[2022] KEBPRT 140 (KLR)

Rono v Moi Teaching & Referral Hospital Staff Pension Scheme Scheme (Tribunal Case 28 of 2021) [2022] KEBPRT 140 (KLR) (Civ) (17 June 2022) (Ruling)

Neutral citation: [2022] KEBPRT 140 (KLR)

Republic of Kenya

In the Business Premises Rent Tribunal

Civil

Tribunal Case 28 of 2021

Gakuhi Chege, Vice Chair

June 17, 2022

Between

Fredrick Rono

Applicant

and

Moi Teaching & Referral Hospital Staff Pension Scheme Scheme

Respondent

Ruling

1. The relationship between the two parties herein started vide a lease agreement dated 20th September 2017 in which the landlord, Moi Teaching & Referral Hospital Staff Pension Scheme agreed to lease to the tenant Fredrick Kipngetich Rono the business premises situate on land parcel no. Eldoret Municipality Block 4/357 at an agreed monthly rent of Kshs.50,000/- inclusive of the premises and open space for a period of two (2) years commencing on 1st October 2017 up to 30th September 2019.

2. It was a term of the lese agreement that the tenant shall not make alterations or additions to the premises without the consent of the lessor.

3. After expiry of the initial lease, the parties entered into a fresh lease agreement on 16th August 2019 renewing the lease for a period of three (3) years commencing on 1st October 2019 up to 30th September 2022 at a monthly rent of Kshs.100,000/- subject to an increment of Kshs.10,000/- per year. Among the terms of the lease agreement was that the lessee shall not make alterations or additions to the premises without the consent of the lessor.

4. The lease agreement further provides that the tenant shall not sublet the premises without the express written consent of the landlord.

5. On 31st March 2021, the landlord issued a notice of termination of the tenancy upon the tenant with effect from 3rd June 2021 on the ground that it wanted to carry out construction of a business complex on the property which could not be carried out without obtaining vacant possession of the property.

6. The tenant being opposed to the notice filed a reference dated 25th May 2021 challenging the notice. The matter was ordered to proceed by way of viva voce evidence after parties complied with order 11 of the Civil Procedure Rules, 2010 by filing the following documents:-(i)Witness statement of Solomon Koros, the chairman of the landlord dated 20th September 2021. (ii)Landlord’s list of documents dated 20th September 2021(iii)Tenant’s list of documents and witnesses statements dated 16th September 2021.

7. The matter proceeded to hearing on various dates with the landlord’s witness testifying. He adopted the contents of his replying affidavit and further affidavit sworn on 14th June 2021 and 9th July 2021 respectively as well as the list of documents dated 20th September 2021.

8. All the documents listed were admitted in evidence except no. 5,9, 10, 11, 12 and 13 which were marked for identification to be produced by an expert. He also relied on his filed witness statement.

9. In the witness statement, the witness states that the lease agreement had no addendum and was not subject to any oral terms or promises made by the trustees, current or former officials of the landlord. The agreement was not obtained through duress and it stipulates that the tenant and the landlord had mutually inspected the lease property in question.

10. It is the landlord’s witness position that there were three well maintained permanent structures on the suit property and that the tenant was in occupation of two of them while the third was in occupation of Admiral Security Services Limited.

11. According to the witness, the lease agreement categorically states at clause 6(c ) that the lessee shall not make any alterations or additions to the premises without the consent of the lessor. No such consent had been given to the tenant to erect any buildings in the suit property despite his requests vide several letters which was rejected. The tenant did not seek approval of the county Government of Uasin-Gishu before erecting the illegal structures in the suit property. As such, the tenant cannot have legitimate expectation to recoup his so called investment which amounted to an illegality. The approvals produced by the tenant are for a perimeter wall and not structures erected on the suit property.

12. According to Syagga & Associates report dated 14th June 2021, the improvements on the suit premises were valued at Kshs.2,300,000/- including the three permanent buildings owned by the landlord. As such the tenant’s semi- permanent structures cannot be worth more than Kshs.1,000,000/-.

13. According to clause 6(h) of the lease agreement, the tenant was not to sublet the premises without the express written consent of the landlord. No request or written approval has ever been issued to that effect by the landlord.

