA are:

  • Commercial leases in respect of any commercial premises including offices, shops and hotel establishments. It is recommended that commercial leases be put into writing and that the tenure be not less than five years. Commercial leases that do not meet this threshold are considered to be controlled tenancies, the effect of which is that any variation of the terms of the lease would require the consent of the tenant and if consent is not granted, the landlord would have to obtain a court order to effect such variation.
  • Periodic leases, the term of which is not specified and regarding which there is no provision for giving notice to terminate. The term of such leases is deemed to be the interval at which rent is paid. Periodic leases could arise where the lessee remains in possession of premises with the consent of the lessor after the term of a written lease has expired.
  • Short-term leases are made for a term of two years or less, without an option for renewal. Often, these are residential leases.
  • Farm leases are entered into in respect of agricultural land. Such leases require the consent of the relevant Land Control Board.
  • Leases terminating on the occurrence of a future event.
  • Future leases which are to commence at a later date.

Rents and terms of leases are freely negotiable. There are, however, terms that are implied in the lease as provided in the LA. These include:

  • quiet enjoyment of the lease by the lessee subject to compliance with the lease terms;
  • non-derogation from the grant by the lessor;
  • repair of the roof, all external and main walls and main drains, and the common parts and installations by the lessor;
  • the lessor’s duty to ensure that the premises are fit for human habitation;
  • the lessor’s duty to suspend payment of rent if the premises are destroyed by force majeure events;
  • payment of rates and taxes by the lessor;
  • the lessee’s obligation to pay rent; and
  • the lessee’s obligation to keep the property in a reasonable state of repair.

The length of a lease term is not regulated and parties are free to negotiate it. Typically, landlords would want commercial leases to be for not less than five years to avoid controlled tenancies.

Section 66 (1e) of the LA requires the tenant to keep all buildings comprised in the lease in a reasonable state of repair.

Frequency of rent payments is not statutorily regulated. Typically, rent is payable either monthly or quarterly.

Some leases have rent escalation clauses, hence there may be variation in the rent payable.

It is common for rent to escalate every two years.

Rent escalation is based on either a percentage increase provided for in the lease, or the market rent payable at the time of the increase. Where rent increase is to be calculated based on market rent, then the mechanism of determination of such rent, including the method of appointing a valuer, should be provided for in the lease.

VAT is payable on rent at a rate of 16%.

At the start of the lease, the tenant pays the following:

  • security deposit on rent (in most instances, the security deposit payable is equivalent to three months’ rent);
  • service charge deposit to cater for maintenance and services relating to the common areas, where applicable;
  • stamp duty on the lease at a rate of 2% of the average annual rent, as well as nominal registration fees;
  • where the underlying title is leasehold, the proprietor of the property let is required to pay land rent to the relevant authority and to obtain a land rent clearance certificate; and
  • legal fees are also payable to the advocate who prepares the lease.

Maintenance and repair of areas used by several tenants are catered for by the tenants through apportioned service charge contributions.

Meters are assigned to the tenants for the leased premises and the tenants are responsible for paying the bills.

There will also be a meter for the common areas, the bills relating to which are paid for by all the tenants though service charge contributions.

Furniture and fittings owned by the tenant are insured by the tenant. The landlord insures the real estate structure.

Restrictions can be imposed by landlords on how tenants use real estate, since a lease sets out the tenant’s covenants. Some covenants require a tenant to obtain the landlord’s consent before carrying out certain activities. An example would be alterations to the premises and assignment or subletting.

The LA also contains activities for which the tenant will require consent of the landlord. These include transferring or assigning the lease, subletting, parting with possession of the leased premises, change of use, improvement of the premises and charging.

Section 67 (2e) of the LA disallows the tenant from altering or improving any building, beyond what is permitted in the lease, without the consent of the landlord.

A lease would ordinarily provide for the requirements and procedure for obtaining the landlord’s consent including the submission of drawings.

The LA applies to all leases whether residential, industrial, office, retail or hotels.

