Senior Partner in the Commercial Employment and IPT Practice
DLA Piper Africa, Kenya
Several years back, I published an article calling for repeal of the law governing commercial leases in Kenya the statute with a mouthful of a name, the Landlord and Tenant (Shops, Hotels and Catering Establishments) Act.
I argued that the law, enacted in 1965, had become obsolete in the modern free market economy. At any rate, ingenious lawyers had found ways of circumventing its application by ensuring that commercial leases are for a term of not less than five years and have no termination clause.
The position adopted by the courts in previous decisions was that a tenant who for any reason wanted to terminate a commercial lease before the expiry of its five or six-year term had to either pay the rent for the remainder of the term or find a replacement tenant willing to pay the same. While that is music to the ears of landlords, it brings tears to tenants undergoing financial distress.
Parliament may have been too busy to hear the cry of tenants but the apex court has certainly been listening and observing. In an erudite landmark decision delivered on 6 December 2024 in Petition no. E001 of 2024- Kwanza Estates Limited versus Jomo Kenyatta University of Agriculture and Technology- the Court has practically spayed the redundant statute and uprooted its sting.
The brief facts of the case were that due to the Covid-19 pandemic, a change in government policy and law extending the funding of university education to private universities, JKUAT determined that the continued operation of its Nakuru campus had become financially unviable.
It, therefore, sought to close the institution and vacate the rented premises but, of course, the lease had no termination clause. It gave notice to the landlord, anyway, citing the reasons for terminating the agreement.
The landlord termed the termination as void and demanded payment of rent for the remainder of the six-year term. Thereafter, the landlord failed to let the premises to other tenants, holding on to the spurious position that JKUAT was still the tenant although it had physically vacated the building.
The court found that where a lease does not contain a termination clause but the tenant, nonetheless, unilaterally terminates it without mutual agreement with the landlord, such move amounts to a breach of contract.
However, the remedy for the landlord is not to force the tenant to remain on the premises against its wish or demand payment of rent for the unexpired term.
The correct remedy lies in damages to be assessed by the court. Relying on the Land Act which allows a party to terminate a lease by giving notice equivalent to the period within which rent is payable, the court found that three months’ rent was adequate in the circumstances.
Since according to the lease, rent was payable quarterly, the court found that JKUAT was obligated to give a three-month notice of termination.
The court found that notwithstanding the absence of a termination clause in a commercial lease, it is unconscionable for a landlord to compel a tenant to continue in occupation of premises they no longer wish to occupy or can afford or to demand full rent for the remainder of the term when the tenant has terminated the lease and vacated the premises.
The court observed that both parties bear responsibility to mitigate their losses following the termination. Landlords, in particular, have a duty to actively seek new tenants to minimise their potential financial loss.
Now that the top court in the land has added its voice to the cry of legal practitioners in the wilderness, whether Parliament decides to bury the carcass of the dead law or allow it to decay on the shelves of law libraries, remains its august business.
William Maema ([email protected]) is a Senior Partner in the law firm of Iseme, Kamau & Maema Advocates.
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