[2025] KEBPRT 151 (KLR)

Nairobi Elite Academy v Association of Evangelicals in Africa (Tribunal Case E427 of 2024) [2025] KEBPRT 151 (KLR) (7 March 2025) (Ruling)

Neutral citation: [2025] KEBPRT 151 (KLR)

Republic of Kenya

In the Business Premises Rent Tribunal

Tribunal Case E427 of 2024

Gakuhi Chege, Chair & J Osodo, Member

March 7, 2025

Between

Nairobi Elite Academy

Plaintiff

and

Association Of Evangelicals In Africa

Defendant

Ruling

A. Dispute Background 1. On 14th June 2024, this Tribunal inter-alia directed both parties to file and exchange rent account statements within 21 days thereof showing debits and credits for the entire period of the tenancy from inception to the date of ruling together with filtered documentary evidence of rent payments to enable a determination on the issue as to whether any rent was owing to the landlord.

2. The tenant filed statements dated 11th July 2024 and a supplementary list of documents dated 15th January 2025 attaching a rent payment schedule for the period 2014-2025 together with Mpesa rent account statements for the period June 2024 to January 2025.

3. On the other hand, the landlord relied on the supporting affidavit dated 7th May 2024, further affidavit dated 15th May 2024, letter dated 3rd July 2024 which accompanied rent statement and supporting bank account statements covering the period 2014 - 2024, letter dated 12th July 2024 accompanying an updated rent statement and further affidavit dated 15th January 2025.

4. Through a ruling dated 8th November 2024, this Tribunal further directed that the dispute over rent arrears be subjected to viva voce hearing on priority basis besides the parties’ submissions.

5. The matter proceeded on 16th January 2025 with the landlord calling LILIAN WAMBUI MARANGA who is the Head of Finance as its witness. She gave evidence to the effect that the tenant owed Kshs 246,236/= in rent arrears. She produced the rent account statement dated 15th January 2025 as an exhibit. The same was supported with bank account statements.

6. In cross examination, the witness maintained that there was no increment of rent and that the changes in the amount payable had been occasioned by the application of VAT. Although the landlord was registered for VAT in August 2016, no VAT was charged up to September 2020 against the tenant.

7. On the other hand, the tenant called one SIMON TEDDY MWANGI as its witness. He testified that the monthly rent payable for the suit premises was Kshs 42,000/= and that no changes of the figure had been communicated by the landlord. Rent had previously been received by the landlord without any complaint.

8. The tenant stated that it had sought for rent reprieve during the Covid-19 pandemic and was granted a waiver of Kshs 378,000/= for the period April-December 2020 at the rate of Kshs 42,000/= per month.

9. The tenant’s witness maintained that no changes of the amount payable had been communicated to it and as at September 2021, the balance due to the landlord was Kshs 513,520/=. No notice was served for any change in the rent payable. The tenant therefore claimed that it had overpaid rent by Kshs 103,000/= as per its rent account statements dated 11th July 2024 and 15th January 2025.

10. After conclusion of the hearing, the parties relied on the previously filed submissions although the landlord’s Counsel filed further submissions dated 25th January 2025.

B. Issues for determination 11. The following issues arise for determination; -a.Whether VAT is chargeable against the rent payable by the tenant to the landlord.b.Whether the application of VAT amounts to alteration of terms of the tenancy under Section 4(2) of the Landlord and Tenant (Shops, Hotels and Catering Establishments) Act, Cap 301, Laws of Kenya.c.Whether the tenant is indebted to the landlord in the sum of Kshs 246,236/= as claimed.d.Who shall bear the costs of the suit?We shall deal with the first two issues together and thereafter deal with the last two issues separately.

Issue (a) Whether VAT is chargeable against the rent payable by the tenant to the landlord. Issue (b) Whether the application of VAT amounts to alteration of terms of the tenancy under Section 4(2) of the Landlord and Tenant (Shops, Hotels and Catering Establishments) Act, Cap 301, Laws of Kenya. 12. It is trite Law that Value Added Tax is chargeable on non-residential (commercial) properties in accordance with the VAT Act, 2013. The property occupied by the tenant is a non-residential property and VAT is therefore chargeable on the rent payable by the tenant to the landlord.

13. The landlord is required under Section 5 of the VAT Act to charge VAT for rent unless there is a specific exemption in place under the First Schedule to the VAT Act. The Tax Appeals Tribunal had occasion to pronounce itself on this issue in the case of Judiciaryv Commissioner of Domestic Taxes (Appeal E714 of 2023) [2024] KETAT 1584 (KLR) (25 October 2024) (Judgment) where it stated as follows: -“49. A perusal of the First Schedule to the VAT Act confirms that the Appellant's supply by way of renting or leasing of its premises is not listed thereon as an exempt supply. The Appellant did not also provide the Tribunal with any legal document to justify its exemption from accounting for VAT on its taxable supplies. The Appellant was thus required to charge VAT on its rent charged to its lessees or tenants at the general rate and remit that tax to the Respondent."

