Commercial Sale and rental market in Kenya

Royal Offices 5

Commercial property landlords in Kenya have an upper hand over their tenants, as most leases are skewed in their favor and further helped by opaque transactions. Landlords have the most say on the leases while the tenants have to abide with the landlords terms and conditions. This has a clear indication on that the commercial market is relatively under supplied. The secrecy and transparency of transactions is minimal and tenants seemingly have few options for redress.The rent, service charges and parking fees are billed separately and the space is measured in and priced per square feet. In commercial leasing, tenants bear most of the transaction costs, including their own broker, legal fees for their own lawyers and the landlord’s. Landlords only pay some fees to the brokers representing. According to recently published Broll Tenant Handbook, the Kenyan commercial real estate market lacks standardize lease agreement. Property agents seem to draft their own sales and letting agreement. Typically, the commercial lease agreements are typically for five years and a month, and include fixed rents and clauses allowing for predetermined annual increases.

Most of the leases do not provide for early termination, which could make it an expensive affair for tenants who opt out before the duration is over. Dunhill consulting has crafted one of the best sales/lease agreements that’s takes cares the best interest of the tenants. The Q westlands, Nairobi is the latest signature development being undertaken by Dunhill Consulting which offers a combination of functionality and design. It consists of the following features and amenities:

•    Ample light and ventilation for all units
•    Virtually column free office layout
•    Common lobby area – approx 15% of gross area
•    Convenient fire exits
•    Inbuilt sewerage disposal points in all units for executive washrooms
•    Dedicated A/C rooms / smoking rooms for each unit
•    Floor to floor heights 3.6m

•    2 Kitchenettes per floor
•    One differently abled washroom per floor
•    Secure access with CCTV camera surveillance
•    Intercom connectivity
•    Fiber optic cabling
•    LED and intelligent lighting systems
•    250+ controlled access tenant parkings
•    50+ pooled visitors paid parking
•    Borehole with ample water storage facility
•    Full backup smart generator system
•    6 lifts
•    Twin entry and exit points
•    Iconic office design with superb panoramic views

When it comes to renewal of leases at the end of the agreed period, landlords and tenants negotiate, though the former has the discretion to renew or not. Renewal is at market rental rate if specified in the lease agreement, the Broll research shows. Most property agents provides leases with annual rental escalation as rent are market driven and not related to the inflation rate. As a sign of order in the market, landlords provide a central signage area for tenants and thus they are not allowed to put up their own signage. Tenants are also allowed to sub-let where landlords approve. They can also negotiate if they want additional space.
The law also favours tenants in situations where they continue paying rent beyond expiry of lease agreements.

The service charges – also known as operating cost and relate to the building’s overheads such as water and electricity for common areas, insurance, security, periodic maintenance and management costs – are payable in a lump sum every three months in advance. According to Broll report, these charges are subject to reconciliation on annual basis following an audit of the building’s outgoings. The rate to apply for the following year is accordingly advised to the tenant.

Tenants pay the excess or get credit notes, depending on the results of the service charge audit. The service charge does not include a tenant’s own running costs such as electricity, water, internet and telephone bills and insurance to cover content – which are paid directly. Tenants are also required to make security deposits with landlords when signing lease agreements, equivalent to the first year’s three-month rent, service charge and parking fee, before they are allowed to occupy the premises. The deposit is refunded without interest on expiry of lease period and after restoring the premises to as close as they were when first lease. Tenants are not allowed to utilize deposits even in the last months of the period.