A lot of property is held under lease in Kenya. The significance of a lease in the real estate market cannot be overstated, either in leasing commercial or residential properties. In this blog, we seek to explore the prerequisites and obligations of the parties to a lease.
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Legally, a lease is a document creating an interest in land for a fixed period of time and usually in consideration of the payment of rent. In strictly legal terms it has been defined as a contract for the exclusive possession and profit of land for some determinate time. A lease, therefore, creates for a term of years, a leasehold relationship between a landlord (or lessor) and tenant (or lessee).
The considerations are either premium or rent. This is the price paid or promised in consideration of the grant of the lease.
The land or part thereof, as well as the parties, must be clearly defined or identified. If land is being leased, the document must have a plan or other description to identify it.
Most lessors wonder if leases and licenses and substitutable. The answer is no.
With a lease, there is an exclusive possession of land by the lessee unlike with licenses. A license amounts to the creation of personal rights between the parties concerned. It does not create any interest in land and is not an instrument affecting land under the Land Registration Act, 2012. Licenses are mere permissions to stay on the land and cannot be assigned to a third party. They are not protected by law and are easily revocable by the issuance of reasonable notice. A situation that does not apply to leases that are separate estates in law and that must be terminated or forfeited according to the law.
Overall, they confer more rights than licenses such as quiet possession, non-derogation from grant, and repairs. Licenses are however contractual permission to use the premises.
The term of this lease is not specified and no provision is made for giving notice to terminate the tenancy. It is deemed to be for the period by reference to which rent is payable. There is usually no agreement in writing but there is occupation and payment of rent.
The lease may be terminated by giving notice whose length is not less than its period and shall expire on the day when the rent is payable.
These are leases of two (2) years or less without an option for renewal.
Such a lease may be made orally or in writing. However, a short-term lease is not a registrable interest in land. A lease can only be registered if the term is for more than 2 years.
These are used to grant title to apartment units or maisonettes although this practice will be phased out by the Sectional Properties Act, 2020. However, landowners should be careful as leases of over 21 years can confer title to land.
Registration of Leases and Effect of Non-Registration
The provisions governing registration of leases are:-
The Land Registration Act, 2012 provides that any unregistered lease instruments shall be construed as mere contracts and not as an interest having passed.
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
(ii) 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.
A tenancy is, under the Act, created by a lease, under-lease, agreement to lease, or operation of the law. 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.
We advise lessors to safeguard their interests by having leases in place that are for more than 5 years with no termination clauses.
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:
A controlled tenancy isn’t optimal for landlords/lessors because it contains terms onerous to the landlord and protects tenants/lessees in transactions. Some of the provisions and terms that are unfavorable to lessors/landlords as follows:
Most of the lease clauses are negotiable if the lessee has bargaining power or standard form where the lessee doesn’t. A lease is not a mere formality and advise clients to seek legal assistance in the preparation of lease agreements. If you are looking to lease a property in Kenya, please reach out to Divinah Ongaki (d.ongaki@agema-analysts.com) or Elizabeth Omol (e.omol@agema-analysts.com) for more specific advice.