14. The tenant's contention is that charging of VAT (which commenced in September 2020 amounted to an alteration of the terms of tenancy and therefore should have been communicated by the landlord through notice issued under the Landlord and Tenant (Shops, Hotels and Catering Establishments) Act, Cap 301 Laws of Kenya.

15. Section 4 (2) of the said Act provides as follows:“A landlord who wishes to terminate a controlled tenancy, or to alter, to the detriment of the tenant, any term or condition in or right or service enjoyed by the tenant under, such a tenancy, shall give notice in that behalf to the tenant in the prescribed form."

16. The foregoing provision does not apply in the present circumstances. The charging of VAT is NOT an alteration by the landlord of the terms of tenancy. Rather, it is an implementation of a requirement of the law and specifically the provisions of the Value Added Tax Act, 2013.

17. This Tribunal In the case of Makeup Training Institute Limited v Nekolly K. Limited (Tribunal Case E069 of 2024) [2024] KEBPRT 782 (KLR) (21 May 2024) (Ruling) also dealt with a similar issue and held as follows;“13. This cannot obviously be a notice to increase rent as envisaged under Section 4(2) of the Act and Regulation 4(1) of the Regulations to the Act. It was merely a response to a taxation measure by parliament....

14. In this case, the court determines that the landlord was entitled to ask for the payment of 16% in VAT over and above the rent chargeable....".

18. Guided by the foregoing decisions, we have no hesitation in finding that VAT is chargeable against the rent payable by the tenant and its application against the rent account did not require any notice under Section 4(2) of Cap 301, Laws of Kenya.

Issue (c) Whether the tenant is indebted to the landlord in the sum of Kshs 246,236/= as claimed. 19. At the hearing on 16th January 2025, the tenant admitted that it had no records from December 2014 to September 2020 and agreed to have the Tribunal rely on the landlord’s documents exclusively for the said period.

20. The tenant further admitted that all its payments had been captured in the landlord’s statement. It also confirmed the contents of the letter dated 10th August 2021pursuant to which a rebate was given to it by the landlord.

21. The landlord clarified that it only started charging VAT in the year 2020 as required by law and that invoices (with VAT) had been sent to the tenant periodically. The tenant admitted to receiving invoice(s) starting from September 2020 from the landlord and that it had never objected to the inclusion of VAT in the said invoice(s).

22. The landlord clarified that the levy of statutory taxes was not an increase in rent and that the figure of Kshs 246,236/= appearing in its rent account statement included both rent and VAT. The tenant admitted that it was aware of the 16% VAT which applied to rent in respect of non-residential (commercial) properties.

23. In the premises, we find and hold that the tenant is liable to the landlord in the sum of Kshs 246,236/= in accrued rent arrears as at 1st January 2025. There was no evidence tendered by the tenant to controvert the landlord’s position in that regard.

Issue (b) Who shall bear the costs of the suit? 12. Under Section 12(1)(k) of Cap 301, Laws of Kenya, costs of every suit before this Tribunal are in its discretion but always follow the event unless for good reasons otherwise ordered. We shall award costs of the suit to the landlord.

C. Orders 12. In conclusion, the following final orders commend to us; -a.The tenant was in rent arrears of Kshs 246,236/= inclusive of VAT as at 1st January 2025 and the landlord is entitled to recover the same by use of lawful means including and not limited to distress.b.The landlord is awarded costs of the suit which shall be agreed upon by both parties failing which the same shall be taxed by the Tribunal’s Deputy Registrar upon application.c.The interim orders of injunction earlier given in this matter are hereby discharged/set aside.d.The prayer for payment of damages is declined on the basis that it is in the nature of special damages which were not specifically pleaded nor strictly proved.e.There shall be a stay of execution until 13th March 2025 to allow the tenant to pay and in default, the landlord shall be at liberty to execute.It is so ordered.

RULING DATED, SIGNED AND DELIVERED VIRTUALLY THIS 7TH DAY OF MARCH 2025. HON GAKUHI CHEGEPANEL CHAIRPERSONBUSINESS PREMISES RENT TRIBUNALHON. JOYCE A. OSODOPANEL MEMBERIn the presence of: -Ragot for the TenantKimathi Kamenchu for the Landlord