Analysis: High Court Judgment Elnour United Engineering Group vs Minister of Industry & Commerce N.O. and 2 Others HH 81-23

Introduction

The Commercial Premises (Rent) Regulations, 1983 (Statutory Instrument 676 of 1983) (hereinafter referred to as “the Rent Regulations”) were enacted to protect tenants from eviction and unscrupulous property owners. Clauses 22 and 23 of the Rent Regulations authorized tenants to continue using the premises after the expiration of their lease agreements, provided that they continued to pay the rent due within seven days of the due date and performed the other terms and conditions of the expired lease. It is these Clauses that became the subject of a challenge in the High Court, by a landlord that sought to evict some tenants, but failed, as they claimed “statutory tenants status” in terms of the said Clauses.

Factual Background

The Applicant in this matter was Elnour United Engineering Group (Private) Limited, the registered owner and landlord of the Gulf Complex and Sunshine Bazaar, two commercial complexes situated in Harare. The Applicant entered into multiple lease agreements for units at the Gulf Complex with three entities namely Chartprill Enterprises (Private) Limited, Sino Electrical Systems (Private) Limited and Leadward Investments (Private) Limited.

Subsequently, the lease agreements with all the three entities expired on 31 December 2019. Prior to the expiration of the lease agreements, the Applicant had accordingly notified the tenants that it wished to utilise the premises for personal use. However upon expiration of the lease agreements, the three tenants refused to vacate the premises, despite having been served with the notices to vacate. The tenants placed reliance on the provisions of Clauses 22 and 23 of the Rent Regulations.  They argued that when the lease agreements expired, they became statutory tenants in that they had continued to occupy the leased premises and abide by the terms and conditions of the expired leases. The tenants further rejected the contention that the Applicant wanted to use the premises for its own use.

As a result of the dispute, the Applicant referred the matter for arbitration wherein the arbitrator, Retired Justice Smith, issued an award directing the tenants to vacate the premises.

It is against this background that the Applicant approached the High Court seeking a declaration that the Regulations are ultra vires the Commercial Premises (Lease Control) Act (Chapter 14:04) (hereinafter referred to as “the Commercial Premises Act”.)

Submissions

The Applicant submitted that the Commercial Premises Act directs the Minister of Industry and Commerce, who was the First Respondent in this case, to make regulations that address the interests of both the landlords and tenants. The Applicant submitted that in so far as the Rent Regulations provided for statutory tenancy, they were ultra vires the Act. The Applicant also contended that the statutory tenancy clauses lacked sufficient safeguards to prevent the abuse of the Rent Regulations to the detriment of the landlord. The Applicant further submitted that Clauses 22 and 23 of the Rent Regulations were unconstitutional as they violated sections 44, 56, 64 and 71 of the Constitution of Zimbabwe.

The Minister of Industry and Commerce and the Commercial and Industrial Rent Board Harare, who were the First and Second Respondents respectively, opposed the application and raised preliminary points. Firstly, it was argued that Commercial and Industrial Rent Board Harare N.O, had been wrongly cited. It was argued that the Applicant should have cited the Chairman of the Commercial and Industrial Rent Board. The second preliminary point was that the Applicant had failed to exhaust domestic remedies provided in the Commercial Premises Act.

On the merits, they submitted that Clauses 22 and 23 of the Rent Regulations were not ultra vires the Commercial Premises Act as this Act protected the interests of both the landlords and tenants.

The High Court dismissed the preliminary points. On the first point, it found that Clause 3 of the Rent Regulations did not designate the Chairman as the person to be cited in proceedings, but rather focussed on the constitution of the Rent Board. The High Court also dismissed the second preliminary point that Applicant should have exhausted domestic remedies before approaching the Court on the basis that the provisions of the Rent Regulations could not cure the issues arising in the present application as the Rent Board did not have the jurisdiction to make declaratory orders, which is what the Applicant sought.

The High Court’s Decision

With regards to the merits, the High Court highlighted that a cumulative reading of Clauses 22 and 23 of the Rent Regulations showed that the provisions unfairly limited the powers of a court in ordering eviction and possession of the premises after a lease agreement expired. The High Court found that the Rent Regulations created a forced relationship between a landlord and tenant known as statutory tenancy. A statutory tenancy of commercial premises is one which comes into being upon expiration of a lease agreement either by effluxion of time or in consequence of notice duly given by the landlord but the tenant remains in occupation of the commercial premises, albeit performing the terms and conditions of the expired lease.

It was the High Court’s view that Clauses 22(2)(b)(i) and (ii) of the Rent Regulations had the effect of precluding a landlord from increasing rentals or leasing out the premises to another person once the statutory tenancy applies. The Clauses read as follows:

(2) No order for recovery of possession of commercial premises or for the ejectment of a lessee therefrom which is based on the fact of the lease having expired, either by the effluxion of time or in consequence of notice duly given by the lessor, shall be made by a court, so long as the lessee –

(a)   continues to pay the rent due, within seven days of due date; and

(b)   performs the other conditions of the lease; unless the court is satisfied that the lessor has good and sufficient grounds for requiring such order other than that –

(i) the lessee has declined to agree to an increase in rent; or

(ii) the lessor wishes to lease the premises to some other person.”

The High Court further articulated that Clause 23 of the Rent Regulations fortified the protection accorded under Clause 22 and entitled the tenant to all the other benefits arising from the original lease agreement. The High Court found that it was precisely for these reasons that Clauses 22 and 23 were of the Rent Regulations were ultra vires the Commercial Premises Act and set them aside, and ordered the Respondents to pay Applicants’ cost of suit.

Importance of this Case

The judgment in this case mirrors the intention of section 5(2) of the Commercial Premises Act, which mandates the Minister of Industry and Commerce as well as the Industrial Rent Board to have regard to the interests of both landlords and tenants in making the regulations.  

This case upholds the principle of freedom of contract, as it recognizes the need for parties to freely enter into contracts, with whom they wish to contract, and to determine the contents of these contracts (principle of party autonomy). Clauses 22 and 23 of the Rent Regulations, which had the effect of creating a forced relationship between the landlord and tenant were contrary to this principle.

The decision of the Court allows property owners to manage their properties as they deem fit and ensures that property owners are not taken advantage of by mala fide tenants. It would however appear that the new development is a double edged sword as tenants now face the prospect of immediate eviction upon expiration of their lease agreements.