What is a lease?
A lease is a document creating an interest in land for a fixed period and usually in consideration of the payment of rent. It has also 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).
Elements of a valid lease
- Parties involved: the parties involved are lessor and the lessee.
- The subject of the lease: fixed asset or immovable asset
- Duration of lease: The lessee is given the right to enjoy the property for a period specified in the contract.
- The considerations are either premium or rent: This is the price paid or promised in consideration of the grant of the lease.
- Exclusive possession: The lessee must have an interest that entitles him to exclude all other persons, including the lessor from the premises. The exclusive possession must be transferred or granted by the proprietor; this encompasses the obligation of the lessor to the lessee.
- 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.
Types of Leases
- General Lease
These are leases that have a fixed term and provide the option of lease termination through issuing notice. It is not periodic. The lessor who wants to end the general lease must depend on issuing notice, as stipulated in the lease agreement.
- Periodic Lease
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. Rent is payable monthly, bimonthly, quarterly, or annually. 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.
- Short Term Leases
These are leases whose duration is less than two years with no option of renewal after expiration. They are usually periodic by nature hence, the procedure for handling periodic leases also applies to them.
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.
Keys Things to Look at Before Entering into a Lease
- Due diligence: undertake a search to confirm ownership of the land and whether the land has any encumbrances. It’s advisable where it includes buildings, to undertake a structural survey and have a status report of the condition of the property.
- Charges: ensure you understand how service charge and rents are billed and seek expert opinion on market rents.
- Security deposits should always be refunded after expiry.
Obligations of a lessor and lessee
Obligations Implied on a Lessor
- To give quiet and peaceful possession to the lessee.
- To ensure that the premises are fit for habitation.
- Not to derogate from the grant/lease as given to the lessee. There shouldn’t be use of adjacent property in a manner that would otherwise render the leased property unfit for purpose.
- To adjust or suspend rent. If the premises or part of it is destroyed through the lessee’s negligence, the lessor is bound to adjust/suspend the rent payable accordingly.
- To repair. The lessor is generally bound to repair the roof, main walls, drains, common passages, and installations.
- To ensure the property is fit for purpose. Where it can no longer be used for the purpose intended, one may terminate by giving notice.
- To pay all rates, taxes due, and outgoings except to the extent otherwise specified in the agreement.
Obligations Implied on a Lessee
- To pay agreed rent on time and in the manner specified.
- To use the leased land with prudence and diligence.
- Not to interfere with normal enjoyment of other lessees or lessor.
- To yield up land and buildings in the same condition as they were when the term began. Exemptions for deterioration caused by reasonable wear and tear or natural disasters and acts of God.
- To keep all buildings, comprise in a reasonable state of repair.
Registration of Leases and Effect of Non-Registration
All leases of more than 2 years should be registered. After registration of a lease that required consent of the lessor before registration, no further dealings will be registered without the same consent of the lessor.
The Land Registration Act, 2012 provides that any unregistered lease instruments shall be construed as mere contracts and not as an interest having passed.
Leases under the Landlord and Tenant (Shops, Hotels and Catering Institution) Act, (Cap 301, Laws of Kenya)
These leases are controlled via tenancies, and they are backed up by legislation. The Act defines a “controlled tenancy” to mean a tenancy of a shop, hotel, or catering establishment which:
- The duration is not more than 5 years.
- Has a provision for termination for default of contract within 5 years from Commencement.
- Has not been reduced to writing.
- Involve premises such as shops, hotels and catering institutions as stipulated in the Act specified by the cabinet secretary through Gazette Notice.
When one of these conditions exist, then the tenancy is a controlled tenancy according to section 4(4) of the Act and is terminated by issuance of 2-month notice.
Termination of leases can be made earlier if there are clauses in the agreement to that effect. This is done by the issuance of a notice which depends on the period when the rent is due.
By K. Odundo
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