REPUBLIC OF KENYA
IN THE BUSINESS PREMISES RENT TRIBUNAL
AT NAIROBI
TRIBUNAL CASE NO. 945 OF 2016
SATYA ANAND T/A SATYA HOTEL LIMITED...APPLICANT/TENANT
-VERSUS-
DR. AJIT KUMAR BARUAH (The Executor of the Estate of the Late Malti
Devi Bachan Singh............................................. LANDLORD/RESPONDENT
RULING
Parties and Their Representatives
1. The Tenant/Applicant, SATYA ANAND T/A SATYA HOTEL LIMITED, has been carrying out the business of a hotel known as Satya Hotel Limited on premises belonging to the Landlord (hereinafter “the suit premises”) situate in South B area in Nairobi County and erected on property Land Reference Number 209/3645 Nairobi for about thirty years at a monthly rent of KShs. 6,000.00/-.
2. The Firm of King’oo Wanjau & Company Advocates is on record for the Tenant/Applicant.
3. The Landlord/Respondent, DR. AJIT KUMAR BARUAH (hereinafter “the Landlord”) is the Executor of the Estate of the Late Malti Devi Bachan Singh, and which Estate comprises of land reference number 209/3645 Nairobi, the property on which the suit premises is situate.
4. The Firm of Muthoga Gaturu & Company Advocates is on record for the Landlord/Respondent.
The Background of the Dispute
5. This dispute arises from a reference filed by the Tenant on 29th November 2016, in opposition to the Landlord’s notice to terminate or alter the terms of the tenancy dated 30th September 2016.
6. Vide the aforementioned notice, the Landlord sought to increase the monthly rent and service charge for the suit premises from Krhs. 6,000.00/- to Kshs. 50,000.00/- on grounds that the then rent of Kshs. 6,000.00/- per month was uneconomical, unreasonable to the current market rates for the suit premises and had been overtaken by events. The Tenant was aggrieved by the notice and filed the present reference.
7. Subsequently, this Honourable Tribunal directed parties to file rent valuation reports in respect of the suit premises, so as to guide the court in determining the dispute. The Tenant engaged Capital Valuers Limited who valued the suit premises and prepared a valuation report filed in this Tribunal on 14th December 2017. On the other hand, the Landlord had a valuation report prepared by Teja S. Kundhi Limited and filed in this Tribunal on 15th September 2017.
Jurisdiction
8. The jurisdiction of this Tribunal is not in dispute.
Issue for Determination
9. Having considered the parties’ pleadings, affidavits and submissions and having considered the relevant legal framework, the sole issue for determination before this Honourable Court is: What is the reasonable rent payable for the suit premises?
Analysis and Determination
What is the reasonable rent payable for the suit premises?
10. The Landlord herein sought to increase the rent of the suit premises from Kshs. 6,000.00/- to KShs. 50,000.00/- in the year 2016 and issued a valid notice to the Tenant to that effect and in line with provisions of Section 4 (2) of Cap 301.
11. Section 12 (b) of the Landlords and Tenant (Shops, Hotels and Catering Establishments) Cap 301 Laws of Kenya (hereinafter “Cap 301”) grants this Honourable Tribunal the jurisdiction “to determine or vary the rent to be payable in respect of any controlled tenancy, having regard to all the circumstances thereof”
12. Further, Section 9 (2) (a) of Cap 301 grants this Honourable Tribunal the mandate to determine rent payable in instances where the Landlord and Tenant disagree, and provides guidance to this Tribunal on the factors to consider in assessing rent. The above provision states as follows:-
Section 9 (2) 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, and disregarding—
i. any effect on rent of the fact that the tenant has, or his predecessors in title have, been in occupation of the premises;
ii. any goodwill attached to the premises by reason of the carrying on thereat of the trade, business or occupation of the tenant or any such predecessor;
iii. any effect on rent of any improvement carried out by the tenant or any such predecessor otherwise than in pursuance of an obligation to the immediate landlord;
13. According to the above provision, this Tribunal is required to first consider the terms of the tenancy agreement between the parties and secondly, to take into consideration what rent the suit premises is reasonably expected to fetch in the open market.
