FAQs on real estate law

A. Commercial leasing and controlled tenancies

1. What is a controlled tenancy?

A controlled tenancy is a type of commercial lease that comes about under the operation of the provisions of the Landlord and Tenant (Shops, Hotels and Catering Establishments) Act, (Cap 301, Laws of Kenya) (the “Act”).

The Act defines a “controlled tenancy” to mean a tenancy of a shop, hotel or catering establishment which (i) has not been reduced to writing or (ii) which has been reduced into writing but is for less than 5 years or contains provision for termination, otherwise than for breach of covenant, within five years from the commencement thereof.

2. Is there a class of agreements that are exempt from the provisions of the Act?

A tenancy under the Act is created by a lease, under-lease, agreement to lease or operation of the law. The take-home here is that if your lease is oral or is for less than 5 years or contains a break clause, it is automatically caught by the provisions of the Act. Even a tenancy created by operation of law or a sub-tenancy can be a controlled tenancy. Any agreement seeking to preclude the provisions of the Act in a controlled tenancy is void.

WMC Law always advises Lessors to safeguard their interests by having properly drawn up and registered leases in place that are for more than 5 years and with no termination clauses.

3. Is there a class of premises that are exempt from provisions of the Act?

The Act only exempts leases to which the Government or a County Government is a party, whether as landlord or as tenant, from being a  controlled tenancy. The Act covers a wide range of premises which can be subject to controlled tenancy including:

• shops defined as retail or wholesale trade  premises or business premises under the Act. The definition is wide enough to cover a whole raft of commercial premises.
• catering establishments defined as premises where food or drink is supplied for consumption thereon.
• hotels premises for accommodation or accommodation and meals for up to five or more adult persons.

4. What is the disadvantage of a controlled tenancy?

A controlled tenancy isn’t optimal for landlords/lessors because it contains terms onerous to the landlord and is meant to protect tenants/lessees in transactions. Some of the provisions and terms that are unfavorable to lessors/landlords are as follows:

• Termination or alteration of the terms of the tenancy can only be subject to the Act’s provisions which require 2 months’ tenancy notices which may still be contested before the Tribunal established under the Act.
• Tenants can apply for rent assessment or review or alteration of the terms of the tenancy and the Tribunal has power to decide how much rent is paid.
• Termination of the tenancy can only be based on the grounds listed under the Act and such termination can be challenged by reference to the Tribunal. The landlord can only levy distress for rent upon getting an order from the Tribunal.
• The powers of the Tribunal extend to varying the rent payable, permitting the levy of distress of rent, fixing the amount of service charge payable, awarding tenants losses for termination of tenancy among other things.

At WMC Law, we do not consider any lease a mere formality and would advise clients to seek legal assistance in the preparation of lease agreements.

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B. Agricultural land

1. What is Agricultural Land and why does it matter?

 Agricultural land is defined under the Land Control Act (Cap 302, Laws of Kenya) to include land that is not within (i) a municipality or a township or (ii) an area which was, on or at any time after the 1st July 1952, a township or a trading centre or (iv) a market as well as land declared by the Minister, by notice in the Gazette, to be agricultural land.

 The legal significance of the categorization of land as agricultural land is that any dealing in such land requires the consent of the Land Control Board (LCB) of the area in which such property is situated. For example large parts of Kwale, Kilifi and upcountry areas are zoned as agricultural lands.

2. What are the legal requirements in respect of dealings with Agricultural land?

The legislation covers every manner of dealing with Agricultural Land. In essence the sale, transfer, lease, mortgage, exchange, partition or other disposal of, subdivision or dealing with any agricultural land by individuals and the sale, mortgage disposal of shares by a private company owning Agricultural Land is void unless LCB consent is issued. The President is however empowered to exempt transactions or persons or lands from the ambit of the Act.

Under Section 6(1) and 2 of the Land Control Act LCB consent must be issued in accordance with the provisions of the Land Control Act. It is section 9 of the Land Control Act that prescribes the considerations that must be taken into account when the LCB is deciding whether to grant or refuse consent.

Notably, an LCB is only empowered to issue consent where the counterparty to the relevant transaction relating to sale, transfer, lease, exchange or partition of Agricultural land is a Kenya citizen, wholly owned Kenyan company or a state corporation.

WMC Law is dismayed that many land owners have been misadvised in transactions relating to Agricultural land. A foreign national cannot own Agricultural Land and any LCB consent given where a buyer is a foreigner is an irregular consent.  Any title issued as a result of such irregular consent confers no proprietary rights to the foreign buyer.

There has been wide-spread criticism of both the Landlord and Tenant (Shops, Hotels and Catering Establishments) Act and the Land Control Act which are perceived as archaic legislation with no place in modern Kenyan real estate market. The general expectation that these two statutes would be overhauled by the Land Laws of 2012 was not met and unfortunately, parties in the real estate market have to be alive to the risks and requirements of the same.

Should you have any queries or need any clarifications with respect to the above, please do not hesitate to contact Divinah Sarange Ongaki (dso@wanjiramwanikilaw.com).