14. It is the landlord’s case that it conducted a feasibility study for development of all fixed properties in the year 2021 which recommended that the suit property be developed as it was not bringing commensurate return on investment given that the land on which the premises is situate is worth Kshs.210 million located in the central business District of Eldoret Town.

15. The Landlord relies on its strategic plan of 2017-2022 providing one of the action plan to be development of one of the properties into an office block.

16. The Board of Trustees in a meeting held on 24th February 2021 resolved to construct a ultra-modern shopping complex on the land parcel in question from July 2021 which led to issuance of notice to terminate tenancy herein.

17. A budget of Kshs.50 million for financial year 2021/2022 was made for development of the landlord’s secretariat and a further Kshs.15 million for development of a shopping complex which totals to Kshs.75 million. The said amount according to the landlord is available.

18. The landlord is a pension scheme with over 4000 members who are retirees who have invested their money in the properties owned by it and have a legitimate expectation for a return on their investment.

19. The notice to terminate tenancy after 3 months accords with the lease agreement and according to the landlord was issued in good faith under clause 6(b) thereof. The other tenant on the suit premises has already vacated.

20. In cross-examination, the witness stated that the minutes in which the resolution to develop the property was made confidential and could not be produced in court. No tank statements on availability of funds had been supplied neither have the landlord provided approved building plans for the proposed project.

21. The witness denied that the structures on the suit plot were dilapidated. He stated that the structures built by the tenant were done against the lease agreement. The witness denied that the structures were worth Kshs.20 million. He stated that the landlord complained about the structures. No approvals were obtained.

22. According to the witness, the landlord knew about the strategic plan of 2017 when it entered into the lease agreement in 2019 and the change of its decision to lease was based on the Board resolution. He however denied that the termination notice was issued for purposes of harassment of the tenant.

23. On his part, the tenant testified and called two witnesses. He adopted his witness statement on page 46-52 of his bundle of documents. He also relied on his affidavit sworn on 27th May 2021 as well as the supplementary affidavit of 6th July 2021 and documents filed on 20th September 2020. The documents were admitted save for documents no. 19-21 which were to be produced by their makers.

24. In his witness statement, the tenant states that the current lease is for 3 years which expires on 30th September 2022. The validity of the lease has never been in question. The tenant states that it was during the initial lease that he put up a number of permanent business premises which was before then a “mere open space”. The plot developed measures approximately one (1) acre.

25. He states that he had to take a bank loan to enable him develop the plot which he was still servicing. He spent Kshs.20million approximately towards the construction of the business Centre known as “Moita Business Centre”.

26. The tenant states that he was not in rent arrears and was ready to continue paying rent in terms of the tenancy agreement. Sometimes on 16th April 2021, the Respondent ‘splashed’ the demised premises with notices of termination of tenancy which scared and discouraged his tenants. As a result, a number of his tenants stopped paying him rent and his business was negatively affected.

27. Despite the landlord having given a waiver of 30% on rent due to Covid-19 pandemic, it started demanding full rent and sent auctioneers to levy distress against the subtenants without following due process. He denies being in rent arrears of Kshs.570,000/-. He paid Kshs.330,000/- which was owing to the landlord despite its reneging on the waiver as well as auctioneers fees of Kshs.46,400/-.

28. According to the tenant, he wanted his developments to be captured on the second agreement but the former chairman of the Board of Trustees one Felix Tarus implored upon him by giving verbal assurances that no adverse consequences would arise from non-inclusion of the same and that the agreement was a mere formality. He seeks for the court’s protection.

29. The tenant states that he has legitimate expectation to use the premises until 30th September 2022 and the landlord ought not be allowed to cut short the lease agreement and interfere with his tenancy agreements with the subtenants whose tenancy will end on 30th September 2022.

30. According to the tenant, the landlord has not given good reasons as to why the lease agreement should be terminated before the expiry date. No resolutions of February 2021 have been exhibited and the tenant contends that the landlord has not demonstrated that it has funds to construct a ultra-modern shopping complex on the suit premises and as such the reason for termination is not valid but based on ulterior motives.

