Arki Company Limited v All Africa Conference of Churches (Tribunal Case E698 of 2024) [2024] KEBPRT 1854 (KLR) (23 December 2024) (Ruling)
Neutral citation:
[2024] KEBPRT 1854 (KLR)
Republic of Kenya
Tribunal Case E698 of 2024
CN Mugambi, Chair
December 23, 2024
Between
Arki Company Limited
Plaintiff
and
All Africa Conference Of Churches
Landlord
Ruling
Introduction
1.The Landlord’s notice to terminate tenancy is the one dated 29.5.2024 and is brought on the ground that;-
2.The Tenant in opposing the Landlord’s notice to terminate its tenancy filed a Reference dated 27.6.2024.
3.The Tenant’s Reference proceeded for hearing on 11.12.2024 when both the Landlords and the Tenants witnesses testified.
The Landlord’s case
4.The Landlord’s witness, Ms. Faith Muthie Mutie, the property officer of the Landlord relied on her affidavit sworn on 24.7.2024 as her evidence in chief and also produced the documents in her list of documents filed on 9.10.2024 as the Landlord’s exhibit 1-9.
5.The affidavit of Ms. Faith Muthie Mutie may be summarized as follows;-a.That the Landlord is the registered proprietor of all that property known as LR No 1/366 Tigoni Road, Kilimani.b.That the parties herein have had a lease agreement governing their relationship for over ten (10) years and by a mutual understanding, the parties agreed that the tenancy would run out at the end of the year 2023 and consequently, the Tenant by its letter of 17.2.2023 affirmed its commitment to vacate the premises by the end of the year 2023.c.That the Tenant has not vacated the suit premises as a result of which the Landlord has incurred huge losses as it been filed to forego major offers it undertook for the development of the property.d.That private developers who had committed to take over the suit premises and put up major infrastructure have threatened to pull out due to the ongoing litigation.e.That the Tenant is estopped from going against the assertion it made to vacate the suit property by the end of the year 2023 and which the Landlord relied upon to its detriment.f.That the Tenant has sublet the premises contrary to the lease agreement and has further failed to comply with the Tribunal’s directives.g.That the Tenant is yet to pay costs in a matter between the parties and which was dismissed.h.That the Landlord has now issued to the Tenant a notice to terminate tenancy dated 28.5.2024 (actually 29.5.2024) on the grounds set out in the said notice.i.That the Tenant’s intention to deprive the Landlord of vacant possession is malicious and vindictive and the Reference filed by the Tenant is frivolous and lacks merit.j.That as per Cap 301, the Landlord’s valid ground for termination lies in the fact that it intends to renovate the premises and occupy the entire premises for a period of more than one year for purposes of carrying on its own businesses.
6.Upon cross examination, by Counsel for the Tenant, the witnesses’ responses may be summarized as follows;-a.That the Landlord is desirous of occupying the suit premises for a period of more than one year.b.That the core business of the Landlord is contained in its vision which is to mobilise the faithful to live up to God’s love but there are other businesses that the Landlord carries out.c.That the Landlord is getting strategic partners to develop the premises.d.That the Landlord has not yet done the pre-qualification process.e.That the board has the discretion on whether to involve the current Tenant in development of the premises.f.That the witness is not aware if the Tenant was given an opportunity to develop the premises.g.That the Landlord has not received offers but there are parties interested in the premises and the Landlord can only go into full negotiations with such parties after obtaining vacant possession of the premises.h.That the Tenant had indicated that it would vacate the premises by December 2023.i.That the Tenant pays a monthly rent of Kshs 550,000/=.j.That the Landlord has not annexed the financial statements of the intended developers because it has not obtained vacant possession.k.That the Tenant has not provided drawings of the developments but can provide the same on request.l.That the main purpose of terminating the tenancy is to enable the Landlord to develop the property.m.That the offers the Landlord has received range from Kshs 1,000,000/= to Kshs 1,200,000/= while the Tenant pays rent of Kshs 550,000/=.n.That the Landlord has conducted a feasibility study.o.That the Tenant refused to vacate the suit premises citing the effects of the Covid-19 pandemic.
7.On re-examination, the witness made the following clarifications;-a.That the Tenant who has on occasions been in rent arrears does not have the capacity to develop a mall.b.That the Tenant’s lease expires on 31.12.2024 but the Tenant has not requested for an extension of the lease.c.That the Tenant has not given any reasons why she cannot vacate the premises.d.That the Landlord did not intend to evict the Tenant as the Tenant had promised that she would vacate the suit premises by 31.12.2023.e.That the Tenant had been given an eleven (11) months’ notice.f.That the Tenant’s promise to vacate the suit premises is the reason the Landlord sought strategic partners.g.That it is the business of the Tenant to develop its own property.h.That the Landlord followed the Law when it issued the notice to terminate tenancy to the Tenant.i.That the Landlord does not require the views of the Tenant on how to deal with its property and is at liberty to engage strategic partners and can also develop the premises on its own.j.That currently, there is a restaurant, pub and a car wash at the suit premises.
