Peter Njeru Mugo & Co Advocates v Kenya Commercial Bank Limited [2021] KEBPRT 305 (KLR)

REPUBLIC OF KENYA

BUSINESS PREMISES RENT TRIBUNAL

TRIBUNAL CASE NO 76 OF 2018 CONSOLIDATED WITH BPRT 82 OF 2018 (EMBU)

PETER NJERU MUGO & CO ADVOCATES..................................TENANT/APPLICANT

VERSUS

KENYA COMMERCIAL BANK LIMITED.........................LANDLORD/RESPONDENT

RULING

1.   On 1st April 2019, BPRT cases numbers 76, 77, 79, 82 of 2019 and BPPT 29 of 2019were consolidated as BPRT 82 of 2018.  On the same day, the parties were directed to file their respective valuation reports.  The parties have duly filed their reports.  The various suits emanate from the Landlord’s notices to increase rent to the prevailing market rentable rates.  I will deal with each case separately in this decision.

2.  Tribunal Case No. 76 of 2018 (Embu)

a.   Peter Njeru Mugo Vs KCB Bank (K) Ltd

The Landlord’s notice to increase rent is the one dated 8th October 2018.  It seeks to raise rent from Kshs 16/- per square foot to the prevailing market rentable rates of Kshs 40/- per square foot on rent and Kshs 10/- per square foot on service charge respectively.

The grounds upon which the increase is sought are that the rent the Tenant is paying currently is too low and not commensurate with the market rate and that the Tenant has rejected the increament proposed by the Landlord.

The Tenant opposed the notice of termination by his reference by Tenant to Tribunal dated 27th November 2018.

b.  The Valuation report prepared by Tuliflocks Ltd indicate the total lettable area to be 342 square feet, the current rent per month is Kshs 12,584 at the recommended rate per square foot of Kshs 32. 46 inclusive of service charge.

c.  The valuation report over the same premises by Epiconsults Ltd recommends Kshs 45/- per square foot on rent and Kshs 10/- per square foot on the service charge.  This translates to a monthly rent of Kshs 15,390/- and service charge of Kshs 3,420/-.  This is an increament from the current monthly rent of Kshs 5,670/- with no service charge.

d.  The comparables used/applied by the valuer for the Tenant, Tulliflocks Ltd are;

i. Njeru Githaga & Co Advocates situated at Emco Building paying Kshs 12,925/- per month at Kshs 25/- per square feet inclusive.  The premises is on Kenyatta Road.

ii.  Jodo House along Kubukubu road paying Kshs 29. 76 per square foot per month inclusive.

iii. Rurima House along Kenyatta – Kubukubu Road paying Kshs 49/- per square foot per month.

iv. Eastern Emporium Building along Kenyatta – Kubukubu Road paying Kshs 30/- per square foot per month inclusive.

v.  Jigoru Building along Kenyatta – Kubukubu Road paying Kshs 34/- per square foot per month inclusive.

vi.   Embu Municipality along Kenyatta – Kubukubu Road charging Kshs 27/- per square foot per month inclusive.

e.   The comparables used/applied by Epiconsults, the Landlord’s Valuers are;

i. Embu Municipality 538, Secutec Ltd paying Kshs 40/- per square foot and service charge at Kshs 10/-.

ii.  Embu Municipality/538, Standard Group premises paying Kshs 50/- per square foot per month and service charge at Kshs 10/-.

iii. Embu Municipality/538 along Kenyatta Kubukubu Road, Elenmae Investment Premises paying Kshs 25/- per square feet per month.

iv. Embu Municipality/34/Kenyatta Road paying Kshs 30 per square foot per month.

v.  Embu Municipality/28/Kenyatta Road Embu Motors Building paying Kshs 35/- per square foot.

vi. Embu Municipality/28/Kenyatta Road Embu Motors Building paying Kshs 35 per square foot.

vii.   Embu Municipality/29 Mwende House along Kenyatta Road paying Kshs 50/- per square foot.

f.    Under section 9(2) of Cap 301,it is provided;

Without prejudice to the generality of this section, a Tribunal may, upon any reference;