14. The Landlords and Tenant (Shops, Hotels and Catering Establishments (Tribunal) (Forms & Procedure) Regulations 1966 provides for the principles governing assessment of rent. These principles are expressly stated in Form G of the Regulations and include:
i. 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 improvements and cost of such improvements;
v. Amenities or services provided by the Landlord;
vi. The rent at which the premises were let for the past (three years?)
15. In affirming the above provisions, the Court in Njoroge Ndurugu & Others (T/A Ngamini Bar & Restaurant) v Alykah Investments Limited, [2015], ELC. Appeal Case No. 5 of 2014, stated as follows:
“The Tribunal is to have regard to the rent at which the premises might reasonably be 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 DCO [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 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.”
16. It has been judicially settled that the rent for comparable premises is a prime guiding tool in the assessment of rent payable. In compliance with this Tribunal’s directive, both the Landlord and the Tenant filed their respective rent valuation reports.
17. A summary of the valuation report filed by Landlord indicates the following:
i. The suit premises is located in Nairobi South B on Mchumbi Road at a distance of approximately 2.5 miles from Nairobi Central Business District, in an area with moderate human traffic. The demand for rental accommodation in the neighborhood is high, hence prevailing high rental rates.
ii. The total lettable area in respect of the suit premises, and which comprises of the shop (609 sq.ft), kitchen stores (323 sq.ft) WCS/urinal & shower (104 sq.ft) and yard open to sky area (157 sq.ft) is 1193 square foot.
iii. The Valuer used three comparable lettings located at Muchumbi Road in the same neighborhood as the suit premises as follows:
a. Panveer Entreprises (2004) Limited (766 sq.ft) – Kshs.80,000.00/- per month since 2014;
b. Wise Clean Dry Cleaners (367 sq.ft) - Kshs.32,000.00/- per month;
c. Cyber Palace (336 sq.ft) - 30,000.00/- per month
iv. The factors considered by the Landlord’s Valuer in preparing the report is an analysis of the market rent for other shops in the immediate vicinity.
v. The fair open market rental value of the suit premises was KShs. 85,390.00/- per month as at December 2017.
18. A summary of the Tenant’s valuation report is as follows:
i. The suit premises is located in an old colonial type two storey building with no modern facilities and finishes. The building has not recently been repainted but majority of the buildings in the neighborhood have recently been refurbished.
ii. The total lettable area which comprises of restaurant area (620 sq.ft) kitchen (148 sq.ft) stores (217 sq.ft) and toilets (71 sq.ft) is 1056 square foot, excluding the open yard.
iii. The Valuer used five comparable lettings located at Muchumbi Road in the same neighborhood as the suit premises as follows:
a. Sigma Paints & Hardware (595 sq.ft) – Kshs. 20,000.00/- per month since 2002 to date;
b. Haltons Pharmacy (595 sq.ft) – Kshs. 20,000.00/- per month since 2013 to date;
c. Retreat Butchery (1810 sq Ft) – Kshs 30,000.00 per month since 2016 to date;
d. Guardian Chemist (595 sq.ft) – Kshs. 20,000.00/- per month since 2013 to date;
e. Ami Girl Beauty Parlour (530 sq.ft) – Kshs. 20,000.00 per month since 2010;
iv. The factors considered by the Tenant’s Valuer in considering the above comparable lettings include buildings with reasonable proximity and with similar conditions as the suit premises and buildings with superior facilities and finishes with good maintenance.
v. In conclusion, the Valuer opined that the fair market rent for the suit premises was KShs. 23,000.00/- as at December 2017.
19. I shall proceed to consider both reports as filed by the parties herein, as guided by the authority in Tala Investments Ltd. vs. Green Spot Limited Civil Appeal No. 269 of 1993 where the Court held 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 comparable to decide which is a better report rather than merely arrive at a mean figure, that is mean figure of the landlords and tenant valuer’s reports. That is not a proper criteria.”
20. From the Valuation Reports, it is evident that there is a difference of opinion between both valuers as to the total lettable area of the suit premises. Whereas the Landlord’s Valuers has included the open yard, the Tenant has excluded the same as expressly indicated in paragraph 2 of the submissions dated 5th February 2020. However, I shall proceed on the basis that the total lettable area of the suit premises, inclusive of the open yard amounts to 1193 square foot.