The Tenant’s case
8.The Tenant, through its director Ms. Shitaye Teman sought to and was allowed to rely on its statement dated 11.11.2024 and also produced the documents in its list of documents dated 11.11.2024 as exhibits1-11. The statement of the said witness may be summarized as follows;-a.That the husband of the witness who is now deceased, while a director of the Tenant entered into a lease agreement for the suit premises in February 2014, for a period of five years.b.That the aforesaid lease was renewed on similar terms and commenced on 1.1.2020 and terminated on 31.12.2024- making the tenancy a controlled tenancy.c.That the Tenant has developed a fully pledged hotel in the suit premises which was extremely dilapidated before the Tenant took it over.d.That the suit premises also has shops which the Tenant manages.e.That during the pendency of the lease agreement, the Tenant substantially developed the premises, improved its value and attractiveness and has always paid the rent as and when it fell due.f.That despite the above, the Landlord ordered the Tenant to vacate the premises by 31.12.23.g.That the Landlord insisted that the Tenant vacates the premises at a time when the husband of the witness was unwell and in hospital on cancer treatment.h.That the Tenant herein is a protected Tenant under Cap 301 of the Laws of Kenya.i.That the Landlord has never communicated any intention to review the rent with a view of increasing the same.j.That the Landlord’s Advocate letter dated 28.8.2023 purporting to be a termination notice is incurably defective.k.That it is not clear what business of its own the Landlord intends to undertake as its annexures show that it has made offers to other organizations to take over the premises.l.That the Landlord has not produced any evidence to show that it intends to occupy the premises for its own business nor any evidence that it intends to renovate the premises.m.That the Landlord’s objections do not align with commercial developments such as restaurants and the Landlord has not shown any proof of financial ability.n.That the Landlord’s real intention is to lease out the premises to Tenants who will pay a higher rent.o.That the Tenant is in a position to develop the premises and pay reasonable rent and it ought therefore to be given the first opportunity to develop the premises.p.That if no compensation is offered and paid, the Tenant stands to suffer serious losses as it has made significant infrastructural investment in the suit premises.q.That the Landlord has been harassing the Tenants subtenants and has even been demanding that the subtenants pay rent directly to the Landlord.r.That the Landlord has to compensate the Tenant for the improvements it has carried out in accordance with the lease agreement.
9.Upon cross examination by Counsel for the Landlord, the responses by the Tenant may be summarized as follows;-a.That the Tenant has a lease which expires on 31.12.2024 but the Tenant who has not been given an extension of the lease will not be vacating when the lease expires.b.That the Tenant has not recouped its investment in the premises.c.That the witness would not be happy with a Tenant refusing to vacate its premises.d.That there was another suit between the same parties in which the Tenant was ordered to pay to the Landlord costs of Kshs 20,000/=.e.That the Landlord’s exhibit No 2 is a letter signed by the witness requesting to be allowed to vacate the premises by December 2023.f.That while the lease allowed for a three (3) months’ notice to terminate tenancy, the Landlord issued the Tenant with eleven (11) months’ notice to vacate.g.That the Tenant did not vacate in December 2023 and neither did the Landlord evict the Tenant after the said period.h.That the witness was frustrated by the death of her husband and the effects of Covid-19 when she signed the letter (Landlord’s exhibit No.2).i.That the Tenant hopes that the Landlord will give it a chance to develop the premises even as the Tenant is aware that it cannot force the Landlord to give it the said chance.j.That the Tenant is aware that it will have to vacate the suit premises at some point.k.That the Tenant is not ready to vacate the suit premises due to the investments it has carried out.l.That the Tenant developed the suit premises with the knowledge that one day it would vacate but the Tenant needs time to recover its goodwill.m.That the Tenant is aware that the Landlord is not a public body and therefore public participation is not required in the conduct of its affairs.n.That the Tenant has not expressed interest to develop the land.o.That the Tenant would like the court to extend its tenancy of the suit premises beyond December, 2024 when the same expires.
