Esquire Limited v National Fund for Disabled of Kenya [2021] KEBPRT 432 (KLR)

REPUBLIC OF KENYA

BUSINESS PREMISES RENT TRIBUNAL

TRIBUNAL CASE NO 714 OF 2018 (NAIROBI)

ESQUIRE LIMITED................................................................................................TENANT

VERSUS

NATIONAL FUND FOR DISABLED OF KENYA........................................LANDLORD

RULING

The Landlord’s notice to terminate or alter terms of tenancy dated 11th July 2018 proposes;

“To review the rent payable per square feet upwards from Kshs 58. 51 inclusive of service charge to Kshs 200/- exclusive of service charge and service charge at Kshs 25. 00/- per square foot.”

The grounds upon which the alteration of rent is sought is that;

“The Tenant is paying rent at a rate below the market rate for the premises and below the rent paid currently by Tenants on ground floor.”

On 1st March 2021, the Tenant’s reference was by consent of counsel for the parties fixed for hearing on 7th April 2021.  On 7th April 2021, both parties were granted twenty-one (21) days to file their valuation reports.  The matter was then fixed for mention on 11th May 2021.  On 11th May 2021, this matter was once again fixed for mention to confirm the filing of valuation reports by the parties.

On 18th May 2001, counsel for the Landlord appeared and informed the court that he had filed his client’s valuation report.  Counsel for the Tenant did not turn up and neither did the Tenant file its valuation report.  As it is therefore, the only valuation report for consideration is the one prepared by M/S Value Line Consulting Ltd.

The Landlord’s Valuation Report may be summarized as follows;

1.  The premises which are the subject of the rental assessment are located on parts of the ground and first floors.  The premises is on both Kaunda Street and Standard Street, within the CBD Nairobi.

2.  The lettable area measurements were provided by the Landlord as the valuers were not allowed access to take measurements physically.

3.  The lettable area is 2,425 square feet and the rent per month inclusive of service charge is Kshs 164,604. 00 translating into Kshs 67. 90 per square foot per month.

4.

i.The valuers applied the rent paid at L.R. 209/677 680 Hotel Building, Bruce House, and Ufundi House and Kencom House.

ii.At 680 Hotel Building, the valuers report that two Tenants, Text Book Centre and Hot Pot appliances (both Tenants on the ground floor) pay Kshs 200,000/- per square foot.

iii.At Bruce House, the Valuers report the ground floor rates to be Kshs 200/-per square feet and Kshs 80/- per square feet on the 1st floor.

iv.At Ufundi House, the valuers reported the ground floor rates to be Kshs 250/- per square foot for month and Kshs 100/- per square foot per month on the first floor.

v.At Kencom House, the valuers report that the rates for the second floor to be Kshs 130. 00 per square foot.

5.  The comparables are located in buildings close to the subject of rental assessment and are of a similar construction profile.

6.  The rates range between Kshs 200/- - 250/- on the ground floor (per square foot) and Kshs 225. 08/- per square foot per month on average exclusive of service charge.

7.  The average rental rate for the 1st floor is Kshs 105. 00/- per square foot exclusive of service charge.

8. The valuers have taken into account the covid – 19 pandemic and its disruption on the economy and noted that since the comparable tenancies are in occupation and operational during the said pandemic, there rates are applicable during the pandemic.

9.   In conclusion, the valuation recommended the rental rate of Kshs 225. 00/- per month on the second floor and Kshs 105. 00 per month on the first floor.  The total rent payable based on the lettable area was assessed at Kshs 372,465/- exclusive of service charge.

10. The issue for determination in my humble view is whether the Landlord is entitled to the increament it has sought and whether that increament reflects the rent which the subject premises might reasonably be expected to be let in the open market.

Under section 12(1)(b) and section 9(2)(a) of Cap 301, the Tribunal has powers to determine the rent payable in a controlled tenancy.  This power includes the power to vary the rent payable.  Both sections of the Act do not prescribe any method to be employed by the Tribunal in order to determine the rent payable.  It therefore follows that the Tribunal has wide discretion over this aspect of its mandate (see Nakuru ELC Civil Appeal No. 68 of 2016, Supa Duka Nakuru Ltd and Baringo United Co Ltd at paragraph 13 of the judgement.)

The concern that section 9(2)(a) of Cap 301 raises and which ought to be determined is “the reasonably expected rent in the open market.”

In arriving at the rent payable/chargeable in the open market, all the statute requires of the Tribunal is the consideration of all the obtaining circumstances, having regard to the evidence before it.

The Tribunal is to have regard to the rent at which the premises might be reasonably expected to be let in the open market but this does not however mean that the market rent is the only matter to be considered.  Other considerations in reaching a reasonable rent are the age of the building, market locality and premises with similar trade.   In Cleaners Limited Vs Barclays Bank & Co [1972] EA 188, the Court of Appeal held that;

“It is the reasonableness of the rent that must be in the forefront of the Tribunal’s investigation and determination.  It must be the concern of this court too.  The average rates per square foot or meter of a number of nearby buildings on ground floor premises in which similar trades are exercised are among other things relevant to assessing the rent that would reasonably be expected in the open market”.  (See Milimani ELC Appeal No. 5 of 2014 Njoroge Ndurugu & Others T/A Ngamini Bar and Restaurant Vs Alykah Investments Limited at page 3).

