Act of God: How JKUAT used 2020 pandemic to win in lease dispute

The year 2020 presented immense challenges as the devastating Covid-19 pandemic disrupted lives and shattered livelihoods.

The widespread impact of the virus was not limited to individuals alone; public institutions, companies, and businesses also found themselves grappling with the long-lasting effects of the imposed lockdown, with some even being forced to shut down entirely.

Jomo Kenyatta University of Agriculture and Technology (JKUAT) emerged as one of the institutions significantly affected by the pandemic.

However, a recent legal battle between JKUAT and its former landlord in Nakuru has shed light on an intriguing contractual provision that could potentially safeguard tenants and debtors who failed to fulfil their obligations due to the Covid-19 pandemic.

On May 1, 2016, JKUAT entered into a lease agreement with Kwanza Estate Limited for a building in Nakuru, initially paying an annual rent of Sh45 million, which would gradually increase to Sh47 million from 2017.

Eventually, the agreed-upon rent escalated to Sh55 million per year starting from May 1, 2020, until the end of the contract in the previous year.

The building, which served as a satellite campus for self-sponsored students, faced multiple challenges. Government funding was reduced, leading to a decline in the number of self-sponsored students. Additionally, the Covid-19 pandemic dealt a final blow. Consequently, JKUAT requested the termination of the agreement on July 10, 2020.

In response, Kwanza Estate demanded Sh17.3 million in outstanding payments. Despite JKUAT settling the bill, the property owner took away and sold the university's belongings through Pyramid Auctioneers, yielding Sh16 million. JKUAT argued that, given the circumstances, it was impossible to fulfil its obligations.

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While the estate firm denied that the building was intended for self-sponsored students, it admitted to receiving Sh15.7 million in rent between November 2020 and January 2021. However, they claimed that JKUAT had breached the terms of the lease, justifying the auctioning of the university's belongings to recover the arrears.

As a counterclaim, the firm demanded Sh97.8 million in remaining rent, Sh64.6 million for building restoration, and Sh 162 million as compensation for expected losses.

During the court proceedings, JKUAT called Robert Kinyua, the Vice Chancellor in Charge of Academic Affairs, as a witness.

Kinyua stated that the university had faithfully fulfilled its obligations since the start of the lease. However, financial constraints had rendered it impossible to continue with the agreement.

Kinyua explained that the government had implemented a new placement system requiring all students to be fully funded, limiting the funds generated from self-sponsored students. He further highlighted the adverse impact on the Nakuru CBD campus, which heavily relied on self-sponsored students.

On the contrary, Geoffrey Makana, the landlord, opposed JKUAT's case, asserting that the terms of the lease were clear and agreed upon by all parties.

The Court of Appeal ultimately set aside the orders issued by Environment Court Judge Damlas Ohungo in favour of the Kwanza Estate. However, they ruled that JKUAT must pay Sh40 million for renovations.

Nevertheless, legal experts have cautioned that the application of force majeure in the courts varies from case to case and cannot be universally applied.

Force majeure, also known as an act of God, refers to extraordinary and unavoidable events or circumstances that prevent parties from fulfilling their contractual obligations.

Lawyer Dudley Ochiel hailed JKUAT's victory before the Court of Appeal as a significant step forward. He emphasised that while contracts are binding, there are circumstances beyond the control of both parties that render it impossible to fulfill their obligations, such as pandemics and wars.

Ochiel explained, "A natural occurrence like the coronavirus pandemic, where students were unable to attend school, constitutes an act of God. Even if one is willing to fulfill their obligations, it becomes impossible due to such external factors. The application of force majeure depends on the specifics of the case, requiring a clear explanation of how and why it should be invoked within the contract."

The Court of Appeal judges, Fatuma Sichale, Lydiah Achode, and Weldon Korir, unanimously ruled in favour of JKUAT, stating that it would be unfair to require the university to pay the full lease amount while it was no longer utilising or benefiting from the premises due to uncontrollable circumstances.

The court recognised that the pandemic was a force majeure event that significantly impeded JKUAT's ability to fulfill the lease agreement and make the agreed-upon payments.

They deemed it absurd, unfair, and unjust to enforce performance under such unforeseen circumstances, which were neither caused by JKUAT nor within its control.

Lawyer Jackson Awele, however, noted that even though JKUAT emerged victorious, it remains uncertain whether others who defaulted on their contractual dues or rent can rely on the same precedent.

He emphasised that individuals must establish that the issue was unforeseeable, external, and irresistible in order to successfully invoke force majeure.

According to Investopedia, force majeure conflicts with the principle of "pacta sunt servanda" in international law, which dictates that agreements must be upheld without exception.

Awele further explained, "Force majeure is not a uniform law that applies to everyone. We must analyse and understand the specific circumstances of each case to determine whether force majeure is an exception. We need to comprehend why the court ruled in that particular manner."

Conversely, lawyer Okweh Achiando argued that JKUAT's inability to pay rent was a clear case of force majeure.

He claimed that individuals could even approach banks and argue against interest charges due to the lack of income and employment caused by the pandemic.

Achiando contended that since Covid-19 was an act of God, it could not be appealed, and interest charges could only resume once the World Health Organisation declared the virus was no longer a threat.

Senior lawyer Kamau Karori highlighted the distinction between force majeure and frustration of contract.

According to him, one must prove that they were not the cause of the situation and that it was beyond their control in order to claim force majeure.

He also emphasised that force majeure should be explicitly included in the contract. On the other hand, frustration with the contract pertains to events that occur after the agreement is made, rendering it impossible to fulfill the terms.

For instance, if person A sells a house to person B, but person B passes away, it becomes impossible to carry out the terms of the agreement. Unlike force majeure, the frustration of a contract is not a predefined provision in a contract.

The JKUAT case is not unique, as other cases decided by the courts have produced varying judgments regarding force majeure.

In a case involving Patrick Ngunjiri, who sued former Lands CS Farida Karoney and the Attorney General over the closure of the lands registry due to Covid-19, the government cited force majeure as the reason for shutting down the offices.

However, Justice James Makau ruled that Covid-19 was not a justification for denying Kenyans the opportunity to access their land records, stating that it does not justify violating individual constitutional rights as guaranteed by the Constitution.

Another case involved parents of Brook House School students who challenged the introduction and charging of fees for online classes during the Covid-19 pandemic.

Justice Weldon Korir ruled that while the parents argued that the pandemic was an act of God, they did not seek to terminate their contracts with the school.

The court focused on whether the school's decision to adopt online teaching violated the consumer rights of the petitioners and their children's right to free and basic education, as well as the formation of the Parents Teachers Association.