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ELCPartially Allowed· [2021] KEELC 1164 (KLR)

Milly Glass Works Limited v Kenya Railways Corporation & another [2021] KEELC 1164 (KLR)

Environment and Land Court of Kenya
4 November 2021
3,993 words in judgment
View original judgmentRead on Kenya Law Watch case
AI-assisted case brief
·~16 min to read original · ~4 min brief

The bottom line

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Kenya Railways must refund millions in unlawful rent because it raised the lease rent before the 30-year revision period had expired.

What this practically means

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Executive summary

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The plaintiff, owner of a leasehold interest in Mombasa/Block XLVIII/134 assigned from Kenya Glass Works Limited, sued Kenya Railways Corporation (1st defendant) and an auctioneer (2nd defendant) after the 1st defendant, by notice of 30 September 2011, revised the annual rent from Kshs 146,000/= to Kshs 10,200,000/= with effect from 1 January 2012. The lease dated 16 January 1980 (81-year term from 1 January 1977) allowed the lessor, at the expiry of each 30-year period, to raise rent to 1/20th of the unimproved land value. The plaintiff sought declarations that the increase was unlawful and injunctions restraining rent above Kshs 146,000/= until 2037, contending the revision right was waived when not exercised in 2007. The 1st defendant raised a jurisdictional objection under Section 83 of the Kenya Railways Corporation Act, which the court rejected, holding the section covers compensation for damage (torts), not contract disputes. On the merits, the court held the 30-year period runs from execution of the contract (16 January 1980), not the term commencement; that non-exercise of the revision right at the 30-year mark is neither waiver nor extinguishment; and that a premature, uncontested increase (the 1994 increase to Kshs 146,000/=) starts a fresh 30-year period, making January 2024 the next revision date. The 2011 demand was therefore unlawful. Since the plaintiff had paid the increased rent under coercion despite a consent injunction of 14 March 2013, the court ordered refund of all sums exceeding Kshs 146,000/= per year, with interest at court rates from payment dates, plus costs to the plaintiff, and no costs against the 2nd defendant. The plaintiff's wider claim for a declaration extinguishing the revision right until 2037 was refused.

Key legal issues

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01

Jurisdiction under Section 83 of the Kenya Railways Corporation Act

Holding

Section 83 confines arbitration to compensation for damage caused by the Corporation's acts or omissions (torts), not contract disputes; the court has jurisdiction over lease interpretation

Reasoning

The court read Section 83 restrictively: it deals with compensation for damage suffered in the exercise of statutory powers, covering torts rather than contracts. Since the dispute concerned the interpretation of a lease clause, the statutory arbitration mechanism did not apply, and the three decisions cited by plaintiff's counsel supported that reading.

p. 3
02

Commencement of the 30-year revision period

Holding

The 30 years run from the date the contract was executed (16 January 1980), not from the commencement of the lease term (1 January 1977)

Reasoning

The court held that contractual terms become enforceable only upon execution; absent express clarification that the rent revision clock ran from the term commencement date, the 30 years must run from signing. A hypothetical (a contract signed in 2008 backdated to 1977) demonstrated that terms cannot bind before execution.

p. 3
03

Effect of non-exercise of the rent revision right at the 30-year mark

Holding

Non-exercise does not waive or extinguish the right; the lessor may exercise it at any time after expiry of 30 years, the new rent taking effect only from the date of increase

Reasoning

The court rejected the plaintiff's argument as absurd. The clause simply gives a right upon lapse of 30 years; nothing requires immediate exercise. Delay benefits the lessee, who continues paying the old rent until the increase is made. The right remains active unless expressly extinguished.

p. 3
04

Effect of a premature, uncontested rent increase

Holding

A premature increase not contested within the six-year contractual limitation period is acquiesced to, and a fresh 30-year period runs from that increase

Reasoning

Although a premature increase breaches the lease, the right to contest a breach is subject to the six-year limitation period. Once acquiesced, the increased rent becomes payable and the revision clock restarts, preventing the lessor from increasing rent more than once in any 30-year span.

p. 3
05

Legality of the 2011 rent increase and refund

Holding

The notice of 30 September 2011 was unlawful because 30 years had not lapsed since the 1994 increment; sums paid above Kshs 146,000/= must be refunded with interest

Reasoning

The 1994 increase was pleaded and not denied; the plaintiff was bound to its pleading. The next revision fell due in January 2024, so the 2011 demand breached the lease and the consent order of 14 March 2013. Payments made under coercion despite the injunction amounted to unjust enrichment warranting refund with interest.

p. 4

Legal principles established

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  • Absent an express term, the 30-year revision period in a lease runs from the date of execution of the contract, not from the stated commencement date of the term
  • Failure to exercise the right to increase rent immediately upon expiry of 30 years is neither a waiver nor an extinguishment of the right; it may be exercised at any time thereafter, with the new rent taking effect from the date of exercise
  • A rent increase effected before the lapse of 30 years, if not contested within the six-year limitation period, is treated as payable and starts a fresh 30-year period running from the date of that increase
  • Where a lessor's demand for rent is unlawful and paid under coercion despite an injunction, the court may in its discretion order a refund with interest as unjust enrichment

Court orders

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  1. 1.A declaration that the 1st defendant had no right to demand rent increment in 2011, the right to revise rent falling due 30 years after the last (1994) increment, i.e. January 2024
  2. 2.An order that the 1st defendant refund to the plaintiff all sums paid which exceed the annual amount of Kshs 146,000/= per year, forthwith
  3. 3.Interest on each instalment refunded at court rates from the time it was paid until settlement in full
  4. 4.Costs of the suit to the plaintiff, payable by the 1st defendant
  5. 5.No orders as to costs for or against the 2nd defendant

Authorities

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Legislation

  • Kenya Railways Corporation Act, Cap 397Section 83(1) and (2)
  • Limitation of Actions Act (general limitation period in contracts of 6 years, referred to in reasoning)General limitation period in contracts

Cases cited (4)

  • Mavumbo Ranch vs National Land Commission & 3 Others
    (2019) eKLR
  • Peter Nzioka Mani & Another vs Kenya Railways Corporation
    (2012) eKLR
  • Ali Yislam Hariz vs Kenya Railways Corporation
    (2012) eKLR
  • Ubah Ismail Mohamed vs Gapco Kenya Limited & Kenya Railways Corporation
    (2019) eKLR
Jurisdiction invoked
Original jurisdiction under the Environment and Land Court Act; the court rejected the argument that Section 83 of the Kenya Railways Corporation Act, Cap 397, ousted its jurisdiction

Key timeline

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Practical implications

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Frequently asked questions

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Cite this brief

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Cite this brief

Caselaw, "Milly Glass Works Limited v Kenya Railways Corporation & another [2021] KEELC 1164 (KLR)", Case Analysis (2021). . Source: https://new.kenyalaw.org/akn/ke/judgment/keelc/2021/1164/eng@2021-11-04

Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.