Stephen Muthaura v Mary Kinoti [2021] KEBPRT 168 (KLR)

REPUBLIC OF KENYA

BUSINESS PREMISES RENT TRIBUNAL

VIEW PARK TOWERS 7TH & 8TH FLOOR

TRIBUNAL CASE NO. 19 OF 2019 CONSOLIDATED WITH 52 OF 2019 (MERU)

STEPHEN MUTHAURA..........................................................TENANT/APPLICANT

VERSUS

MARY KINOTI.............................................................LANDLORD/RESPONDENT

RULING

1.  The Landlord’s tenancy notice dated 2nd August 2019 addressed to the Tenant herein sought to increase the rent payable over L.R Ntima/Igoki 4411/Meru Municipality from Kshs 21,000/- to Kshs 80,000 (per month).  The grounds upon which the termination is sought are that;

a.  The present rent of Kshs 21,000/- is much below what having regards to the terms of the tenancy might reasonably be expected to be obtained in the open market.

b.  The other changes claimed are also in keeping with the trends in the open market.

2.  On 29th October 2019, the Tenant filed a reference at the Tribunal opposing the above notice by the Landlord.

3.  Both parties have filed their submissions and the valuation reports prepared on behalf of their respective clients.  I will summarize the submissions and reports as follows;

a.  The Landlady has filed a valuation report prepared by Roma Valuers Environmental & Property Consultants Ltd.

b.  The Landlady’s report has taken into account four comparables.

c.  For the lettable area, the Landlord seeks to adopt the lettable area in the Tenant’s valuation report, ie 696. 54 square feet.

d.  That the average rate is Kshs 87. 50 as shown in the Landlord’s valuation report, monthly rent would therefore work out at (69654 x 87. 50) Kshs 60,947. 25/-.

e.  The Tenant’s valuation report does not have any comparables.

f.   That the effective date ought to be the date on the notice ie 1st November 2019.

4.  The Landlord’s Valuation Report;

a.  The lettable area considered in the report is 537. 5 square feet.  The property is located within Makutano area where commercial and residential land is in high demand.

b.  That the date of the analysis in the report is 1st August 2019 when the instructions were given.

c.  The comparables were as follows;

i.   Ntima/Igoki/1790 Kijata Bakery Kshs 90/- per square feet.

ii.   Ntima/Igoki/1719 – Kshs 80/- per square feet.

iii.  Ntima Igoki/5764 – Kshs 80 per square feet.

iv.  Ntima/Igoki/2394 – Kshs 100/- per square feet.

d.That the analysis from (c) above come to Kshs 87/50 per square foot, per month, and the total rent per month rounded to Kshs 47,000/- and the annual rent Kshs 564,000/-.

5.  The Tenant’s Submissions and Valuation Report may be summarized as follows;

a.  That the proposed increment is unreasonable and unjustifiable.

b.  The proposed increment is not backed by the Landlady’s report.

c.  That the Tenant’s valuation report reflects the correct monthly rental value payable.

d.  That the effective date ought to be the date of judgement.

e.  That the Landlady should be denied the costs of the reference as the increment was not justified.

6.  The Tenant’s Valuation Report is to the effect;

a.  The property fronts the Meru – Makutano tarmac road.  The property is in an ideal location for carrying out commercial activities.

b.  That the valuers have made use of the comparable approach for rental assessment and have also taken cognizance of the highest and best use of the subject property.

c.  That most of the comparables and similar properties are rented at a range of Kshs 40 – Kshs 70/-per square foot per month.

d.  That due to the location and condition of the finishes, the valuers adopted a rate of Kshs 50/- per square foot (psf).

e.The recommended estimated gross monthly rental value is Kshs 38,827/-.

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

Without prejudice, 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 reasonable be expected to be let in the open market…”

8.  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.

9.  The Act (Cap 301) also 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.  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.

10. 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 HCCA No 61A of 1976, Shah & Shah Vs Francis Titus Kigundu).

11. In the case of Cleaners Ltd Vs Barclays Bank & Co [1972] EA 188 the Court of Appeal held as follows;

“it is the reasonableness of the rent that must be in the forefront of the Tribunals investigations 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.”

12. Further in Tala Investment Ltd Vs Greensport Ltd, Civil Appeal No 269 of 1993, Justice Shah stated as follows;

“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 the Tenant’s valuer’s reports.  That is not a proper criteria.”