31. The tenant contends that the suit property was being managed by Regent Management Limited on behalf of the Landlord at the time of entering into the first lease as per a letter dated 11th October 2017 and that he was in constant communication with the landlord through the said agent as evidenced by a letter dated 16/8/2018 and that the issue of developments was addressed after the initial lease and resolved and as such the landlord was estopped from raising the same having benefited from the developments through rent reviews. The tenant exhibits a letter dated 1st October 2018, in which the agent sought to terminate the tenancy on account of the of the permanent structures constructed on the suit property.

32. He responded to the notice through his letter of 15/11/2018 which was received by the landlord. As such the tenant states that he developed the suit property with the landlord’s consent.

33. He stated that he had necessary approvals for the developments which he exhibited in court. The tenant stated that he constructed mabati structures to accommodate tenants whose business premises were demolished by Kenya Railways Corporation during reclamation of its land and the landlord only objected after the said constructions. He states that he had a duty to accommodate the tenants.

34. The tenant has agreements with subtenants which will expire on 30th September 2022 when his lease with the landlord shall expire. The landlord is accused of inciting the County Government to demolish the tenant’s structures in March 2021 vide a letter dated 11th March 2021.

35. The tenant is seeking for time until the expiry of current lease to enable him recoup his money from the demised premises and allow his tenants look for alternative business premises elsewhere.

36. When cross examined by counsel for the landlord, the tenant stated that he had a verbal agreement with Dr. Tarus to develop the suit property and had consent of the landlord to sublet it. Either party could give 3 months notice and he confirmed the same to have been issued.

37. The tenant stated that he signed the agreement before he understood that it could be terminated before three (3) years.

38. He stated that he did not undertake valuation of the developments and relies on the photographs produced in court.

39. The tenant’s witness one Robert Kiprotich Musik relies on his witness statement dated 16th September 2022 on page 56 of the tenant’s bundle of documents. He produced a statement of loan account in respect of Stima Sacco loan borrowed to do business in the sum of Kshs.150,000/-. He was yet to fully pay the same. He confirmed to be a subtenant of Fredrick Rono who is the tenant herein. His agreement was formalized on 1st March 2020 and expires on 30th September 2022. The tenant seeks to be given until then to vacate the suit premises.

40. In cross-examination, the subtenant stated that the head tenant was not allowed to sublet and that no consent was obtained before the lease agreement with him. The fate of his tenancy was tied to the head tenancy.

41. The next witness was Rebecca Isabwa who relied on her witness statement dated 16th September 2021. Her lease agreement is dated 3rd January 2020. She stated in cross-examination that there was no consent to sublet. Her lease is to expire on the same date with that of Fredrick Rono. She had not applied to be a tenant in the proposed business centre to the landlord. The next witness was John Kipruto Chelelgo who relied on his witness statement of 16th September 2021. He is a subtenant of the head tenant (Fredrick Rono). No agreement for the sub-tenancy was exhibited. He however confirmed that it expires on 30th September 2022.

42. Both counsels sought to rely on their respective submissions which were filed at the interlocutory stage when this Tribunal dealt with the application dated 27th May 2021.

43. The issues for determination in this case are:-(a)Whether the landlord is entitled to terminate the tenancy in terms of the notice dated 31st March 2021. (b)Whether the tenant is entitled to recover any compensation for improvements effected on the suit premises.(c)Who is liable to pay costs of the suit?

44. As observed in the preamble of this judgment, the relationship between both parties was reduced into writing. Both the initial and second agreements clearly stipulated the terms of the lease. Among the terms was that either party could give the other three (3) months notice to terminate the tenancy.

45. It is not in dispute that the landlord issued the requisite three (3) months notice to the tenant in terms of clause 6(b) of the second agreement. The agreement does not stipulate the grounds upon which such notice would be given.

46. The landlord has given its notice on the basis that it requires to carry out substantial works of construction and renovation which cannot be done without obtaining vacant possession of the premises. The tenant objects to the notice stating that he requires the tenancy to run its full cause which ends on 30th September 2022.

47. The landlord has exhibited among other documents a valuation report of the suit property showing that the land is valued at Kshs.210 million. The current monthly rent for the suit property is Kshs.130,000/- which the landlord states is not worth the investment.

48. The landlord further relied on a strategic plan for 2017-2022 which at page 19 provides for developing of its properties.

49. It also relies on the budget of financial year 2021/22 which at page 7 provides for construction of secretariat office at a cost of Kshs.60 million (Read sixty million) and at page 11, a further sum of Kshs.15,000,000/- (fifteen million) is proposed for financing a business complex over and above the pension office block at Block 4/357 (Wagon Wheel) which is the suit property herein.