10.On re-examination, the Tenant made the following clarifications;a.That no evidence has been given to support the grounds upon which the Landlord seeks to terminate the tenancy.b.That the Tenant is still operating a restaurant and a guest house at the suit premises.c.That the Tenant did not vacate the suit premises as it had committed to and the business was affected by the Covid-19 pandemic and the death of the husband of the witness.d.That the Tenant did not make any offers to develop the suit premises because of the ongoing litigation.e.That the Tenant has the capacity to develop the premises and has not been in any rent arrears for ninety percent (90) of the time.
Analysis and determination
11.The only issue that arises for determination in this Reference is whether the Landlord has established the grounds for termination of tenancy set out in its notice to terminate tenancy dated 28.5.2024 and further, what orders ought to be made in disposing of the Tenant’s Reference.
12.The lease between the parties is for a period of five years as provided for under clause 4 of the offer of lease dated 27.8.2019.Accordingly, the term of the lease was commencing on 1.1.2020 and expiring on 31.12.2024. The tenancy between the parties is therefore a controlled tenancy under the provisions of Section 2 of Cap 301 which at Section 2(1)(a) describes a controlled tenancy to mean a tenancy of a shop, hotel or catering establishment which is for a period not exceeding five years and which has been reduced into writing.
13.Under Section 4(2) of Cap 301 of the Laws of Kenya;
14.The Landlord’s notice to terminate tenancy dated 28.5.2024 is therefore brought under the provisions of Section 4(2) of Cap 301. I have perused the said notice and it is my finding that the same complies with the requirements of Section 4 of Cap 301 and is therefore a valid notice. I do note that the offer of lease provided for a three months’ notice where either of the parties intended to terminate the tenancy. This period is to be reduced to two months in accordance with Section 4(4)(1) of Cap 301 wherein it is provided;
15.The issue that arises for determination is now whether the Landlord has established its intention to occupy the premises for a period of one year for the purposes of a business to be carried on by itself.
16.By its letter dated 1.2.2022, the Landlord gave the Tenant a notice to terminate the Tenant’s tenancy over the suit premises, where relevant, the letter provided as follows;-Further,
17.In response to the Landlord’s letter dated 1.2.2022, the Tenant wrote to the Landlord a letter dated 3.2.2022 where the Tenant stated that due to the Covid-19 pandemic, business had not been doing well as a consequence of which the Tenant had not recovered its investment in the suit premises. The Tenant in the said letter requested for the lease to be maintained to at least the end of the year 2023. At paragraph 3 of its letter, the Tenant states;
18.The Landlord by its letter dated 17.2.2022 acquiesced to the Tenant’s request. The letter where relevant stated;
19.The Tenant acknowledged receipt of the Landlord’s letter dated 17.2.2022 and seemed to be in agreement therewith when it states as follows in the said letter of 17.2.2022;
20.From the foregoing, it is clear that as early as 1.2.2022, the Landlord had expressed its intention to take over the premises for the purposes of carrying out a feasibility study to determine what to do with the suit premises in the near future. Although the letter by the Landlord dated 1.2.2022 did not amount to the statutory notice as provided for under Section 4(2) of Cap 301 and even as it is not the notice that the Landlord now seeks to enforce, I do note that it gave the Tenant eleven months’ notice to vacate the premises due to what the Landlord termed as a good relationship between the parties.
21.It is also clear that the parties were in agreement that the Tenant would vacate the premises at the end of the year 2023 and in this regard, I find the correspondence between the parties to be binding upon them.
22.The Landlord has given evidence that the Tenant did not vacate the premises as promised on or before the end of the year 2023 and this prompted the Landlord to issue the notice of termination dated 28.5.2024. the bone of contention seems to be whether the Landlord can seek to take over the premises by giving it out to another Tenant. What comes out from the evidence is that the Landlord intends to develop the suit premises by constructing a mall therein and in this regard, the Landlord intends to bring on board strategic partners. In this regard, I have seen a letter, offer to lease from M/S Waiyaki Way Shipping Centre Limited dated 31.10.2023 where the said company offers to lease the suit premises for a period of twenty-four years. The company seeks to lease the suit premises for the purposes of the establishment of a mini mall which will be sublet to various Tenants.
23.I have also seen a letter from Nest Pick Properties Ltd dated 6.8.2024 where the said company proposes a comprehensive lease agreement for the construction of a mini mall with convenient attendant stores on the suit premises.
24.I have also seen a letter dated 30.7.2024 from BASIC Land Investments Ltd expressing an interest to lease the suit premises for a period of twenty-four years. The company purposes to develop a business center in the suit premises which the company terms to be a huge development and which would be handed over to the Landlord at the expiry of the lease.
