Commercial lease agreements in Kenya are shaped by the Landlord and Tenant (Shops, Hotels and Catering Establishments) Act, Cap 301, which protects commercial tenants, but its scope is narrower than most landlords and tenants assume.
Commercial Lease Agreements in Kenya: Cap 301 and Controlled Tenancies
Cap 301 protects only a “controlled tenancy”, not every tenancy of a shop, hotel or catering establishment. Section 2 defines a controlled tenancy as a tenancy of a shop, hotel or catering establishment that either has not been reduced into writing, or has been reduced into writing and (i) is for a period not exceeding five years, (ii) contains provision for termination, otherwise than for breach of covenant, within five years from commencement, or (iii) relates to premises of a class specified under the Act. A tenancy to which the Government, the Community or a local authority is a party, as landlord or tenant, is never a controlled tenancy.
The consequence is often missed. A written lease of a shop for more than five years, with no early termination provision, generally falls outside Cap 301 and is governed by the lease and ordinary contract law, as an office or warehouse lease would be. A landlord granting a long lease without a break clause is in effect opting out of Cap 301, and a tenant who assumes protection because the premises is a shop should check the actual term and termination provisions first.
For a controlled tenancy, Section 4 provides that it cannot be terminated, and no term or service the tenant enjoys can be altered, except as the Act provides. A landlord who wishes to terminate, or to alter a term to the tenant’s detriment, must give notice in the prescribed form (Section 4(2)). A tenant seeking a rent reassessment or a change of terms gives notice to the landlord in the prescribed form (Section 4(3)). Disputes go to the Tribunal under Section 6, and the landlord’s permitted grounds for seeking termination are listed in Section 7. Section 3 also requires the landlord to keep a rent book in the prescribed form and give the tenant a copy.
Rent and Rent Review
A lease should state the initial rent, payment schedule and review mechanism clearly. Common mechanisms are fixed percentage increases, increases linked to the Consumer Price Index, and open market review. An uncapped open market review can expose a tenant to a large and hard-to-budget increase, so a tenant should push for a cap on each review or at least a defined comparison method.
Service Charges and Outgoings
In multi-tenant developments the lease often adds a service charge for common area maintenance, security and shared utilities. A tenant should require the lease to define what the charge can and cannot include, secure a right to inspect the service charge accounts, and seek a cap or a limit on annual increases. Property tax, utility connections and insurance should be allocated expressly rather than left to a general “all outgoings” clause.
Repairs, Dilapidations and Alterations
The lease should allocate structural repairs (typically the landlord’s) and internal repairs (typically the tenant’s), and define the end-of-term yield-up obligation precisely rather than by reference to “good condition”. A strict restoration obligation can be expensive for a tenant that has made a substantial fit-out, so it should be negotiated before the works are done. The alterations clause should say which works need consent and which must be removed and reinstated at the end of the term.
Assignment, Subletting and Break Clauses
A bar on assignment or subletting without the landlord’s consent is standard. A tenant should ask for the lease to say that consent cannot be unreasonably withheld, because an unqualified discretion gives the landlord effective control over whether the tenant can exit before the term ends.
A tenant break clause allows early termination on specified notice and conditions, which often include rent being up to date, compliance with covenants and vacant possession. Conditions must be met strictly, and a tenant that has fallen behind on a minor obligation can find its break notice invalid. Check the conditions well before the intended break date. A break right exercisable within the first five years also brings an otherwise long written shop lease back within the controlled tenancy definition, which a landlord should weigh before granting it.
Registration and Stamp Duty
Under Section 61(2) of the Land Act, 2012, a future lease expressed to be for more than five years has no effect unless and until it is registered. Under Section 30(2) of the Land Registration Act, 2012, a certificate of lease is issued only where the lease is for a certain period exceeding twenty-one years. Registration requirements depend on the term and the form of lease, so confirm them against the current text when drafting.
Stamp duty on a lease is charged under item 21 of the Schedule to the Stamp Duty Act, and the amount depends on the term and on the rent or amount payable. It is a separate compliance step from registration.
How We Can Help
Clay & Associates Advocates advises landlords and tenants on commercial lease agreements in Kenya, including Cap 301 controlled tenancy assessments, rent review and break clause drafting, service charge allocation, and registration and stamp duty compliance. If you are unsure whether your tenancy falls within Cap 301, or are negotiating a new lease, we can confirm the position before you sign. Read our guide to landlord and tenant rights in Kenya, visit our real estate practice area, or contact us.
Sources: Landlord and Tenant (Shops, Hotels and Catering Establishments) Act, sections 2, 3, 4, 6 and 7; Land Act, 2012, section 61; Land Registration Act, 2012, section 30; Stamp Duty Act, Schedule item 21.
Frequently asked questions
Does Cap 301 protect every shop tenant?
No. It protects only controlled tenancies, such as unwritten tenancies or written ones of five years or less, or with a termination provision within five years (Section 2).
Can a landlord terminate a controlled tenancy by simple notice?
No. Termination must follow Section 4, with notice in the prescribed form, and disputes are referred to the Tribunal.
Does a long lease with no break clause fall under Cap 301?
Generally not, because it is outside the definition of a controlled tenancy, so the lease and contract law govern.
Is stamp duty payable on a lease?
Yes, under item 21 of the Schedule to the Stamp Duty Act, depending on the term and the rent.
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This article is general information on Kenyan law as at its publication date, not legal advice. Reading it does not create an advocate and client relationship.
