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Commercial Leases

This article is provided by Muriithi & Ndonye Advocates.


In Kenya, we have two (2) types of leases, short term leases and long term leases. Short term leases are leases for a term less than five (5) years, while the opposite is true for long term leases, which are for five years or more. The law however requires leases that confer an interest in land that is, leases of over two (2) years to be registered.

In law, long term leases often do not have provision for termination, other than by breach of one or more obligations, on the part of the lessee (tenant). In this instance parties will be solely guided by the terms of the signed and registered lease.

If a lease which is for a term exceeding five (5) years provides for termination of the lease (other than on an instance(s) of breach of covenant by the lessee, then the lease will fall under the Landlord and Tenant (Shops, Hotels and Catering Establishments) Act, Chapter 301, of the Laws of Kenya.

The said Act contains provisions and has consequences detrimental to a Lessor (Landlord). It is no wonder that Lessors ensure that their leases are for a term exceeding five (5) years and contain no provision for termination, save for breach of covenant by the lessee. Therefore, a signed and registered lease is in law considered a contract between the parties, breach of which will entitle the landlord to among other things, compensation for breach of contract.

In the event that you are tied to a long term lease as stated above and you wonder whether you are in a position to seek for an early exit, here are the options available to you, which are dependent on negotiations between yourself and the landlord:

(a)  Surrender the lease upon agreement with the lessor; or

  (b)  Assign the lease to someone else; or

  (c)  Upon approval by the lessor to sub-let the premises.

In order to exercise these options to early exit, you as the tenant need to draft a letter of your intent to vacate the premises directed to the lessor or to the lessor’s property management agent. In the said letter it is prudent to indicate the reason(s) for early termination of the lease. The said letter seeking early termination should be delivered to the Lessor or the Lessor’s property management agents, to enable the latter communicate the same to the Lessor.

The Landlord may by himself, or on the advice of his property manager and or advocate, agree to early termination depending on the reason given for termination.

In order to reach a decision, the lessor may want to assess whether you have any rents (rent and service charge) arrears or whether or not you as the tenant are considered difficult or the ease or otherwise, in acquiring another tenant. The Landlord may then propose one or more of the following options:

(i) The lessor may advise that you get another tenant to lease the premises. If a tenant is acquired then the lessor’s advocate will prepare a surrender of lease and take on the new tenant.

 You as the lessee will also be required to discharge your obligations as indicated in the lease.

 If you bring in a tenant, then the lessor may decide to return the security deposit. Non-refund of the security deposit is due to the lessee’s breach of contract. It all depends on how the parties negotiate. It is important to also note that legal fees for preparation and registration of the surrender of lease will be borne by the lessee.

(ii) If the lessee is unable to bring in another tenant, the lessor may nevertheless go ahead and allow the early exit subject to the tenant forfeiting his security deposit but fulfilling its obligations as per the lease.

However, depending on the landlord’s disposition, he may indicate that in addition to the above, that rents for a period of one or two quarter’s (or even more) be paid.

(iii) If the lessor refuses early release to the lease, you may exercise your option to sub-lease your premises in accordance with the terms of the lease. In any event approval of the lessor will be necessary before the same can proceed.

Remember, just like any business person, the lessor will generally wish to negotiate with the lessee in cases of early termination, instead of resorting to the stipulated dispute resolution mechanism in your lease, which may end up consuming time and money for both parties, more so for the lessee.

 

 

 

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