May 27, 2020

PR&MB 2020 – Tenancy Agreements

Filed under: Hidden Insight — KRK Advocates LLP @ 7:26 am

Following the financial impact of Covid-19, a lot of Kenyans have implored the government to provide for a way forward with regards to the payment of rent. The Bill in an attempt to do this provides that where a pandemic has affected the financial capacity of a tenant to meet their obligations:

  1. the tenant shall give a notice in writing to the landlord or contracting party that they are unable to meet their obligations because of the pandemic;
  2. Upon receipt of a notice under paragraph the contracting parties shall enter into an agreement on how the tenant shall meet their obligation at the end of the pandemic.

The procedure laid out seeks to cushion tenants from facing eviction for failure to pay rent during the pandemic but at the same time binds tenants to fulfil their obligations after the pandemic. The Bill does not however indicate the period for issuing a written notice to the landlord. The Bill is also silent on encouraging landlords and tenants to re-negotiate the rent payable. However, ideally nothing bars a landlord and a tenant from re-negotiating the amount of rent payable.

However it is obvious that the landlords may have gotten the short end of the stick as tenants (including those who may still be able to pay part or full rent) may use this provision to temporarily avoid paying rent. Nonetheless the Bill reiterates that the Cabinet Secretary responsible for matters relating to housing may, with the approval of Parliament, provide measures to cushion landlords and tenants.

Comments (1)

PR&MB 2020 – Contractual Obligations

Filed under: Hidden Insight — KRK Advocates LLP @ 7:24 am

Where the declaration of a pandemic affects the performance of contractual obligations by a party to a contract, several remedies that would be available to the other party are waived. As such, the following activities are prohibited:

  1. Commencement of levying of execution;
  2. Enforcement of security over movable and immovable property used for the purpose of a trade, business or profession;
  3. Repossession of any goods used for the purpose of a trade, business or profession; or termination of lease or licence of immovable property in connection with non-payment of rent or other monies.

The Bill appreciates that a pandemic may cause significant frustration and hardship in performance of contracts and seeks to cushion parties whose performance of obligations is impaired. The Bill also takes cognizance of the fact that not all contracts may be affected by the pandemic and thus only those rendered incapable of performing their obligations may take advantage of this clause.

However, several commentators have argued that this clause of the Bill seems to ignore the fact that parties may have other obligations which may be tied to the performance of particular contract. As such, these measures would lead to a negative ripple effect and cause further disruption of the economy.

It is worth noting in certain cases, the pandemic may constitute force majeure (unforeseeable circumstances preventing parties from fulfilling their contractual obligations hence making the performance of the contract impossible). While the mere existence of a pandemic isn’t sufficient enough to invoke force majeure, measures taken to mitigate its effects such as lock-down of movement and business could ultimately constitute force majeure or cause hardship.

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PR&MB 2020 – Loans and Mortgages

Filed under: Hidden Insight — KRK Advocates LLP @ 7:19 am

The Bill makes provision for the status of contracts for loans and mortgages entered into prior to the declaration of a pandemic. The Bill stipulates that where a pandemic has a negative impact on the capacity of the public to meet its contractual obligations entered into prior to the declaration of a pandemic, the following measures shall apply during the pandemic up to three months after the end of the pandemic —

  1. A borrower and the respective lending financial institution shall enter into an arrangement to review repayment modalities;
  2. Penalties shall not be imposed on a defaulter; and
  3. A defaulter shall not be listed by a credit reference bureau.

The Bill provides that a lending financial institution shall not charge fees, interest or any other penalty for non-payment or late payment of obligations during the pandemic period. Therefore, interests will be accruing at the new “pandemic rate” agreed upon by both the lenders and borrowers but late payment or default interests or penalties shall be suspended.

The Bill having taken a purely suggestive approach presents the challenge that there is a huge possibility of the failure to agree on repayment modalities between lenders and borrowers. The Bill also seems to encourage individual debt restructuring of loans as opposed to a blanket reduction of interest rates sanctioned by law. The complexity presented by this approach is obvious as it is a cumbersome process. And it is purely suggestive hence isn’t likely to be enforced. This could lead to a myriad of legal issues after the pandemic. For instance, would failure to agree mean that the default interest rates applicable before the pandemic would be deemed to have automatically applied during the pandemic?

