Property and Real Estate ENSight | 16 May 2018

What are the implications of Uganda’s new Landlord and Tenant Bill ?

by Rachel Musoke and Sheila Pacuto
The relationship between landlords and tenants in Uganda has, for a long time, been an effectively unregulated space despite growth and developments in Uganda’s real estate sector. The Ugandan Cabinet recently approved a bill for the Landlord and Tenant Act, 2018 (the “Bill”) which will see Uganda join the rest of the world in regulating this relationship. Below, we highlight the main issues in the Bill.

To whom will this law apply? 

The Bill applies to the letting of both residential and commercial premises except residential premises incidental to medical, religious, recreational, educational or similar services; hotels, motels or other transient lodgings; or to occupancy of premises under an employment contract or any premises entered into in relation to such a contract.

It is worth noting that many jurisdictions acknowledge the peculiarities associated with the letting of commercial premises vis a vis residential premises, and as such, enact separate legislation to take these differences into account. Kenya, for instance, has the Landlord and Tenant (Shops, Hotels and Catering Establishments) Act (Cap 310) to specifically regulate the leasing of commercial premises while the Rent Restriction Act (Cap 296) regulates matters incidental to and connected to residential/dwelling houses.

What form will a tenancy agreement take? 

A tenancy agreement may be in any form – oral, written or electronic or implied from the conduct of the parties, save where the value of the tenancy is equivalent to approximately USD140 or more it will not be enforceable unless it is in writing or in the form of a data message or unless the party against whom enforcement is sought admits the existence of the tenancy agreement. 

In retaining oral and implied tenancy agreements, the Bill ironically retains the informality of the tenancy agreements, which has been the major cause of the discord between landlords and tenants. Business efficacy however dictates the continued informality and the real solution will lie in proper education of landlords and tenants and in the statutory conditions to be implied in every tenancy. 

Furthermore, the Bill proposes that the Minister of Housing and Urban Development will prescribe the format of tenancy agreements. With this, there is a risk that the format prescribed may be a “one-size-fits-all” type for both residential and commercial properties, which will not properly take into account the uniqueness of commercial properties whose tenancy agreements are often tailor made to suit the purpose for which they are to be used.

What know your customer (“KYC”) measures must a landlord take before entering into a tenancy agreement? 

The particulars of the parties; where the tenant is an individual, he or she must provide details of his or her national ID or alien ID (as applicable); where the tenant is a noncitizen, details of his or her immigration status, particulars of the premises and details of the rent payable, must be provided. 

The KYC measures introduced by the Bill are lauded. 

Are there any void terms or conditions in tenancy? 

Yes. Any term expressed or implied that purports to exclude, restrict or modify the law will be rendered void. In addition, a term that requires the other party to bear the costs of fees or charges incurred in preparation of the tenancy agreement will also be void. This means that a clause, for instance, requiring the tenant to pay the legal fees incurred by the landlord for drafting of the tenancy agreement, will be void.

In what currency will rent be payable?

While the current version of the Bill as approved by Cabinet prescribes rent obligations to be expressed, recorded and settled in Uganda Shillings, according to recent media report, this position has since been reviewed and parties will be free to contract in a currency of their choice. This is a more progressive position and consistent with the notion that the market needs to encourage real estate investment.

If this new position is correct, an amendment will be required to be made to the Income Tax Act (Cap 340) which recently prescribed that all rental income be expressed in Uganda Shillings. 

Will a landlord be permitted to require rent in advance? 

Yes, however this will depend on the duration of the tenancy. Where the tenancy is for more than one month, the landlord must not require more than three-months’ advance and where the tenancy is less than one month, not more than two weeks in advance.

Is a tenant entitled to rent receipts? 

Yes. A landlord will be required to immediately issue the tenant with a payment receipt where the tenant makes the rental payment in person and within five working days where the rental payment is not made in person. 

This is a welcome initiative by the Bill, as tenants will now have evidence of rental expenditures that they can submit to Uganda Revenue Authority and have such expenditures offset against their gross income. The meaning of payment made in person is, however, unclear and does not seem to recognise the advances made in payment systems such as mobile money and banking in general.

Will a landlord be permitted to increase rent? If so, how? 

A landlord must not increase rent to more than 10% annually. He or she must, thereafter, give the tenants 90-days’ notice of the increment. Where the tenancy is fixed, the landlord cannot increase the rent until expiry of the fixed term unless provided for by the tenancy agreement. 

Although this is a well-intentioned clause by the legislators to protect the tenants against arbitrary rental increments, it does not take into account instances where the landlord is servicing a financing for development of the premises at a an interest rate that of over 10% or a landlord who has carried out developments on the premises warranting an increase of rent of over 10%.

What remedies does a landlord have against a defaulting tenant? 

The landlord only has the right to apply to court to recover unpaid rent. The remedy of distress for rent is abolished and is not available to an aggrieved landlord. Recent media reports state that the provision requiring a court order to evict a defaulting tenant will be removed from the Bill. If this is correct, it will be a welcome relief to landlords. However, it is then advisable to restore the remedy of distress for rent. The Bailiffs (Distress for Rent) Act (Cap 76) is another piece of legislation long overdue for review and Parliament would be well-advised to seize this opportunity to do so.

The enactment of a law to formalise and regulate the relationship between the landlord and tenants is a step in the right direction for Uganda. We however note that the Bill is heavily inclined to support and protect the tenants and does very little to address the interests of the landlords. For this law to be relevant, however, it must strike a balance and address the interests of both the landlords and the tenants, otherwise it stands the risk of being irrelevant. The Bill should additionally be reinforced by providing for a quicker dispute resolution mechanism.

We are hopeful that the deliberations between Parliament and the respective stakeholders will be fruitful and a fitting law will ultimately be enacted. We will continue to provide updates.


 

Rachel Musoke

ENSafrica Advocates | Uganda | partner
rmusoke@ENSafrica.com
cell: +256 772 778 822

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Sheila Pacuto

ENSafrica Advocates | Uganda | senior associate
spacuto@ENSafrica.com
cell: +256 784 116 125

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