Kenya: Court of Appeal rules execution of lease agreement not required to impose legal obligations on parties

This article highlights the duty of care owed by commercial property owners in Kenya to tenants and the need to ensure that leased premises are safe and properly maintained.

A significant case illustrating contractual liability and negligence in lease agreements in Kenya is Diamond Homes Limited v Shapi (Civil Appeal 118 of 2021) [2024] KECA 1161 (KLR).  In 2010, Raila Shapi (the Respondent) entered into a lease agreement with Diamond Homes Limited (the Appellant) to lease two office spaces in the Appellant’ property known as Hajjra Towers (the Property) for a term of five years and three months – for the purpose of setting up a restaurant business. However, in April 2011, the Property collapsed due to what the Respondent contended were structural and latent defects attributable to the Appellant’s negligence and in breach of the lease agreement. He therefore filed a claim for negligence seeking special damages and general damages for loss of future earnings caused by loss and damage suffered.

The Respondent’s suit at the Magistrate’s Court

The suit was initially filed at the High Court but was transferred to the Magistrate’s Court. The Appellant admitted that it executed an offer letter (the Letter of Offer) with the Respondent to lease office space in the Property but denied the existence of a lease agreement between them. It also denied the allegations of negligence against it – maintaining that if the collapse of the Property was as a result of negligence if any, it should have been attributed to the independent contractor since it was not the proprietor of the Property.

The Magistrate’s Court found that a contractual relationship existed between the parties and that the Respondent’s evidence of negligence on the part of the Appellant was not challenged and therefore proved on a balance of probabilities. The Magistrate Court also refuted the Appellant’s assertion that the Property belonged to a third party noting that the Appellant failed to join the third party in the proceedings or produce evidence to support its claim. The Respondent’s claim was therefore allowed and special damages awarded as prayed, prompting the Appellant to file an appeal at the High Court.

The appeal at the High Court

In its appeal at the High Court, the Appellant maintained that it was merely a leasing agent to the Respondent and that the Respondent did not adequately discharge the burden of proof for negligence. The main issue for determination by the High Court was whether the trial court erred in finding that the Appellant was liable for damages arising out of the collapse of the Property. The High Court held that the Letter of Offer signed by the Appellant’s director on its behalf constituted a valid lease agreement with the Respondent thereby dismissing the appeal. 

The Appellant’s appeal at the Court of Appeal

The Appellant then moved to the Court of Appeal to challenge the decision of the High Court on the grounds that it was not liable to the Respondent for loss and damage caused as a result of the collapsed property as the said property belonged to a third party. The Respondent on the other hand maintained that the Letter of Offer constituted a valid contract between the parties and urged the Court to give effect to the intention of the parties which he asserted could be discerned from the contract and the conduct of the parties. The issues that arose for determination at the Court of Appeal were whether the Appellant was liable for the loss and damage suffered by the Respondent.

Findings of the Court of Appeal

On the issue of liability, the Court affirmed that there existed a lease agreement between the parties with the Appellant as the lessor. The Letter of Offer which was signed by the director of the Appellant and accepted by the Respondent created a valid contract between the parties. The Court noted that even though it was not executed, the Respondent took possession of the Property pursuant to the Lease Agreement and undertook modifications with the consent of the Appellant and that the offer by the Appellant and subsequent possession of the Property by the Respondent constituted a contract between the parties by reason of their conduct. The Court affirmed the findings of the trial court and High Court that the Appellant was the owner of the Property and therefore liable for negligence against the Respondent.

In the end, the appeal by the Appellant was dismissed yet again with costs to the Respondent and the judgment and decree of the High Court upheld.

Why is this decision important?

This decision underscores the binding nature of lease agreements and the duty and responsibility of lessors to ensure the safety and structural integrity of leased premises. It also emphasizes the need for property owners in Kenya to prioritise structural safety as they owe a duty of care to tenants to ensure that the leased premises are safe, failing which liability may be attributed to them for negligence. Finally, the decision highlights that the terms of a contract can be implied from the conduct of parties and previously executed agreements including a letter of offer even when the lease agreement has not been executed.