(a) ”determine or vary the rent to be payable in respect of the controlled tenancy, having regard to the terms thereof and to the rent at which the premises concerned might reasonably be expected to be let in the open market…”

g.   Under section 12(1)(b) of Cap 301, the Tribunal has power to determine or vary the rent to be payable in respect of any controlled tenancy having regard to all the circumstances thereof.

h.   The Act does require the Tribunal to have regard to the terms of the tenancy and the rent which the premises would fetch in the open market.  The Act further requires the Tribunal to have regard to all the circumstances of the tenancy.

i.    The Act does not define what amounts to “all circumstances” and neither does it provide a formula for arriving at the rent at which the premises may be let in the open market.  The Tribunal therefore exercises a discretion over these matters and this discretion must be exercised judicially having regard to the evidence before the Tribunal. (See the case of Nairobi High Court Civil Appeal No 61A of 1976 Shah & Shah Vs Francis Titus Kigundu).

j.    In Nyeri ELCA case No 31 of 2015, Margaret Wanjugu Nduma & 3 Others Vs James Gichuki Gathara (2020) eKLR.  The court while dealing with the applicable principles governing assessment of rent stated at paragraph 37.

k.   37 “On the first issue for determination as to whether the chairperson property applied the principles governing assessment of rent, the principles governing the assessment of rent are found in form G of the regulations as follows;

i. Ascertaining the original, cost of construction of the building.

ii.  The age of the building.

iii. The market value of the land on which the premises are built.

iv. The improvement and cost of such improvements.

v.  Amenities or services provided for by the Landlord.

vi. The rent at which the premises were let for the past three years.

l.   At paragraph 42 of the same judgement the judge proceeded to state;

“there was so much emphasis on comparable at the expense of all the other principles herein above mentioned.  For instance, there was no mention about the age of the building, the market value of the land on which the suit premises is build and the improvements and cost of those improvements and etc even when both valuers attempted to remark on the deplorable condition of the premises.

m.  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.

n.   Further in Tala Investment Ltd Vs Green Spot Limited, Civil Appeal No. 269 of 1993, Justice Shah 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 the mean figure of the Landlord’s and Tenant’s valuer’s report.  That is not proper criteria.

o.   The property upon which the valuation herein is being carried out is on title No. Embu Municipality/538 along Kenyatta Kubukubu Road.  It is identifiable as KCB (K) Ltd Building.  The comparables used Tuliflocks Ltd who are the valuers of the Tenants are all along Kenyatta Kubukubu Road.  It is safe to assume therefore that the comparables are near to and or on the same street/road with the subject property/premises.  The rent payable per square foot for these comparables range from Kshs 25/- to Kshs 49.  The average rent payable for the six comparables is Kshs 32. 45 which is the rent per square foot recommended by the valuer for the Tenants, M/S Tuliflocks Ltd.

p.   Three of the comparables used by the valuer for the Landlord Epiconsults Ltd are located within the subject building and their current rent range between Kshs 27/- to Kshs 50/- per square foot.  The average rent payable by the said comparables is Kshs 39/-.  The other three comparables used by the Epiconsults Ltd are all located along Kenyatta Road.  The rent paid by these comparables range from Kshs 30/- per square foot to Kshs 50/- per square foot.  The average rent payable per square foot is Kshs 38/-.

The average rent payable for the six comparables is Kshs 38. 5 per square foot.  The figures for consideration from the two reports are therefore Kshs 32. 45/- recommended by the Tenant’s Valuer and Kshs 38. 5 worked out from the averages of the report by the Landlord’s valuer.

q.   I do note that all the comparables used by both valuers are around the same location with the subject premises.  I also note that other than stating the rent payable by the Tenants of the comparables, the valuers have not indicated other variables in regards the comparables.  For example, how do the comparables compare to the subject premises in terms of the age of the buildings, the cost of construction of the buildings, the improvements on the buildings, amenities and services provided in the buildings.  The lack of these details leaves the Tribunal with only the figures reflected in the valuation reports.

r.   The valuation report by Epiconsults Ltd took consideration of comparables within the subject building, that is what other Tenants in the building are currently paying.  The average rent paid per square foot by the said Tenant sis Kshs 39/-.

The Tenant’s report has not taken into consideration the rent per square foot paid by other Tenants within the subject premises.

