You let the ground floor to a shop. You are now in a different legal regime

A landlord owns a small block in Kileleshwa. The ground floor unit was built as a shop, so they let it to somebody opening a salon on the same one year agreement they use upstairs. Two years later they want the unit back, serve a month’s notice, and discover the tenant has referred the matter to a tribunal they had never heard of.

This is among the more expensive surprises in Kenyan letting, and it catches residential landlords specifically, because they arrive at a commercial letting through the side door and apply the only framework they know. The Landlord and Tenant Shops, Hotels and Catering Establishments Act is a separate statute with a separate tribunal, and it is considerably more protective of the tenant than anything governing a flat.

When the commercial Act catches you

The Act governs what it calls controlled tenancies. Broadly, a tenancy of premises used for a shop, a hotel or a catering establishment falls within it where the tenancy is either not reduced to writing, or is for a term not exceeding five years, or contains a provision allowing termination within five years of commencement.

Read that again, because the logic is the opposite of what most people assume. A short or informal commercial letting is controlled. A long, formally documented one may not be. Landlords who deliberately keep the arrangement short and simple to stay flexible have done precisely the thing that brings the protective regime into play.

What counts as a shop or catering establishment

• Retail of any kind: a salon, a pharmacy, a hardware, a boutique, a phone shop.
• Catering: a cafe, a restaurant, a bar, a takeaway.
• Hotels and lodging establishments.
• Premises where goods are received for service or repair, which sweeps in a surprising range of small businesses.

A pure office letting sits differently, and whether a particular use falls inside the Act is a question of fact about what actually happens on the premises rather than what the lease calls it. A unit let as an “office” where members of the public walk in and buy things is arguably a shop.

What actually changes

You cannot end it on your own terms

To terminate a controlled commercial tenancy, or to alter its terms including raising the rent, the landlord must serve notice in the prescribed statutory form, giving the minimum period the Act requires, which is substantially longer than a residential month. The notice must state the grounds relied on.

The tenant may then object by referring the notice to the Business Premises Rent Tribunal. Once referred, the tenancy continues on its existing terms until the Tribunal determines the matter. In practice, a landlord who wants the unit back can be looking at a year or more during which the tenant remains in occupation at the old rent.

Rent increases are supervised

Raising the rent is an alteration of the terms of the tenancy and follows the same notice and referral route. A landlord cannot simply write to a controlled commercial tenant announcing a new figure, and one who does has usually not served anything the Act recognises.

You need a ground, not just a reason

The Act sets out the grounds on which a landlord may seek to terminate, which include the tenant’s breach, persistent delay in paying rent, the landlord’s intention to demolish or reconstruct, and the landlord’s intention to occupy the premises. Wanting a better tenant, or a higher rent from somebody else, is not among them.

The instinct that protects you in residential letting, keeping the agreement short and flexible, is the exact thing that pulls a commercial letting into the protective regime.

What to do about it

• Establish which regime you are in before you let. If the intended use is retail or catering, take advice before agreeing terms, not after the tenant has fitted out.
• Consider a term over five years. A properly documented lease exceeding five years without an early termination provision falls outside the controlled definition. That is a real decision with real consequences, since a long lease commits you too, and it may need registering. It is not a trick to apply casually.
• Draft the user clause carefully. A clause permitting use as a shop invites the regime. A clause restricting use to offices, actually enforced, may keep you outside it, though what happens on the ground will matter more than the wording.
• Document everything from day one. The Act rewards written, formal arrangements and penalises informal ones. This is the reverse of the usual landlord instinct.
• Use the statutory form when the time comes. A letter is not a notice under this Act. The form is prescribed and a defective notice simply does not run.

The honest position on returns

None of this means avoid commercial tenants. A ground floor retail unit in a residential block often produces a materially higher rent per square metre than the flats above it, tenants fit out at their own expense, and a stable business tenant can be less trouble than a succession of residential ones.

What it means is that the flexibility is priced in. You are trading the ability to recover the unit quickly for a higher rent and a longer relationship. That is a perfectly good trade if you make it deliberately, and a bad surprise if you make it by accident on a residential template.

How Goldstay handles it

Our long-term management service is built around residential letting, and we say so rather than pretending otherwise. Where a property we manage includes a commercial unit, we identify which regime it falls under before anything is signed and instruct an advocate on the lease rather than adapting our residential document.

Where a landlord comes to us with a commercial tenant already in place on a residential style agreement, the first thing we do is work out whether the Act applies, because it determines what is possible at every subsequent decision point. Knowing you have a controlled tenancy is unwelcome news, but it is much cheaper than finding out at the moment you need the unit back.

This is general information rather than advice on your letting. Whether a particular tenancy is controlled depends on facts about the use, the term and the document that we have not seen.

Related reading: lease or licence, ending a tenancy lawfully, and the eviction playbook.