25.Would a Landlord who desires to terminate a tenancy for the purposes of carrying out a development using a strategic partner be said to be taking over a suit premises for the purposes of a business to be carried out therein by him or by itself? The Landlord’s witness on cross examination stated that although the core mandate of the Landlord is ecumenical, the Landlord also carries out other businesses and indeed it is open for the Tenant to carry out the developments by itself or through strategic partnerships which could include mergers and acquisitions. I am persuaded that the acquisition of the vacant possession of the suit premises for the purposes of developing the same is a ground that satisfies the requirements of Section 7(1)(g) of Cap 301.
26.I am also satisfied that from the surrounding circumstances of this case set out in the preceding paragraphs, the Landlord has clearly established its intention to develop the premises through strategic partnership and which the Landlord can only do if the Tenant grants it vacant possession. The criteria for determining the Landlord’s intention was dealt with in the case of; Auto Engineering Ltd v M. Gonella & Company Ltd [1978] eKLR the court held;
27.It is clear from the evidence that the Landlord intends to get into strategic partnership to develop the premises. From the documents presented by the Landlord, it would appear that the Landlord would like to put up a mall in the suit premises. This intention is made clear by the correspondence produced in court between the parties herein and third parties. While dealing with the issue of the notice of the business a Landlord wished to engage in and whether such would be for one year or more, the court in the case of; Hashim Omar Hashim v Alliance Nominge Limited [2020] eKLR, stated as follows;-
28.The Tenant in this matter was initially given notice to vacate the premises within eleven months from 1.2.2022, the period was later mutually agreed to extend to December, 2023. Although the notice to vacate dated 1.2.2022 was not in the statutory form, it cannot be said that the Tenant was not made aware as early as the date of that notice that the Landlord required the premises for its own use. The notice issued to the Tenant dated 28.5.2024 was only issued after it became clear that the Tenant would not vacate the premises as earlier agreed.
29.I also think that in the circumstances of this case, it is not open for the Tenant to suddenly turn around and refuse to vacate the premises even after the parties had agreed to mutually terminate the tenancy. The Tenant does not deny that a notice was issued to it dated 1.2.2022 granting it eleven months to vacate, neither does it deny that this period was extended at its own invitation to end of December 2023 and that further indeed the Tenant was grateful for the extension and adopted the date therein as the date it would vacate the premises. These proceedings have been made necessary by the Tenant’s refusal to abide by what was mutually agreed between the parties.
30.The Tenant has stated in her evidence that she ought to be given the first priority in developing the premises. I do not think there is anything that stops the Tenant from expressing such interest to the Landlord’s board and whether or not the said board will consider her application favourably is a matter entirely in the hands of the said board. The belief by the Tenant that she is entitled to be considered as a developer on a priority basis cannot in any manner affect the Landlord’s rights to issue a termination notice under Section 4(2) of Cap 301.
31.The Tenant has also testified that the reason that it declined to vacate the suit premises was because it had not recouped its investment in the premises. I am aware that under Section 12(L) of Cap 301, the Tribunal may award compensation for any loss incurred by a Tenant on termination of a controlled tenancy in respect of goodwill and improvements carried out by the Tenant with the Landlord’s consent. It is clear from a reading of the said section that any such goodwill and improvements cannot stop the Landlord from terminating a tenancy as the compensation can only be done on termination of a controlled tenancy.Even if I may be mistaken in the above view, I still do find that the Tenant did not lead any evidence to support this kind of a claim and therefrom no favourable orders can be made in the Tenant’s favour in this regard.
32.Further, under “Renovations” the letter of offer of lease over the suit premises provides as follows;-The Tenant agreed with the Landlord that any cost of renovations would be met by the Tenant and the same would not under any circumstances be recoverable from the Landlord. The Tenant’s assertion that she carried out substantial infrastructural developments was therefore made with the full knowledge that the cost of the said infrastructure could not be recovered from the Landlord.
33.In disposing of this matter, and following from the above findings, I do make the following orders;-a.That the Reference by the Tenant is dismissed.b.That the notice by the Landlord is approved and the tenancy between the parties herein is terminated.c.That the Tenant will render vacant possession of the premises on or before 31.1.2025.d.That the Tenant failing to vacate the premises as per order (c) above, the Landlord will be at liberty to evict the Tenant using a licensed auctioneer.e.That the Tenant shall bear the costs of the Reference.
DATED, SIGNED AND DELIVERED VIRTUALLY THIS 23RD DAY OF DECEMBER, 2024.HON. CYPRIAN MUGAMBI - CHAIRPERSONBUSINESS PREMISES RENT TRIBUNALDelivered in the presence of Mr. Mburu holding brief for Mr. Gachie for the Landlord and Mr. Kariuki for the Tenant