Further, as it stands, the Bill seems to primarily cushion borrowers and not lenders. The effect of this is that financial institutions would be unwilling to cooperate in this process as they stand to suffer loss. However, the Bill states that the Cabinet Secretary responsible for matters relating to finance may, with the approval of Parliament, provide measures to cushion both lenders and borrowers. Perhaps these measures would work best if initiated by Central Bank of Kenya.

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PR&MB 2020 – The Provision of Tax Incentives

Filed under: Hidden Insight — KRK Advocates LLP @ 7:16 am

The Bill provides that were a pandemic is such that it affects the economic or purchase power of the public, the Cabinet Secretary responsible for matters relating to finance may, with the approval of Parliament, introduce tax measures to cushion the affected persons for the duration of the pandemic. Even though the Bill is yet to be assented to, the Government of Kenya has been keen to employ various tax incentives to cushion Kenyans from the economic ramifications of the persisting pandemic. On 25 March 2020, President Kenyatta urged the National Treasury to move to parliament to initiate deliberations on the enactment of various tax laws. This led to the enactment of the Tax Laws (Amendment) Act 2020 which has provided for various measures to cushion Kenyan citizens and corporates from the economic effects of the pandemic.

As per the Act, employees earning less than Kshs. 24, 000/= have been granted 100% tax relief. Further, those earning more than Kshs 24,000 shall only pay a maximum tax of 25% of their earnings. The VAT rate has also reduced from 16% to 14%. The language of the Bill is very temporal as it is only to apply during a pandemic and The Act has also reduced the corporate income tax rate from 30% to 25% for resident companies. In our opinion, the introduction of tax incentives is a welcome move and one of the most strategic measures in cushioning individuals and businesses.

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PR&MB 2020 – The Pandemic Response Fund

Filed under: Hidden Insight — KRK Advocates LLP @ 7:14 am

The Bill provides for the establishment of a Pandemic Response Fund upon the declaration of an emergency. The object of the Fund is to mobilize the resources that shall be used to contain the spread and income of the pandemic. The Bill provides that the Fund shall be administered by the Principal Secretary relating to matters of finance who shall supervise and control the administration of the Fund. The Bill further goes to provide some of the ways in which the fund shall be used. For instance, the Fund can be used to purchase the necessary equipment and supplies for the control of the pandemic, creation of isolation centres, increasing laboratories for testing etc.

The sources of the Fund shall be:

  1. Monies appropriated by the National Assembly;
  2. Grants, donations or gifts made to the Fund; and
  3. Monies received from any other source approved by the Cabinet Secretary.

With regards to accountability in the administration of the fund, the Administrator is tasked with ensuring that there is established proper systems of control and oversight as per the Public Finance Management Act; that proper books of accounts and other books and records relating to the Fund and the activities financed under the Fund; preparing and transmitting to the Auditor-General financial statements; and preparing quarterly financial and nonfinancial reports.

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PR&MB 2020 – The National and County Pandemic Response Committees

Filed under: Hidden Insight — KRK Advocates LLP @ 7:12 am

The National Pandemic Response Committee

The Bill provides for the establishment of a National Pandemic Response Committee upon the declaration of a pandemic. The implication is that the Committee dissolves as soon as a pandemic ends. The Committee is established by the President comprising the Cabinet Secretary for Health, the Principle Secretary for the ministry of Finance, the chairman of the Council of Governors as well as other Cabinet Secretaries, Principal Secretaries and Public officers that the President may choose. Some of the key functions of the Committee include co-ordinating the country’s response and management to the threat caused by the pandemic; co-ordinating capacity building of the relevant personnel for quick and effective response to the pandemic; and conducting economic impact assessments on the effects of the pandemic and develop mitigation strategies.

This Committee will be the control centre for the Country’s pandemic response. It is therefore important that it is properly constituted with personnel having sufficient knowledge and skills to handle a pandemic. On the face of it, the Committee only comprises of state and public officers which raises questions as to whether it is adequately comprised. The Bill however provides that the committee may co-opt into membership any other persons whose knowledge and skills are found necessary for the performance of the functions of the Committee. While this is acceptable, it is worth identifying certain fields and professions which must have expert representation in the committee. For instance, law and policy experts, financial risk analysts, data scientists as well as education and research experts. Further, it is not clear what the remuneration (if any) of the members of this Committee is going to be.

