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When Conduct Contradicts Intention: Implications of Variation of a Lease Agreement

06/06/2023

When parties enter into a lease agreement, they do so in the hope that the clauses they negotiate to govern their dealings will be useful in minimising the occurrence of disputes and in the event of unavoidable disagreements, that the said clauses will provide clarity on how to resolve the disputes with ease.

With freedom of contract, parties are assured that they can choose clauses that best protect their interests and that they can even review and vary those clauses by consent at any time. 

Often, parties have found themselves in difficulty after varying their contracts by conduct and not necessarily intentionally. Such difficulties tend to be more complicated because once a contract has been varied, the old terms are extinguished and are deemed to be replaced by the new terms. Parties are no longer at liberty to enforce the old terms unless by consent. 

The implications of variation of a contract in circumstances where a party claims that they did not intend to have the variation were reaffirmed in a recent judgment of the Environment and Land Court of Kenya following a case filed by CMS Kenya | Daly Inamdar Advocates. The case was filed on behalf of a lessee in a lease agreement entered into with a lessor for purposes of operating lease premises comprising among others, a gas station and convenient store facilities.

The lease agreement had a renewal clause that provided that the lessee could seek renewal of the lease for a further term of 10 years. Before the lease agreement expired, the lessee requested to renew the lease for a term of 20 years which was accepted by the lessor. After the agreement on the new term, a disagreement arose between the parties regarding the rent payable for the renewed term. 

Following the disagreement, and the lease having expired before the parties could agree on the rent applicable for the new term, the lessor attempted to evict the lessee from the lease premises on the ground that there was no longer a governing contract between the parties nor a solid agreement to renew the lease under the old renewal term of 10 years. In opposing the lessor’s claim for vacant possession of the lease premises, the lessee argued that parties had by their conduct varied the 10 years’ renewal term to 20 years and since the lessor had accepted the new 20 years’ term renewal, there was no basis to revert to the old renewal term of 10 years without consent of both parties.

While upholding the lessee’s legal argument, the court found that parties had varied the renewal clause when the lessee’s request to renew the lease for 20 years was accepted by the lessor. Even though the lessor claimed that it was never their intention to vary the renewal clause, the lessor was found to have accepted to vary the lease by conduct and was estopped from relying on the old renewal clause.

The judgment underscores the significant role of the court in interpreting contracts which is to give effect to the intentions of the parties as much as possible and not to rewrite parties’ contracts. Most importantly, in any negotiations on an already existing lease agreement, parties should ensure that they comprehend the various ways through which variations of their lease agreement can occur. In the instant case, the lessor’s conduct rather than their intention carried the day.

This alert serves as general guidance and is not intended to constitute specific legal advice.
For legal advice with respect to this alert, please contact our Partner, Grace.Kinyanjui@CMS-DI.com.
*Contributors: Brian Gatuguti and Trisha Shah

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Grace Kinyanjui
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Brian Gatuguti
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