Netsam Enterprises Ltd v Bermac Limited & Lia International Company [2021] KEBPRT 417 (KLR)

REPUBLIC OF KENYA

BUSINESS PREMISES RENT TRIBUNAL

VIEW PARK TOWERS 7TH & 8TH FLOOR

TRIBUNAL CASE NO. 1030  OF 2020  (NAIROBI)

NETSAM ENTERPRISES LTD..........................................................TENANT

VERSUS

BERMAC LIMITED................................................................1ST LANDLORD

LIA INTERNATIONAL COMPANY.....................................2ND LANDLORD

JUDGMENT

1. This is a Reference by the Tenant/NETSAM ENTERPRISES LIMITED dated 19th November 2020 against the Landlord’s  notice of termination of tenancy dated 22nd October 2020 seeking vacant possession of the demised premises with effect from 1st January 2021.

2. The tenancy agreement attached to the Reference is not dated but is duly executed and attested as required in Law.  It is between the 1st Respondent/Landlord and the Tenant.

3. In response to the Reference one FLORENCE NDINDA MUINDI swore a replying affidavit on 24th February 2021 on behalf of 2nd Respondent/Landlord which is  described as the “New Landlord” and registered proprietor of Land Reference number  2259/643.

4. The demised premises were acquired by the 2nd Respondent/Landlord after the tenancy agreement entered between the 1st Respondent and the Tenant.  The sale agreement is dated 14th September 2020.

5. It is the 2nd Respondent’s case that on 23rd September 2020, a meeting was held with the directors and representatives of the Tenant on the intention of the 2nd Respondent to take possession of the suit premises for purposes of expansion of its guest house facility erected on the adjacent plots.

6. An offer to give a 3 month’s notice was rejected by the Tenant through B.M. MUSYOKI & CO  wherein  it was indicated that the Tenant intended to serve the whole term of lease until 30th June 2022.

7. On 22nd October  2020, the 2nd Respondent issued a notice of termination of tenancy.

8. As evidence of its intention to extend and expand the facilities, it has annexed a bundle of the proposed development for the suit premises and assorted architect’s invoices and receipts.

9. According to the 2nd Respondent, the said notice is not accentuated by malice and is merely intended to enable it to occupy and develop the suit premises having already invested Kshs.36,000,000/- in the property.

10. After being served with the termination notice, the Tenant has failed to pay rent in respect of the demised premises.

11. According to the 2nd Respondent, the failure to develop the suit premises exposes it to grave danger of losing credibility, support and trust with its donors and resource partners who funded acquisition of the suit premises as well as the proposed development thereon.

12. The 2nd Respondent therefore seeks for striking out of the Reference and that the termination notice be upheld and tenant ordered to pay outstanding rent.

13. On 10th March 2021, it was agreed by consent that the matter proceeds by way of written submissions.

14. On 14th April 2021, the Tenant’s counsel applied to cross-examine the 2nd Respondent’s witness one FLORENCE NDINDA on the contents of the replying affidavit sworn on 24th February, 2021.

15. On 20th May 2021, the said witness was examined as requested and produced the replying affidavit as her evidence.

16. She confirmed that the 2nd Respondent was aware of the tenancy prior to purchasing the suit property and that there were Tenant’s equipment for catering and mabati structures built thereon.

17. She also confirmed that the Tenant’s lease expires on 30th June, 2022 and that the Tenant had indicated its intention to serve the whole term.

18. The suit property was transferred on 18th January 2021 although the termination notice was issued earlier.  The witness stated that the 2nd Respondent intended to put up parking spaces, do a toilet block and Landscaping for outdoor activities including catering.  The Tenant carries out  catering services on the premises.

19. According to the witness, the 2nd Respondent had initiated the process of change of user and that the drawings had been approved.  Finances were being sourced from international partners for the project.

20. On 10th February 2021, a consent order was recorded that monthly accruing rent with effect from February 2021 was to be deposited in the Tribunal pending hearing and determination of the dispute.

21. Both parties filed submissions in the matter.  The Tenant submits that the proposed termination of tenancy amounts to breach of a legal and formal contract between it and the 1st Respondent one year before it ends.

22. It is further submitted on behalf of the Tenant that the documents exhibited in support of the grounds for termination are not supportive in that they relate to landscaping “as opposed to guest house”.   They are not approved by the city county office or other relevant authorities and the same do not bear the Land Reference number, they are computer generated and unsigned.  The receipt for payment to the Architect is dated 10th February 2021.

23. At the time the notice to terminate was issued, the transfer in favour of the 2nd Respondent had not been effected.  No change of user application has been exhibited.

24. The Tenant submits that at the time the said notice was issued there was no genuine intention to demolish and reconstruct on the suit property.