13. The principles governing the assessment of rent are found in form G of the regulations in Cap 301.  They include;

a.  Ascertaining the original cost of construction of the building.

b.  The market value of the land in which the premises are built.

c.  The age of the building.

d.  The improvement and cost of such improvements.

e.  Amenities or services provided for by the Landlord.

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

14. I have carefully studied the valuation reports filed by the parties.  The Landlord’s valuation report has used four comparable.  The plot/parcel numbers of the comparables have been indicated as Ntima/Igoki 1790, 7919, 5674 and 2394.

15. From the numbering of the plots, it is not clear whether they are on the same block.  The map produced by the Landlord is not clear on the numbering either.  Other than indicating the rates payable per plot per square feet per month, the report is silent on the nature of the buildings in those plots.  The basis for comparing those buildings with the subject property has not been established in the report.  The report though states that the comparables are within Makutano area, where the subject building is located.

16. The valuation report by Inlight Consultants Ltd for the Tenant indicates that the building is structurally sound and in a fair state of repair and decoration.  Whereas the report states that it has used the comparable approach for rent assessment, the comparables used are not disclosed.

17. The report generally states that similar buildings charge the rate of Kshs 40/- to Kshs 70/- per square foot.  The report allocates Kshs 50/- per square foot for the subject building due to what it calls the location and condition of finishes of the said building.

18. The report is contradictory, it has already found that buildings in the vicinity charge Kshs 40 – Kshs 70/- per foot.  It has also found that the building is structurally sound and in a fair state of repair and decoration!  On what basis then would the valuer assign a value less than Kshs 70/- and greater than Kshs 40/- per square foot?  The report is silent on the reasons.

19. In applying the guidelines in the Tala Investment Case (supra) that is “that the Tribunal must go into individual comparables to decide which is a better report…”.  I find that the report by Roma Valuers for the Landlord has provided the comparables to aid in assessment of the rent payable and I consider it the better report.  I do not find any proper basis upon which In light Consultants Ltd came to the assessment of Kshs 50/- per square foot bearing in mind that the said report did not use any comparables.

20. The approximate lettable area in the two reports appear to be in conflict.  The Tenant’s valuers state the lettable area is 696. 54 square feet while the Landlord’s valuers have given the lettable are to be 537. 5 square feet.  I will not approximate the letable area since this is an issue that can be determined by carrying out a joint measurement of the area.  It is a verifiable exercise and not open to guesswork.  The size of the lettable area though cannot be a hindrance to determining the rates chargeable per square foot.  That rate once determined will be applied to the verified lettable area.

21. Having looked at the amounts charged in the Landlord’s report to range from Kshs 80, 90, 100/=.  I will adopt the sum of Kshs 80/- per square foot being the figure appearing in two out of the four comparables.  It is the dominant charged and I find it reasonable.

22. What then should be the effective date for the application of the newly assessed rent?  Justice Shah in the Tala Investment case (supra) stated in this regard 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”.

23. Similarly, in Nakuru ELC Civil Appeal No. 68 of 2016 Supa Duka Nakuru Ltd Vs Baringo United Co. Ltd, Justice Munyaostated as follows;

“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 lump sum.  The only requirement is that the discretion must be exercised judicially and a justification for the discretion given.”

24. Guided by the above decision and also considering the fact that the Tenant had a legal justification for challenging the notice to increase the rent, I do order that the new rates shall be effective from 1st November 2021.

25. In the final analysis, I do issue the following orders;

a.  That the notice dated 2nd August 2019 succeeds to the extent that the rent payable per month is now assessed at Kshs 80/- per square foot.

b.  That the lettable area shall be determined by a joint measurement by the valuers of both parties on or before 31st October 2021 failing which the lettable area shown in the Landlord’s valuation report by Roma Valuers, Environmental and Property Consultants Ltd shall prevail ie 573. 5 square feet.

c.  The effective date of the notice and therefore the application of the new rate shall be 1st November 2021.

d.  The Tenant shall bear the costs of the reference.

HON. CYPRIAN MUGAMBI NGUTHARI

CHAIRMAN

BUSINESS PREMISES RENT TRIBUNAL

Ruling dated, signed and delivered virtually by Hon Cyprian Mugambi Nguthari this15thday of October 2021 in the presence of Mr Ringera for theTenant and in the absence of the Landladyand her counsel.

HON. CYPRIAN MUGAMBI NGUTHARI

CHAIRMAN

BUSINESS PREMISES RENT TRIBUNAL