County Pandemic Response Committees

The Bill provides that each County Governor shall establish a County Pandemic Response Committee in their responsive counties. The primary responsibility of the committees is to implement the strategies and measures as directed by the National Committee as well as to coordinate the county’s response and management to the threats caused by the pandemic. The County Committees are particularly important as they are able to navigate around the effects of the Pandemic that are unique to their respective counties and come up with appropriate ways of facing these issues.

Comments (1)

PR&MB 2020 – Declaration of a Pandemic by the President

Filed under: Hidden Insight — KRK Advocates LLP @ 6:57 am

The Bill is only to apply during a pandemic. It is therefore particularly important that the Bill defines what a pandemic is. The Bill defines it as “an infectious disease occurring across international boundaries.” In order for the measures stipulated in the Bill to gain effect the President must declare the pandemic. The Bill provides that the President shall make a declaration of a pandemic upon recommendation by the Cabinet Secretary for Health and after undertaking consultations with the National Security Council. The President may, in consultation with the National Pandemic Response Committee and by notice in the Gazette, declare that a pandemic is no longer a threat to the social, economic or political stability of the country.

As it stands now, even though the government has treated Covid-19 as a pandemic, the President is yet to make an official declaration of the same.

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Key Highlights of the Pandemic Response and Management Bill 2020

Filed under: Insight — KRK Advocates LLP @ 6:38 am

By Antony Mbugua and Sharon Ndinda

Following the global outbreak and spread of the novel Coronavirus (“COVID-19”) many states have been constrained to deploy measures aimed at mitigating the negative effects occasioned by the pandemic. So far, Kenya has reported 715 Covid -19 cases which number is expected to rise over the next few weeks with the continued mass testing of the population. In a bid to contain the virus, the Government of Kenya has enforced certain measures including a partial lockdown of some businesses, a nation-wide curfew and travel restrictions to and from various counties which have recorded a high number of positive COVID-19 cases. As such, Covid-19 has not only affected the health of Kenyans but has also led to a great disruption of businesses and subsequently the Kenyan economy.

Given the unprecedented nature of Covid-19, Kenya, like so many other counties across the world, was not sufficiently prepared to deal with the devastating effects of the pandemic. As such the government has been forced to adopt a reactive approach to dealing with some of the unique effects of the pandemic.

It is in these circumstances that the Senate created an ad hoc committee chaired by Nairobi County Senator Hon. Johnson Sakaja to look into the pandemic and come up with ways through which the government can deal with the health and economic issues brought about by Covid- 19. The Ad-hoc Committee proposed to legislate the Pandemic Response and Management Bill, 2020 which seeks to ensure that Kenyans are cushioned from the negative financial impact of the pandemic. The Bill was debated by Parliament and has been forwarded to the President for assenting. It is pending assenting.

The objects of the Bill are threefold:

  1. To provide a framework for the coordinated approach in the response and management of activities during a pandemic;
  2. To provide temporary relief from the inability to perform contractual obligations where the inability is caused by a pandemic; and
  3. To provide temporary measures to address various matters during a pandemic.

The Bill has made a good attempt in providing a framework for the effective response and management of a pandemic. The Bill has sought to address some of the pressing concerns owing to the pandemic such as employment, loans and mortgages, tenancy and care for vulnerable groups and created relevant institutions.

However, there are a few sectors that have not been addressed such as remote learning in the education sector which has been a subject for debate in the last few months. Further, even though the Bill has attempted to provide economic safeguards for vulnerable groups, there is no provision for identifying and profiling these vulnerable groups into social safety net programmes. The Bill also takes a suggestive as opposed to a mandatory approach on certain key issues such as loans and mortgages. This, in our view, is a risky affair as the likelihood of compliance is significantly diluted.

Additionally, the Bill is silent on catering for the hospital bills and quarantine facilities for vulnerable groups and even more concerning cases of police brutality which has been on the rise since the pandemic began. However, the Bill gives the Cabinet Secretary the mandate to make regulations and any relevant rules or standards as may be required with regards to the pandemic.

Given the fact that the Bill touches on multiple sectors such as the financial services sector, the legal services sector and others, there is need for thorough consultation with representatives from the stakeholders within those sectors. We also feel that there is a need to get more input from economic experts who have raised criticisms with the Bill.

For further details on the bill, kindly click on the links below which explain salient provisions of the bill.

Declaration of a Pandemic by the President
The National and County Pandemic Response Committees
The Pandemic Response Fund
The Provision of Tax Incentives
Loans and Mortgages
Contractual Obligations
Tenancy Agreements
Labour Relations
Information Technology
Penalties and Offences

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