[2024] KEBPRT 91 (KLR)

Prafula Enterprises Limited v Katangi Developers Limited (Tribunal Case E020 of 2023) [2024] KEBPRT 91 (KLR) (2 February 2024) (Judgment)

Neutral citation: [2024] KEBPRT 91 (KLR)

Republic of Kenya

In the Business Premises Rent Tribunal

Tribunal Case E020 of 2023

J Osodo, Chair & Gakuhi Chege, Member

February 2, 2024

Between

Prafula Enterprises Limited

Applicant

and

Katangi Developers Limited

Respondent

Judgment

A. Dispute Background. 1. The applicant herein moved this tribunal vide a reference under Section 6 of the Landlord and Tenant (Shops, Hotels and Catering Establishments) Act, Cap 301 dated 24th March, 2023 wherein they oppose the notice to alter terms of tenancy issued by the landlord dated 14th March, 2023 which was expressed to take effect from 1st June, 2023.

2. The landlord in the Notice to alter the terms of tenancy dated 14th March, 2023 seeks to alter the tenancy terms through an increment of rent from Kshs 50,000 to Kshs 236,400 stating that the current rent which was being paid by the tenant is uneconomical and does not reflect the market rates for similar premises.

3. The tribunal ordered the parties to file and exchange valuation reports for rent assessment and both parties complied with the landlord filing its valuation report dated 1st September, 2023 and the tenant filing its valuation report together with written submissions both dated 4th September, 2023.

4. The rent valuation done by Chrisca Real Estates dated 1st September 2023 for the respondent/landlord is summarized as follows; -i.That the lettable space: Offices and Kitchen are 1,131 sq.ft, mezzanine space 1,080 sq.ft, Total is 2,211 sq.ft or 205. 5 sq.mii.That the average monthly rent based on the 5 comparable letting is Kshs 95/25 per square foot per month which they aver is a fair representation for properties of varying net lettable space located along Obote, Gor Mahia and Accra streets and the general central business area with more or less similar characteristics as the subject property and therefore representative of the market trends in the area showing high and low rental values which is practical in an uncontrolled market.iii.That they shall adopt a rate of Kshs 95 per sq.ft per month.iv.That for the mezzanine floor, they shall adopt a rate of 30% of the above which is Kshs 28/50 per sq.ft per month.v.Having regard to the above, they are of the opinion that the fair market rent to be ascribed to the above premises is Kshs 138,225 per month.

5. The rent valuation done by West Kenya Real Estate Ltd for the tenant/applicant is summarized as follows; -i.That the total lettable area is approximately 116 sq.m or 1,250 Sq.ft.ii.That the average rent based on the sampled properties is Kshs 34 per square feet and that the subject property is closer to Obote road and to the CBD and hence superior to the sampled data therefore they adopt a slightly enhanced rent of Kshs 45 per square foot.iii.That in accordance with the terms of reference, General remarks and basis of valuation they are of the opinion that the fair and reasonable monthly exclusive rent to be ascribed to the tenant to be Kshs 56,250 per month or Kshs 675,000 per annum.

6. We shall consider both valuation reports as we deal with the issues for determination.

B. Issues for Determination 7. The following are the issues for determination; -a.Whether the notice to alter the terms of tenancy dated 14th March, 2023 is lawful and valid.b.Who shall bear the costs of the application?

Issue (a) Whether the notice to alter the terms of tenancy dated 14th March, 2023 is lawful and valid. 8. The main issue for determination is the validity of the Landlord’s notice to increase the rent payable from Kshs 50,000 to Kshs 236,400.

9. Under Section 9(2) of Cap 301, it is provided;“(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…”

10. Under Section 12(1)(b) of Cap 301, the Tribunal has power to determine or vary the rent payable in respect of any controlled tenancy having regard to all the circumstances thereof.

11. The Act does require the Tribunal to have regard to the terms of the tenancy and the rent which the premises would fetch in the open market. The Act further requires the Tribunal to have regard to all the circumstances of the tenancy.

12. The governing statute does not prescribe any method to be employed by the Tribunal in order to determine the rent payable. It therefore follows that the Tribunal has a wide discretion over this aspect of its mandate. This discretion is to be exercised judiciously to ensure that the ends of justice are met as was discussed by the Court of Appeal in the case of Shah & Shah v Kagunda 1978 KLR 35, where Simpson J, stated at page 1536 as follows :-“It is I think generally accepted that the tribunal has discretion which must be exercised judicially having regard to the evidence before it."

13. In Cleaners Limited v Barclays Bank & Co [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 investigation 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.”

14. Further in Tala Investment Ltd v Green Spot Limited, Civil Appeal No 269 of 1993, Justice Shah stated;“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 the mean figure of the Landlord’s and Tenant’s valuer’s report. That is not proper criteria.”

15. The valuation report filed by the tenant recommends a sum of Kshs Kshs 56,250 as rent per month upon analysing 3 other comparable located around the demised premises. It is also worth noting that the tenant’s report does not include the area constituted by the timber mezzanine space which the tenant’s valuer avers to be the work of the tenant.

16. The landlord’s valuation report on the other hand recommends the payment of rent in the sum of Kshs 138,225 per month upon an analysis of 5 other comparable located around the demised premises. The landlord’s valuer’s report has included the mezzanine space which has been added to the total area of the premises and rated at Ksh 30,780 which has been included in the said recommended rent.

17. It is evident that the discrepancy in the figures is huge and it is against this background that the tribunal is invited to make a decision on the rent increment.

18. We have considered both valuation reports and note that the tenant in their submissions dated 4th December, 2023 refers the court to page 8 of the Tenant’s valuation report which states that the valuer identifies the fact that the well-maintained superior finishes of the premises and mezzanine floor created by timber in the premises was undertaken by the effort of the tenant and that these overall enhancements by the tenant at his own costs should not be used to increase the rent according to Cap301 Laws of Kenya.

19. We note that the landlord’s valuer’s report has included the said mezzanine floor as part of the lettable space and has not indicated any improvements done by the tenant herein in their report.

20. The upshot of this therefore is that the landlord’s Notice shall be allowed with the rent payable being increased by 75% of the amount proposed in the Landlord’s valuation report minus the amount ascribed to the mezzanine floor which is an improvement by the tenant.

Issue (b) Who shall bear the costs of the application? 21. As regards costs, the same are in the Tribunal’s discretion under Section 12(1)(k) of Cap. 301, but always follow the event unless for good reasons otherwise ordered. We shall order that each party shall bear their own costs.

C. Orders 22. In conclusion, the following orders commend to us; -i.The landlord’s notice to alter terms of tenancy dated 14th March, 2023 is allowed in the following terms; -a.The tenant shall pay the new rent of Kshs 80,580 per month with effect from 1st February 2024. ii.Each party shall bear their own costs.

It is so ordered.

RULING DATED, SIGNED AND DELIVERED VIRTUALLY THIS 2ND FEBRUARY 2024HON. JOYCE AKINYI OSODO- (PANEL CHAIRPERSON) BUSINESS PREMISES RENT TRIBUNALHON GAKUHI CHEGE- (PANEL MEMBER)In the presence of:Ndolo holding brief for Mr. Ragot for TenantOdero holding for Mr. Odhiambo for Landlord/Respondent.