KENYA Law and Practice Contributed by: Anne Kinyanjui and Bonface Abuya, DLA Piper Africa, Kenya (IKM Advocates)
6.11 Payment of Property Taxes The real estate taxes relating to rental property are: • stamp duty payable on the tenancy agreement; and • tax payable on rental income. Tenants are responsible for the stamp duty payable on the tenancy agreement, and landlords are responsible for payment of taxes on the rental income. Resident persons (landlords) earning rental income between KES288,000 and KES15 million for the use or occupation of residential property during any year of income are liable to pay residential rental income tax at the statutory rate of 7.5% on the gross rental receipts as a final tax. Resident persons outside the income threshold men - tioned previously, including commercial landlords, are taxed under the ordinary income tax bands. Rental income paid to non-resident persons, on the other hand, is subjected to WHT at a rate of 30%. This is deducted by the tenant at source and remitted to the KRA as a final tax. In addition, landlords operating rental businesses are generally required to issue eTims-compliant electronic tax invoices. This is particularly relevant to tenants because business expenditure is not deductible for income tax purposes unless it is supported by a valid electronic tax invoice. 6.12 Insurance Issues The landlord insures the building while the tenant insures the contents in the leased premises, including the assets of the tenant within the premises. The lease indicates the insured risks, which may include fire, burglary and natural disasters. In the post-pandemic market, standard commercial property and busi - ness interruption policies exclude losses arising from viruses or communicable diseases unless expressly endorsed. 6.13 Restrictions on the Use of Real Estate The landlord may contractually restrict the use of the leased premises by a tenant if such restrictions are
before the Business Premises Rent Tribunal (BPRT). If the lease is silent on rent variation, this can only be done by agreement between the parties. 6.6 Determination of New Rent Rent is varied based on a pre-agreed escalation rate indicated in the lease. The frequency of escalation is also indicated in the lease. 6.7 Payment of VAT VAT is payable on rental income from non-residential premises at a rate of 16%. Rental income earned from the lease of residential premises is exempted from VAT payment under Part II of the First Schedule of the VAT Act. 6.8 Costs Payable by a Tenant at the Start of a Lease The tenant bears the following costs: • the cost of fitting out the premises; • the security deposit on the rent and the service charge; • the initial service charge; • the stamp duty payable on the lease, which is charged at 2% of the average annual rent on leases over three years; • nominal fees for registration of the lease; and • the tenant’s legal fees and the landlord’s legal fees (as may be agreed by the parties). 6.9 Payment of Maintenance and Repair The maintenance and repair costs for common areas are paid by the landlord or the management company from the service charge paid by the tenants. These costs are apportioned amongst the tenants. 6.10 Payment of Utilities and Telecommunications Tenants generally bear the cost of installing individual utility meters (water, electricity, etc) for the leased premises, and pay utility costs directly to the utility providers. For shared utilities, the landlord or manage - ment company will apportion the costs to the tenants, who will pay the landlord or management company in the form of service charges for onward payment to the utility providers.
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