Balancing act in real estate issues and Covid-19

As a result of reduced economic activity and containment measures during the Covid-19 pandemic resulting in reduced incomes, various issues relating to the real estate sector, including landlord and tenant concerns, have arisen across the country.

Following orders by Lands Cabinet Secretary Farida Karoney to close all land registries until mid-May, many conveyancing processes have been negatively affected.

The effect is that parties are currently unable to file documents nor undertake various time-bound processes. This could have long-term adverse consequences on the parties and the sector.

In order to ameliorate the impact, various interventions, including to the extent necessary, legislative interventions, are required.

Abatement of rent for low income earners and small businesses

The pandemic is likely to have an impact on the ability of tenants to pay rent.

On the other hand, landlords are likely to be negatively impacted as failure or delay by tenants in meeting their rent obligations may not only impact the financial position of landlords, some of who rely on rent for their income, but also affect their ability to fulfil their financial commitments, such as loan repayments.

While a blanket provision on leases may not be appropriate, low income earning tenants and small businesses are in most need of legislative protection due to their lower bargaining position.

Under the Land Act, landlords have the right to exercise forfeiture and re-enter the premises should a tenant fail to pay rent.

However, eviction of low-income earners affected by the pandemic and their families due to the inability to pay rent would have significant negative social implications.

While the Rent Restriction Act shield residential tenants paying less than Sh2,500 per month from immediate eviction, the law has not been amended for many years to reflect inflation and may, therefore, be inadequate to offer protection.

Similarly, small businesses negatively impacted by the pandemic may be unable to pay rent.

The Landlord and Tenant (Shops Hotels and Catering Establishments) Act, which applies to commercial premises, may afford some protection from immediate eviction in limited circumstances, for instance if there is no lease in writing which is for more than five years

What is clear is that the existing laws may be inadequate to protect the most vulnerable from eviction.

New legislative interventions will, however, need to be weighed carefully to ensure they strike the right balance.

One proposal could be that for premises where the monthly rent is less than Sh10,000, the right of landlords to exercise re-entry and forfeiture be suspended for the duration of the pandemic.

TEMPORARY REDUCTION

Where the monthly rent is between Sh10,000 and Sh25,000, there could be an automatic temporary reduction of say 30 per cent for the duration of the pandemic.

Service charge, if any, which is required for maintenance of the property and provision of services such as security and cleaning would however remain payable.

The interim measures would allow landlords and tenants an opportunity to mutually negotiate and agree alternative arrangements. At the end of the pandemic, landlords would have the right to recover any unpaid rents (including the temporary reduction).

In addition, the government could consider measures such as tax reductions or other stimulus packages to cushion landlords who have suffered loss as a result of the proposed relief.

The legislative interventions should, however, be no more than is necessary. As such, tenants paying higher rents and thereby having a greater bargaining position or the option to move to cheaper premises may not require legislative intervention.

However, the landlords and tenants should be encouraged to renegotiate the terms of the lease. Similarly, tenants who were in default prior to the pandemic could be excluded from relief if it can be shown that the breaches were not as a result of Covid-19.

This would ensure the sanctity of private contracts is preserved and also ensure that the real estate sector remains robust and that investors in this sector are not discouraged from making further investments due to undue legislative intervention.

Technology facilitating payments

There are various payments such as land rent, rates and licence fees that are required to be made to the National or county governments or the National Land Commission.

However, the closure of many public and private offices, including registries, has made it difficult or impossible to make such payments.

The authorities should adopt digital payment platforms to facilitate payments. In the meantime, and until such platforms are in place, the authorities should not seek to enforce payment, levy penalties or exercise their statutory rights until normal operations have resumed at the various registries and offices.

Closure of land registries

Under the Land Registration Act, there are certain requirements to register documents within certain prescribed timelines – typically three months.

Prior to presenting such documents for registration, they are required to be stamped with the requisite stamp duty within 30 days from the date of the document.

However, due to the closure of the registries, it is difficult if not impossible to stamp or register documents, failure to which attracts significant penalties.

As such, the requirement to stamp and register within the prescribed periods should be suspended and all penalties waived until normal operations have resumed at the various registries.

Challenges with in-person verification

Under the land laws, there are various requirements with regard to the manner in which documents are required to be executed and witnessed.

These require an Advocate or other designated person to verify the signature and identity of the person signing in their physical presence.

Due to the containment measures, in-person verification is difficult to implement, and in the absence of alternative options the requirement risks bringing most land transactions to a halt.

In order to allow execution of documents and verification to take place during the pandemic, the requirement for in-person verification of execution of documents would need to be waived, and instead allow for video-witnessing or attestation of documents that require to be executed in the presence of a witness provided relevant safeguards are put in place.

Continuity in construction
It has been unclear whether ongoing construction projects can continue during the pandemic and if so, what measures need to be put in place to minimise risk to workers.

Recently, the National Construction Authority published guidelines that would apply to construction sites.

These, however remain, to be adopted as statutory instruments, and the relevant authorities should hasten the approval process.

Real estate remains a key sector of the Kenyan economy, and the authorities should put in place the requisite interventions to minimise the negative impact to the industry and its stakeholders.

Mr Anjarwalla, Mrs Doshi and Mr Khan are advocates of the High Court of Kenya and Partners at Anjarwalla & Khanna LLP