50. The analysis of the proposed office block is also contained in the budget. The total budget for the financial year 2021/2022 is Kshs.151,463,826. 59 at page 6 thereof.

51. The tenant states that the availability of funds for the intended construction is not disclosed nor proved neither is the resolution to undertake the proposed construction exhibited.

52. Whereas I agree that such evidence would advance the landlord’s case further, I am cognizant that proof in civil cases is on a balance of probabilities as opposed to beyond any reasonable doubt in criminal cases.

53. In the case of Palace Investment Ltd v Geoffrey Kariuki Mwendwa & another [2015] eKLR, the court cited with approval the dicta of Lord Denning in Miller v Ministry of Pensions [1947] 2 ALL ER 373 on the burden of proof in civil cases as follows:“The degree is well settled. It must carry a reasonable degree of probability but not so high as is required in a criminal case. If the evidence is such that the tribunal can say, we think it more probable than not, the burden is discharged, but if the probability are equal it is not. This burden on a balance of preponderance of probabilities means a win, however narrow. A draw is not enough. So in any case in which a tribunal cannot decide one way or the other which evidence to accept, where both parties…. Are equally (un) convincing, the party bearing the burden of proof will lose because the requisite standard will not have been attained”.

54. I take note that the landlord herein is a public body with over 4000 members which is required to operate above board. I do not see any reason why it would spend money, time and effort to prepare documents intended to deceive this court of its intention to undertake the proposed construction on the suit premises. I therefore find and hold that on the materials placed before me, the landlord has on a balance of probabilities proved that it intends to undertake the proposed construction.

55. In regard to whether the tenant is entitled to be compensated for the improvements effected on the suit property. My answer is in the negative. It was clear from the initial lease agreement and the current one that the tenant was prohibited from making alterations or additions to the premises without the consent of the landlord. No such consent was exhibited in this matter despite the tenant stating that the former Board Chairman of the landlord gave a verbal consent for the same. A party is not allowed to benefit from an illegality in the manner of performance of a contract (see the cases ofMike Munga Mbuvi v Kenya Airways Limited 2017] eKLR and livingstone Gitonga Muchungi & 2 Others v ICEA Life Assurance Co. Ltd where it was held as much).

56. Under section 9(1) (a) of Cap. 301, this Tribunal is empowered upon a reference, after such inquiry as may be required by or under the Act or as it deems necessary to:-

“(a)Approve the terms of the tenancy notice concerned, either in its entirety or subject to such amendment or alteration as the Tribunal thinks just having regard to all the circumstances of the case……….”. 57. In this particular case, the lease agreement is set to expire on 30th September 2022 and both the tenant and the subtenants who gave evidence have pleaded that they be allowed until then to vacate the suit premises. I shall therefore exercise my discretion to amend or alter the termination notice to take effect on 1st October 2022 so as to allow the tenant time to look for alternative premises together with the illegal subtenants in occupation of the suit property. 58. As costs are in this court’s discretion under section 12(1) (k) of cap. 301, Laws of Kenya, I shall order each party to meet own costs in view of my extension of the notice to terminate until 30th September 2022.

59. In conclusion therefore, the final orders that commend to me are:-i.The landlord’s notice to terminate tenancy dated 31st March 2021 is hereby upheld with amendment/alteration of the effective date to 1st October 2022. ii.The tenant shall not be entitled to compensation for the illegal improvements effected on the suit premises as the same were done in contravention of the lease agreements entered into with the landlord.iii.The tenant shall vacate from the suit premises together with the illegal sub-tenants by 30th September 2022 failing which the landlord shall be at liberty to evict them therefrom with the assistance of a licensed auctioneer who shall be provided with security by OCS, Eldoret Central Police Station.iv.Each party shall meet own costs of this case.It is so ordered.

RULING DATED, SIGNED AND DELIVERED VIRTUALLY THIS 17TH DAY OF JUNE 2022. HON. GAKUHI CHEGEVICE CHAIRBUSINESS PREMISES RENT TRIBUNALRuling read in the presence of:Ngeno for Yego for the Landlord/RespondentNo appearance for the Tenant