Considering both reports before the Tribunal and having gone into the individual comparables, I am satisfied that the report by Epiconsults Ltd presents the more reasonable rent estimates.

I therefore assess the rent payable by the Tenant in BPRT case No 76 of 2018 to be Kshs 38. 5/- per square foot per month.  This works out to 13,167/- (38. 5 x 342 square feet) per month.

3.   Other Tenants

Following from the above reasoning in BPRT No 76 of 2018 and having assessed the rent payable per square foot at Kshs 38. 5/- the calculations for the other Tenants work out as follows;

Case No           Tenant’s Lettable Area        Lettable Area             Rent Payable

77/2018            A.P. Kariithi & Co                546 square ft               21,021/-

79/2018            Fatuma Wanjiku & Co        591 square ft               22,753/-

82/2018            Wairimu Rugaita & Co        396 square ft               15,246/-

29/2019            Joe Kathungu & Co              342 square ft               13,167/-

4.   Service Charge

a.  The interpretation section of Cap 301 defines service charge to mean “a charge for any service rendered.  Services in respect of any tenancy means the use of water, light or power, conservancy, sewerage facilities, sweeper, watchmen, telephone or other amenity or facility available to the Tenant, save and except the supplying of meals and the right of access to any place or accommodation accorded to the Tenant by reason of his occupation of the premises comprised in the tenancy.

b.  Tuliflocks limited, the Tenant’s valuers have stated in their report that they did not find it necessary to work out a service charge for the demised premises as the Tenants have no common area.

On the other hand, the valuation report by Epiconsults Ltd has indicated that the services offered in the subject premises include water, electricity, cleaning of common areas and electricity.  The building is also served with two stair cases and a parking lot.  The report by Epiconsult Ltd resonates with the definition of services quoted above.

Though the Tenant’s valuation report denies the existence of common areas, it nonetheless acknowledges that all main services, water and electricity are connected to the property from the main source.  It also acknowledges that sewer lines are connected to the parcel.  I therefore find that the service charge is chargeable upon the Tenants.  Indeed, the Tenant in BPRT No. 79 of 2018 admits to paying service charge of Kshs 4/- which the Respondent now applies to be raised to Kshs 10/-.

A perusal of the valuation report by Epiconsults Ltd shows that Secutec Ltd, Standard Group and Eunmac Investment, all Tenants of the Respondent pay a service charge of Kshs 10/- per square foot per month.  I find this to be a good basis for ordering that the Tenants in the consolidated cases also do pay a service charge of Kshs 10/- per square foot per month to be calculated on the basis of their respective lettable areas.

5.   What then should be the effective date for the payment of the new rent and service charge?

Except for BPRT No 29 of 2019, whose notice to increase rent was dated 10th January 2019 the other notices are dated 8th October 2018 and their effective dates 1st April 2019 and 1st February 2019 respectively.

In dealing with the effective date, Justice Shah in the Tala Investment Case (supra) stated as follows

“The ratio decidendi of all the 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.”

In Nakuru ELC Civil Appeal No. 68 of 2016, Supa Duka Nakuru Ltd Vs Baringo United Co. Ltd,the Court (Munyao J) stated as follows;

“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.”

Further,

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 ones 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 reasons 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.”

6.   I am guided by the reasoning of the honourable Judge at paragraph 21 above and for the reasons given therein, I order that the new assessed rent and service charge shall commence from the date of this ruling.

7.   Given the proximity of the recommended payable rent in the report of the parties’ valuers, and given that all the parties have not fully succeeded in their various quests, I will order that each party will bear its own costs of these proceedings.

HON. CYPRIAN MUGAMBI NGUTHARI

CHAIRMAN

BUSINESS PREMISES RENT TRIBUNAL

Ruling dated, signed and delivered virtually by Hon Cyprian Mugambi Nguthari this 2ndday of September, 2021 in the presence of Mr Mahindafor theLandlordand in the presence ofMr Joe Gathungu (29/2019) Ms Ngaruiya (82/2019).

HON. CYPRIAN MUGAMBI NGUTHARI

CHAIRMAN

BUSINESS PREMISES RENT TRIBUNAL