25. According to the Tenant, no minutes or resolutions to build a guest house is exhibited as proof  of serious intention to do so and that the Tenant will equally suffer credibility crisis from its customers if it is compelled to relocate within a short period before expiry of its  lease.

26. The Tenant submits that the evidence on record shows that the intention of 2nd Respondent is to occupy the premises for more than one year after termination under section 7(1)(g) and /(2) as opposed to section 7(1) (f).

27. On the other hand, the landlord submits in support of the notice of termination on the grounds set out in the replying affidavit and the notice as well as provisions of sections 4(2), 4(4) and 4(5) of Cap. 301 Laws of Kenya.

28. I note that the reasons given to demonstrate good faith on the part of the Landlord/1st Respondent are not contained in the replying affidavit and are not admissible through submissions.  I will therefore not take the same into consideration.

29. Having gone through the pleadings, evidence and submissions of both parties, I consider that the only issue for determination is whether or not the notice of termination of tenancy should be upheld.  Secondly, who is liable to pay costs of the Reference?.

30. In the case of AUTO ENGINEERING LTD -  VS-  M. GONELLA & CO. LTD (1978) e KLR cited by the Tenant’s counsel, section 7 (1) (g) of Cap. 301 was discussed in the following terms:-

“For this purpose, the court must be satisfied that the intention to reconstruct is genuine and not colourable, that it is a firm and settled intention not likely to be changed, that the reconstruction is of a substantial part of the premises, indeed so substantial that it cannot be thought to be a device to get possession, that the work is so extensive that is necessary to get possession of the holding in order to do it, and that it is intended to do the work at once and after a time.  Unless the courts were to insist on these requirements, tenants might be deprived of the protection which parliament intended them to have”.

31. In regard to the case at hand, I make the following findings:-

(a) The 2nd Respondent acquired the demised premises when it had already been leased to the Tenant for a period of 4 years from 1st July 2018 to 30th June 2022.

(b) The sale agreement entered into between the 1st and 2nd Respondents on 14th September 2020 at clause 7 (b) clearly disclosed the existence of a tenant on the property under a tenancy of 4 years.

(c) Although the said clause states that the lease would stand extinguished and/or terminated by operation of law upon completion of the agreement,  the same is misconceived as the Tenant is not a party to the agreement and  being a protected tenant under Cap. 301, Laws of Kenya cannot be terminated without following due process.

(d) I further hold that upon purchase of the demised premises, the rights and obligations of the Tenant were transferred together with the property to the 2nd Respondent who cannot terminate the tenancy without establishing the grounds set out under section 7 of Cap. 301, Laws of Kenya.

(e) The 2nd Respondent though not registered proprietor by the time of issuing notice to terminate in respect of the demised premises was by virtue of purchase entitled as an equitable owner to issue the notice in line with the definition of a Landlord under section 2 of Cap. 301, Laws of Kenya.

(f)  The 2nd Respondent’s notice of intention to terminate the tenancy on grounds that it intended to demolish the premises and carry out a substantial work of construction on the premises was not proved in that all the documents relied upon in evidence were procured after the said notice.

(g) The 2nd Respondent did not demonstrate that there was approval to put up a guest house and that funds were actually available to undertake the construction.

(h) The ground of termination of a tenancy to demolish or reconstruct the premises under section 7(1) (g) in my understanding only applies where there is an existing building or structure owned by the Landlord in occupancy of a Tenant.  It cannot apply if the structures like in this case are owned  by the Tenant.

(i) The Landlord’s witness denied during cross examination that it was intended to demolish and reconstruct the building thereby contradicting the notice of termination served upon the Tenant.

(j) The evidence tendered was that what was intended to be constructed was a parking lot, toilet block and outside  catering facility and not a guest house as deposed in the replying affidavit of FLORENCE NDINDA MUINDI.

32. In view of all the foregoing findings, I proceed to dismiss the notice to terminate the tenancy and therefore allow the Reference with costs.

33. The Tenant shall continue enjoying peaceful and quiet possession of the demised premises for the remainder of the lease upto 30th June 2022 whereupon it shall vacate therefrom unless the lease is renewed by the 2nd Respondent by mutual agreement.

34. For avoidance of doubt, all rent due in line with the lease agreement shall be payable to the 2nd Respondent/new Landlord together with any rent that may have been deposited in the Tribunal.

35. The Tenant’s costs for the Reference is assessed at Kshs.30,000/- to be paid by the 2nd Respondent or if not, defrayed against the Rent account.

It is so ordered.

JUDGMENT READ, DATED AND SIGNED THIS 16TH DAY OF JULY 2021.

HON. GAKUHI CHEGE

VICE CHAIR

BUSINESS PREMISES RENT TRIBUNAL

In the presence of:

Miss Maina for the Tenant

Mr. Ranja for the Landlord