I have considered the comparables applied by the valuers.  I do note that the comparables and the subject matter herein are all in the Central Business District.  The subject premises is located/falls on both Kaunda and Standard Streets behind Sarova Stanley Hotel and adjacent to Lornho House.  The 680 Hotel building is situated at the junctions of Kenyatta Avenue, Mundi Mbingu Street and Kaunda Street, while Kencom House is situated at the junction of Moi Avenue, City Hall Way and Agha Khan Walk.

I am therefore satisfied that the comparables are not only in the CBD where the subject premises (REHEMA HOUSE) is situated, but they are also close to the subject premises.  The valuer’s contention that they are of a similar construction and profile has not been challenged.  I do find the comparables as reasonable in determining the rent likely to the charged for the subject premises if it is let in the open market.

I therefore agree with the analysis found at page 9 of the valuation report by Value Line Consulting Ltd and adopt the figures therein.  The Tenant having failed to file its valuation report for comparison purposes or in support of its opposition to the proposed rent increment, the Tribunal is only left with the Landlord’s valuation report “being the evidence before it”.

The position taken here is buttressed by the views of Shah J in Tala Investments Ltd Vs Green Spot Limited, Civil Appeal No. 269 of 1993 where he stated;

“In dealing with principles upon which a Tribunal should act in assessing rent, its duty is to consider all the reports properly before it.  The Tribunal must go into individual comparables to decide which is a better report rather than merely arrive at a mean figure that is mean figure of the Landlord’s and Tenant’s Valuer’s report.  That is not proper criteria”.

In the instant case, I have but only one valuer’s report to consider.  It is all the evidence placed before me.  In the final analysis, I assess the rent payable at Kshs 225. 00 per month per foot on the ground floor and Kshs 105. 00 per foot per month on the first floor.  The result is that the rent payable/assessed for the lettable area of 2,425 square feet (982 square feet for the ground floor and 1,443 square feet for the first floor) is the sum of Kshs 372,465/- per month exclusive of service charge and VAT.

What then should be the effective date for the payment of the new rent?  The effective dates as appears on the notice to terminate or alter terms of tenancy is 11th September 2018.  The notice itself is dated 11th July 2018, more of this later.  Justice Shah dealt with this issue in the Tala Investment Ltd Case (supra) when he stated;

“The ratio decidendi of all the said appeals is that the normal order for effective date would be that the date specified in the tenancy notice would be proper but the Tribunal has in proper circumstances discretion to alter the effective date and that such discretion must be exercised judicially.”

Justice Munyao in the case of Supa Duka Nakuru Limited (supra) stated on the same issue;

“In my view, the reasons why the Tribunal was of the opinion that the rent needed to be backdated ought to have been given and failure to do that was an error on the part of the Tribunal.

21 – “I hold the view that a cautious approach is needed before an order for back pay on rent is made, for the simple reason that this is a cost that was never budgeted for by the Tenant and was never taken into account by the Tenant when operating his business.  It can be a huge burden which can lead to the crippling of one’s business especially because it now has to be paid in one lump sum, covering a significant span of years.”

25. ”There needs to be justifiable reason as to why rent should be back paid which was not given in this case.  Both cited decisions leave the Tribunal with the discretion to determine when the assessed new rent ought to commence being paid.  The only requirement is that the discretion must be exercised judicially and a justification for the discretion given.

The Tenant’s right to oppose a tenancy notice is preserved under section 6 which grants the Tenant the right to refer a matter to the Tribunal.  The Tenant in the instant case filed its reference on 24th August 2018 in opposing the Landlord’s notice dated 11th July 2018. This matter has pended at the Tribunal up to the date of delivering this ruling.  The Tenant has all along participated in the proceedings through counsel although he failed to file the valuation report.

The Landlord’s valuation report was itself filed in court on 7th May 2021 as per the proceedings of 11th May 2021.  The Tenant, as observed above had the right to file the reference as it did not agree with the proposed increment.  Both parties are bound by the outcome of this suit, irrespective of the direction the ruling takes.  Each of the parties must have looked forward to eventually succeeding in their respective positions.  In these circumstances, it would not be fair to order that the assessed rent commences on the date indicated in the notice.  In my view, that position would only hold where the Tenant does not oppose the notice to increase rent.  It would then be given, not so in this case.

I would therefore safely order and which I hereby do, that the new assessed rent commences from the date of this ruling.  I will grant the costs of this application to the Landlord.

HON. CYPRIAN MUGAMBI NGUTHARI

CHAIRMAN

BUSINESS PREMISES RENT TRIBUNAL

Court:

Ruling dated, signed and delivered virtually by Hon. Gakuhi Chege this 18th day of June 2021 in the presence of Miss Matengo holding brief for Mr Wachira for the Tenantand Mr Paul Maina for the Landlord.

HON GAKUHI CHEGE

VICE CHAIRMAN

BUSINESS PREMISES RENT TRIBUNAL