Commercial Leases in Kenya: A Complete Guide to Breaking Up with Your Landlord
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Picture this, you have committed yourself to a lease over an apartment, house or commercial premises but somewhere down the line, either due to a change of heart or the vagaries of life, you decide that you want to terminate the tenancy relationship with your landlord. How exactly do you go about breaking your landlord’s heart?
How to Navigate Commercial Leases in Kenya and Break Up with Your Landlord
The first step in understanding commercial leases in Kenya is to figure out if you are party to a short-term or long-term lease. What exactly is meant by a “short-term” and “long-term” lease? Section 58 of the Land Act, 2012 defines a “short-term” lease as a lease made for a term of two years or less without an option for renewal; or a periodic lease; or a lease to which section 57(2) applies. It follows that a long-term lease is one for a term of more than two years.
This distinction is crucial for the termination of commercial leases in Kenya. A short-term lease may be terminated by either party giving notice to the other, with the notice period not being less than the period of the tenancy (i.e., if it is a periodic lease renewed by monthly rent payment, the notice must be at least one month). The notice will expire on one of the days rent is payable.
On the other hand, long-term commercial leases in Kenya differ from short-term leases, as the former must be registered at the Lands Registry for it to have effect as a legally binding lease. Section 54(5) of the Land Registration Act, 2012 mandates that the Lands Registrar register long-term leases and issue certificates of lease over apartments, flats, maisonettes, townhouses, or offices, conferring ownership if the property is geo-referenced and approved by the statutory body responsible for land surveys. It’s important to note that the landlord must apply for registration of a long-term lease. If unregistered, the lease may be voidable, with both parties having the right to either annul or affirm the lease.
For tenants considering termination of a commercial lease in Kenya, the process and requirements can differ depending on the type of lease. If you are facing a termination of lease agreement by tenant, it’s important to understand your legal rights and obligations to ensure that the termination process is carried out correctly and without any legal complications.
However, despite the landlord failing to register a lease, the same shall have effect as a simple contract between the landlord and tenant. This is informed by the East African Court of Appeal’s holding in Souza Figneiredo vs Moorings Hotel Co. Ltd, (1960) E.A. 962 as below:
“an unregistered document operates as a contract inter-partes and can confer on the party in the possession of an intending leassee a right to enforce the contract specifically and obtain from the intending lessor a registerable lease and further that a covenant to pay rent in the unregistered document was enforceable.”
Therefore, despite a long-term lease being unregistered, the landlord still has the option to enforce the lease as a contract that was executed by both parties.
Let us imagine a second scenario, you are desirous of terminating a lease but unfortunately, the lease did not contain a termination clause either by design or mistake. Commercial leases in particular tend not to have a termination clause with the landlord’s intention being to bind the tenant to the premises for the entire duration of the lease.
It is often difficult for tenants to terminate the lease before the expiry of the agreed term of the lease. Premature terminations give the landlord the right to seek compensation from the tenant for breach of the lease. The amount of compensation may vary depending on the circumstances leading to exit but it can be as high as the rent that would be payable for the unexpired term of the lease.
If a tenant is constrained to terminate his or her lease before its end date, it is advisable to negotiate exit terms for such exit with the landlord. Where there is an obvious demand for the premises, the landlord may be willing to accept an early termination without any penalty or at a minimal fee. If demand is scarce, the landlord may push a hard bargain and negotiate for high compensation.
For a tenant to walk out on an unregistered long-term lease as in scenario 1 or a lease without a termination clause as in scenario 2 he or she must first identify a good cause for termination. That is, if there has been any breach of core obligations under the contract by the landlord, in which case the tenant generally has rights to terminate even without this being expressly stated. Sometimes it may be worth considering whether something in the creation of the lease constitutes good cause for termination e.g. mistake, duress or a misrepresentation that induced the tenant to enter into the lease, in which case there may also be a right of rescission. In this case the contract is not just terminated but void from the beginning.
The final manner in which a tenant may protect themselves in the event of a need for a loophole to extricate himself/herself from a lease is to negotiate for the inclusion of a lease break clause by way of an addendum to the lease. A lease break clause gives the tenant the power to terminate the lease after a fixed duration of time e.g. every 6 months, provided that the lessee has met all his rental obligations and complied with all his obligations in the lease.
Conclusion
Navigating commercial leases in Kenya can be complex, but with the right legal guidance, you can ensure a smooth process. Whether you’re negotiating terms or facing disputes, our team of expert real estate attorneys in Kenya is here to provide tailored legal solutions. Contact us today for personalized assistance with your commercial lease needs.
“The information provided in this article is intended for general legal advise and does not constitute legal advice for specific transaction or case. Since each transaction presents a unique legal context, it is advisable to retain a legal adviser for specific transactions”
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