21. It is also evident from the valuation reports that this Tribunal is faced with two widely varying expert reports on what ought to be the rent payable. The difference between the rent payable as submitted by the Landlord and the Tenant is about Kenya Shillings Sixty Thousand (KShs. 60,000.00). Where such a disparity exists, this Honourable Court is required to call for oral explanations of the Report from the Valuers. However, the parties herein agreed to proceed by way of written submissions, and I shall be so guided.
22. It is interesting to note that this Honourable Tribunal did not have the benefit of knowing the rent payable by other Tenants conducting their business in the same building as the suit premises. Neither of the Valuers informed this Tribunal what other Tenants within the same building were paying, to justify why the Tenant should not pay rent within the same range as other Tenants.
23. Considering that four years have lapsed since the filing of the reports, in addition to the fact that the value of property appreciates in value overtime, it is my opinion that the report tendered by the Landlord with regard to the amount payable as rent per square foot, may partially be a true reflection of the current market rent for the suit premises with adjustments. The valuation by the Landlord as stated above comprised of the following:
a. Shop (609 Sq.ft.) @ Kshs. 100 per sq.ft
b. Kitchen stores (323 sq.ft) @KShs. 50 per sq.ft
c. WCS/urinal & Shower (104 sq.ft) @ KShs. 50 per sq.ft
d. Yard open to Sky (157 sq.ft) @KShs. 20 per sq.ft
24. In my opinion, the REASONABLE rent payable for the suit premises is as follows:
a. Shop (609 sq ft) @ Kshs. 100 per square foot = KShs. 60,900.00
b. Kitchen stores (323 sq.ft) @KShs. 20 per sq.ft = KShs. 6,460.00
c. WCS/urinal & Shower (104 sq.ft) @ KShs. 20 per sq.ft = KShs. 2,080.00
d. Yard open to Sky (157 sq.ft) @KShs. 20 per sq.ft = KShs. 3,140.00
Total Rent payable = KShs. 71,860.00
25. The Landlord further has urged this Court to direct that the Tenant pays the assessed rent from the date of filing of the reference to the date of judgement whereas the Tenant has submitted that the effective date of rent payment should be from the date of judgement.
26. According to Section 9(1)(a) of Cap 301, this Tribunal has the discretion to discretion to decide the effective date for the payment of the assessed rent. The discretion of this Tribunal was affirmed by the Court in Njoroge Ndurugu & Others (t/a Ngamini Bar & Restaurant) v Alykah Investments Limited (supra) where the Court in citing the decision in Tala Investment Ltd Vs Green Spot Ltd (Supra) stated as follows:
“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.”
27. Further, in Supa Duka Nakuru Limited v Baringo United Company Limited [2017] eKLR, Justice Munyao Sila in holding that one needs to exercise caution in making an order for backdating rent payment held as follows:
“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 a 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 lumpsum covering a significant span of years. If I am to take this case as an example, the demand for rent was from the year 2012. The rent that was paid by the tenant was Kshs. 24,244/=. The order of the Tribunal was that the tenant should pay the sum of Kshs. 74,560/=. This is a difference of Kshs. 50, 316/= per month, and if back paid, say for four years, the total sum is Kshs. 2, 415, 168/= which cannot be said to be small change. 22. There needs to be justifiable reason as to why rent should be back paid which was not given in this case.”
28. I wish to state that the duty of the court in determining a fair rent is to ensure that the Tenant is not put off the business because of unbearable rent and at the same time ensure that the Landlord gets his fair of the deal as the aim of Cap 301 is to strike a balance between the interests of the Landlord and the Tenant.
29. In the upshot, I hereby make the following orders:
i. The Landlord’s notice of termination/alteration of rent dated 30th September 2016 be and is hereby allowed.
ii. The Tenant shall pay to the Landlord the new assessed rent of Kshs. 71,860.00 from 1st January 2022.
iii. The rent payable shall thereafter escalate at 5% after every 2 years.
iv. The landlord shall have costs.
HON A. MUMA
VICE CHAIR
BUSINESS PREMISES RENT TRIBUNAL
RULING DATED, SIGNED AND DELIVERED VIRTUALLY BY HON A. MUMA THIS 15TH DAY OF FEBRUARY, 2022 IN THE ABSENCE OF THE PARTIES.
HON A. MUMA
VICE CHAIR
BUSINESS PREMISES RENT TRIBUNAL