Leases for commercial premises are deemed to be controlled tenancies under the LTA.

A controlled tenancy is a tenancy of a shop, hotel or catering establishment which has not been established in writing, or has been established in writing but is for a period not exceeding five years or contains provision for termination otherwise than for breach within five years of commencement.

A controlled tenancy cannot be terminated or its terms varied without the consent of the tenant. The landlord can only vary the terms of the tenancy by an order of the tribunal established under the LTA where the tenant contests the variation.

The Rent Restriction Act contains provisions for restricting the increase of rent, the right to possession and the exaction of premiums and fixing standard rents in relation to dwelling-houses. It applies to all dwelling-houses except those which have a standard rent exceeding KES2,500 per month.

The Public Health Act prohibits letting premises in which any person who has been suffering from an infectious disease was occupant without having the same efficiently disinfected to the satisfaction of a medical officer of health, as testified by a certificate signed by the officer.

Section 73 of the LA gives the lessor the right to forfeit the lease if the lessee is adjudicated bankrupt or, if it is a company, goes into liquidation.

The security provided by the tenant is a rent deposit which is forfeited in the case of default. If the tenant is a company, its directors would be required to issue directors' guarantees to the landlord securing performance of the tenant’s obligations.

The tenant does not have a right to continue to occupy the premises after the expiry of the lease. However, if the landlord allows the tenant to remain in possession of the premises after expiry of the tenancy, this will constitute a periodic tenancy.

For a landlord to ensure that the tenant vacates the premises on the date initially agreed, he or she will need to serve the tenant with a notice equivalent to the period after which rent is payable.

Section 73 of the LA empowers the landlord to forfeit the lease if the lessee commits any breach of its obligations as earlier discussed, is adjudicated bankrupt or, in the case of a company, if it goes into liquidation. However, controlled tenancies can only be terminated in accordance with the provisions of LTA, as discussed in 6.14 Specific Regulations, above.

Forceful eviction is not allowed in Kenya. However, when a tenant is in breach of the terms of a lease, the landlord is required to serve the tenant with notice to rectify the breach as stipulated in the lease.

In the case of a controlled tenancy, the tenant has the power to refer the matter to the Business Premises Rent Tribunal, whereupon the notice shall be of no effect until the determination of the reference by the tribunal.

If the tenant does not refer the matter to the tribunal, or when nothing is done to rectify the shortcoming, a landlord can terminate the lease agreement and demand that the tenant vacates the premises.

Where a tenant declines to vacate premises, a landlord would have to obtain an eviction order from the tribunal established under the LTA (where the tenancy is controlled) or a court order (where the tenancy is not controlled).

It would take between six months and two years to conclude eviction proceedings.

Long-term leases conferring title can be terminated by the government if the lessee does not comply with the conditions contained therein.

The government can also cause a lease to be terminated if the property on which the leased premises are leased is required for public purposes, as discussed in 2 Sale and Purchase, above.

MMC Afica Law

MMC Arches,
Spring Valley Crescent,
Off Peponi Rd.
Westlands

+254 020 2329898

+254 720 585 785

eomulele@wakili.com www.wakili.com
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MMC Africa Law was established in 1995 and is headquartered in Spring Valley, Nairobi, with a full-service office in the coastal city of Mombasa. The firm is made up of 12 Partners and over 30 lawyers with expertise in a wide variety of legal matters. As well as being a member of ALFA International, a global network of independent law firms, it has a close association with the leading global law firm of Orrick, Herrington & Sutcliff LLP. MMC Africa Law’s dedicated real estate team comprises three partners and 12 lawyers who pride themselves on their extensive experience handling sophisticated and complex transactions such as those relating to mixed-use developments, an emerging market in real estate. The team also offers specialised services in urban regeneration projects, construction law, REITs, hospitality and hotels, residential developments, commercial and farmland leases, land use and planning, environmental compliance, contractual agreements, conveyancing and conducting due diligence on property.

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