Wellchem Pharmaceuticals Limited & 59 others v Bashir Shukri Salah t/a Gikombaa Business Centre [2022] KEBPRT 68 (KLR)

REPUBLIC OF KENYA

BUSINESS PREMISES RENT TRIBUNAL

TRIBUNAL CASE NO 402 OF 2020 (NAIROBI)

WELLCHEM PHARMACEUTICALS LIMITED & 59 OTHERS.............TENANTS

VERSUS

BASHIR SHUKRI SALAH T/A GIKOMBAA BUSINESS CENTRE......LANDLORD

RULING

1. On 10th May 2021, BPRT cases numbers 402 of 2020 to 457 of 2020 and cases numbers 469 of 2020 to 472 of 2020 were consolidated for hearing and determination.  The parties through their respective counsel agreed to file and exchange their client’s respective valuation reports.  The matter eventually proceeded for hearing on 10th August 2021 and 23rd September 2021 and I proceed to summarize the evidence of the parties as follows;

2. The Landlord called as a witness, Geoffrey Chege whose evidence was to the effect;

a. That he is a registered valuer working with Procost Valuers.

b. That he is the one who prepared the valuation report dated 11th March 2020for plot No. 209/19680 on behalf of the Landlord.

c. That the inspection of the premises was done on 4th March 2020 and a copy of the report forwarded to the Landlord.

d. That the recommended rental assessment for each unit is in the report which the witness produced as the Landlord’s exhibit 1.

On cross-examination by counsel for the Tenants, the witness stated.

e. That he has been a property valuer for the last ten years.

f. That the suit building is located in Gikomba main market.

g. That he considered the buildings of a similar construction, age, location and finishing within a radius of 300 meters of the suit premises.

h. That he did a detailed assessment to come up with the recommendations in his report.

i. That Gikomba Business Complex is not one of the comparables, it is just an indicator.

j. That it would have been wise to take photographs of the building but the Tenants were very unfriendly.

3. The Tenants’ 1st witness, Wilfred Ng’ang’a’s evidence may be summarized as follows;

a. That he represents the other Tenants of Gikomba Business Centre, the Landlord herein.

b. That he adopts his statement dated 31st August 2021 as his evidence in these proceedings.

c. That currently he pays Kshs 17,400/- per month as rent at approximately Kshs 104/- per square foot.  The correct figure for his lettable area is 168 square feet.

d. That all the shops in the basement are equal in measurement.

e. That the Landlord’s valuer did not visit his shop.

f. That the valuation report by the Landlord’s valuer does not reflect the proper sizes of the building and therefore not reliable.

g. That the building is in a bad state of repairs and there is no justification for the proposed rent increment.

h. That the location of the building does not justify the rent increment.

i. That the Tenant/witness would be happy to go by the valuation report prepared by Paragen Property Valuers.

On cross-examination by counsel for the Landlord, the witness stated as follows;

j. That he has not renewed his lease since the same expired in the year 2017.

k. That as per the lease, the Tenants are to take care of their respective premises.

l. That the Tenant’s areas of concern are the common areas.

m. That the building is in a deplorable state and the Tenants have informed the Landlord about the defects orally.

n. That business at the suit premises is not booming due to its location.

o. That the main business is storage and not the actual retailing.

4. The Tenants’ 2nd witness, Kepha Ogutu’s evidence may be summarized as follows;

a. That he is a valuer at Paragon Property Valuers Ltd since 2011.

b. That he personally visited the suit premises and met most of the Tenants.

c. That the suit premises was constructed on or about 2012/2013.

d. That the suit premises has two entrances on Digo Road and Meru Road.

e. That the tiles of the suit premises are peeling off and the common areas are not lighted.

f. That the witness took measurements of the premises as appears from his report at page 3 to 6 thereof.

g. That the comprables used by the witness are in two parts, for the ground floor and for the stores.

h. The fair market value is indicated at page 9 to page 11 of the report by the witness.

i. The valuation by the Landlord’s valuers has no basis and the figures therein are exaggerated.  New buildings in the area go for Kshs 150/- per square foot on average, and older buildings Kshs 125/- per square foot.

On cross-examination by counsel for the Landlord, the witness stated as follows;

j. That it is difficult to get documents from the Tenants in the comparables and therefore no receipts have been annexed by the witness.

5. Both sides to this case have filed their written submissions.  I have read the same and will take them into consideration in writing this ruling.

6. The Landlord’s valuation report adopted Kshs 613. 00/- persquare foot per month for the ground floor and upper floor and Kshs 517. 00/- per square per month foot for the basement spaces exclusive of service charge.

7. The valuation report has for its comparable uprising building complex where space of approximately 81 square feet has been let out for Kshs 50,000/- and the suit premises itself where a lettable area of approximately 154 square feet has been let out for Kshs 80,000/- which translates to Kshs 617. 28 and Kshs 519. 48/- per square foot respectively.

8. The valuation report by the Tenant’s valuers, Paragon Property Valuers Ltd has recommended Kshs 124. 65 per square foot per month for the ground floor shops, Ksh 93. 49 per square foot shops and Kshs 107. 91 per square foot per month for the basement stores.

