The Supreme Court of Kenya has, in the case of Kwanza Estates Limited v Jomo Kenyatta University of Agriculture and Technology [2024], provided seminal jurisprudence regarding the termination of commercial leases in the absence of explicit termination clauses, offering clarity to a historically unsettled area of landlord-tenant relations.
Historically, landlords in Kenya have avoided incorporating break clauses in leases to circumvent the constraints imposed by controlled tenancies, which severely prejudice landlords' proprietary rights. Consequently, commercial leases have typically been executed for fixed terms of at least five years without termination provisions, leaving tenants bound to the full term and obligated to perform rental obligations, irrespective of economic hardship.
Prior judicial pronouncements on such disputes were divergent. On one hand, courts upheld the principle of sanctity of contract, requiring tenants to fulfill their obligations for the lease's entire term (Kenya Commercial Bank Limited v. Popatlal Madhavji & Another [2019] eKLR). Conversely, in other decisions (such as Chimanlal Meghji Shah & Another v. Oxford University Press (EA) Limited [2007] eKLR) it was held that it would be unconscionable to demand full rent for the remainder of the term upon early termination.
The Supreme Court has now resolved this dichotomy, establishing that tenants cannot be compelled to remain in premises they no longer wish to occupy, nor can landlords recover rent for the unexpired term; instead, landlords are entitled to damages for breach of contract, assessed as three months' rent, to facilitate repairs and the procurement of a new tenant.
In addressing ancillary legal issues, the Supreme Court delineated the nuanced distinctions among force majeure, frustration, and acts of God. Drawing from Black’s Law Dictionary, 11th Edition, an “act of God” was defined as an overwhelming, unpreventable natural event (e.g., floods, earthquakes) beyond human control. “Force majeure,” in contrast, encompasses both natural and human-induced events (e.g., wars, riots) that render contractual performance impossible or impracticable. Notably, force majeure is contractual in nature, requiring express inclusion of applicable events within the contract. Conversely, frustration operates under common law to discharge obligations where an unforeseeable supervening event fundamentally alters the contractual purpose.
Applying these principles, the Court ruled that frustration is not lightly invoked or applied, as it undermines contractual certainty. Frustration is narrowly construed to discharge obligations only where a supervening event renders the contract's purpose wholly meaningless. Financial hardship, even when arising from extraordinary circumstances like the Covid-19 pandemic, does not automatically amount to frustration. The Supreme Court underscored that increased expense or difficulty in performance does not absolve parties of their obligations. In this case, the tenant’s reliance on frustration was rejected, as the government’s Covid-19 restrictions did not entirely preclude the tenant’s operations (being a university, virtual learning was an available option), and the tenant relocated to alternative premises, indicating continued operational capability.
Further, the Supreme Court clarified that the phrase “or sooner determination” within a lease does not, in the absence of a clear termination clause, imply a right to terminate.
This landmark decision harmonises competing interests in the real estate market, upholding the sanctity of contracts while tempering it with principles of equity and reasonableness. The Supreme Court’s ruling ensures that landlords retain a degree of protection without unjustly penalising tenants who vacate due to economic exigencies, providing much-needed clarity and predictability to commercial leasing arrangements.
For further information please contact Walid Khan or your relationship partner at Africa Law Partners.