Before I joined the JLL team in March 2015, I worked in the regional Corporate Real Estate Services department of a leading multinational bank. For the 8 years I headed the department, I was on the “customer” end of industry service providers that included JLL.
I articulated the property needs of the business teams in the bank to third party service providers who would work with us to create solutions. Many times our expectations would be tempered by market realities.
Key example of the gap between realities and expections:
My region participated in a network wide initiative to dispose of non-core property assets. The timelines on the project were 30-60 days between execution of the letter of offer and closing of the transaction. In Kenya, the reality is that, even in a perfect scenario, you would expect a sale transaction to run for a minimum of 90 days from execution of the letter of offer to the close of the sale. We had to adjust the project timelines in Kenya and vary some of the standard sale procedures and documentation to try and facilitate faster closing of the transactions. I used my technical expertise to translate the facts and figures to the business teams, but I often found that the inflexibility of some aspects of the market wasn’t easily appreciated by my primary customer, stakeholders in the Bank.
Fast forward to today and my role servicing customers, especially global corporates, brings to light a new reality. Features taken as the “norm” in the Kenyan property market which were previously dealt with by adjusting expectations aren’t easily accepted by global corporates who are often quick to point out comparisons with other markets. It falls on us the third party advisor to not only try and implement best international practice locally, but to also craft alternative solutions for our clients. For a more permanent solution, the real estate industry has been lobbying to change the legal framework that governs landlord and tenant relationships in Kenya. This process has been painstakingly slow with few notable gains.
Below is a list that provides a view on some of the issues that have come up when dealing with tenants in the Kenyan market.
- The law on commercial leases is set out in a 1965 legislation with a broad definition of controlled tenancies and a strong bias which favours controlled tenants. On account of this legislation, Landlords are unwilling to give any concessions to commercial Tenants that would see them become controlled tenants*, for instance:
- having a terminination clause in a commercial lease leads to a controlled tenancy.
- any commercial lease for less than 5 years creates a controlled tenancy. Most commercial leases have a minimum term of 5 years and 1 month.
- Sub-letting/assigning -in Kenya, sub-letting is not generally allowed in commercial leases, unless they are long-term leases (at least 21 years). In most instances the consent of the Landlord is required before the tenant can sub-let the premises.
- Termination, by notice– termination by notice is not typically permitted or provided in the leases. This in essence is because it would create terms shorter than 5 years which would result in a controlled tenancy. Where tenants may require the option to terminate/exit a lease, we have market practise options that we use to guide our clients.
- Currency – leases are largely local currency denominated with some developers having a preference for USD$ denominated leases .The USD$ denominated eases are largely as a result of developers funding their projects on USD$ funding/loans. I note that the currency of lease is at this point not legislated.
This list is not exhaustive on the issues, but it provides a view on some of the issues that have arisen consistently in the last 11 months.
Thankfully, by leveraging on our local market knowledge and our global network expertise, we continue to provide bespoke solutions to our clients.
*Controlled Tenants: The principal reason Landlords do not wish to create controlled tenants is that the Landlord/Tenant relationship is in several respects not the typical market driven relationship but one governed by the legislation with a Business Rent tribunal oversight. The tribunal is bureaucratic and often inefficient.