9. The Tenants’ valuation report has taken into account comparables along Digo Road which range from Kshs 112. 68/- per square foot to Kshs 150. 00/- per square foot for ground floor shops.  The valuation report therefore indicates that the average rate for the ground floor s hops is Kshs 124. 65 per square foot. The comparables for the basement stores are also along Digo Road and they range from Kshs 75. 00/- per square foot to Kshs 125. 00/- per square foot, the average thereof is Kshs 107. 91/-. The first floor shops have been assessed at 75% of the rates for the ground floor shops, giving a rate of Kshs 93. 49 per square foot.

10. The report has discounted the comparable average rate to 90% due to what the report terms as poor level of repairs and maintenance and quality of finishes, and the outbreak of the covid 19 pandemic which has affected businesses in Kenya.  After this discount, the new rates become Kshs 112. 19/- per square foot per month for ground floor shops, Kshs 84. 14/- per square foot per month for the first floor shops and Kshs 97. 12/- per square foot per month for the basement stores.

11. Under section 12(1)(b) and section 9(2)(a) of Cap 301, the tribunal has powers to determine the rent payable in controlled tenancies.  Both sections of the Act do not prescribe any method or formula to be followed by the Tribunal in determining the rent payable.  The Tribunal therefore exercise discretion in the matter.  The Tribunal concerns itself with the reasonably expected rent in the open market.  In order to arrive at the reasonably expected rent in the open market, the statute Cap 301 requires of the Tribunal to take into consideration all the obtaining circumstances having regard to the evidence before it.

12. The Tribunal is faced with two valuation reports which are wide apart in their recommendations.  Both reports have been prepared by valuers who are qualified and experts in their fields.  The comparables used by the Tenants are located at Digo Road while the comparables used by the Landlord’s valuers is stated to be in Gikomba.  The comparables used by both parties therefore seem to be in or around the same location with the suit premises.

13. The report by the Landlord’s valuers indicate that the building is in good condition while the position taken by the Tenant’s valuers is that the building is in a deplorable condition.  I am not able to determine who between the two is telling the truth.  But I am content that it is the duty of the Tenants to maintain the interiors of the premises they occupy while the Landlord is to maintain the common areas.  Not much evidence was led in this regard either for or against the oral position taken by the witnesses of the parties.

14. What then would be the reasonable rent payable per square foot per month by the Tenants of the suit premises?

a. Ground floor;

i. The Tenant’s valuers have suggested Kshs 124. 65/- per square foot per month for the ground floor.  This figure has been standardized to Kshs 131. 34/- per square foot covering all premises which are less than 100 square feet.  The Landlord’s valuers have recommended Kshs 613. 00/- per square foot per month.  It is these two figures that I have to harmonize while having regard to the comparables used in arriving at the said figures.

ii. It is noted here that whereas both valuers state that they visited the comparables, none of them have provided any concrete evidence as to the rent payable by the Tenants in those comparables, save for his word that he interviewed the said Tenants.  The Tenant’s valuers confirmed that it was not possible to get receipts or other evidence from the Tenants of the comparables.

iii. The Tenant’s witness stated that he has been a Tenant in the premises for the last nine years.  He does not state how much rent he initially paid but only states that he currently pays rent of Kshs 17,400/- per month which translates to approximately Kshs 104/- per square feet.  If the rent were to be assessed at Kshs 613/= as suggested by the valuer for the Landlord, this Tenant would pay (168 x 631) Kshs 102,984/- per month representing a 591% increase in rent.

iv. I do not think this is reasonable.  If I were to take the average from the two proposals by the respective valuers, the rent payable would be (131. 34 + 613) Kshs 372/= per square foot.  If I rationalize the two reports by adopting this average for the lack of a better formula, the increment in rent would be 359%.  This is not a reasonable increase.  In order to balance the interests of both parties and in view of the uncertainty presented by the valuation reports in terms of their clear disparity.  I will assess the rent payable at Kshs 300/= per square foot per month for the ground floor shops and Kshs 250/= for the first floor shops.

i. Basement;

i. The Landlord’s valuer has suggested/opined that the rent for the basement shops be assessed at Kshs 517/= per square foot per month.  The Tenant’s valuers have suggested the rate of Kshs 107. 91/= per square foot per month.  No reason has been given why the basement shops would cost more than the first floor shops and I am not convinced that they should be more expensive.  I will for the reasons given for the ground floor shops assess the rent payable for the basement shops at Kshs 250/= per square foot per month.

ii. The above assessment is exclusive of service charge.

iii. The effective date for the above assessment will be 1st February 2022.

iv. Each party shall bear its own costs.

HON. CYPRIAN MUGAMBI NGUTHARI

CHAIRMAN

BUSINESS PREMISES RENT TRIBUNAL

Ruling dated, signed and delivered virtually by Hon Gakuhi Chege (Vice Chair) this 1st day of February, 2022 in the absence of the parties.

HON. CYPRIAN MUGAMBI NGUTHARI

CHAIRMAN

BUSINESS PREMISES RENT TRIBUNAL