In pursuit of a favourable legal regime for Commercial Property Investments in Ghana: A Case for Amending the Rent Act of Ghana by Bobby Banson, ESQ, ACIArb*

Introduction

The Rent Act of Ghana, (the Act) which was passed in 1962, was promulgated to, among other things, provide a “law relating to the control of rents and the recovery of the possession of premises in certain cases.”

The Rent Act of Ghana was passed at a time when Ghana’s socio-economic policies were without doubt influenced by ideals which were aimed at providing a system in which there was a price control regime and protection from eviction by individuals.  Perhaps at the time of the passage of the Act and in the years that followed, this system was much beneficial because almost all, if not all, of buildings that were constructed were rented for residential purposes and were mostly owned by individuals or the State. The idea of incorporating companies with the sole object of constructing purpose-built commercial buildings for rentals had not yet caught on.

At the time of the passage of the Act, the idea of developing commercial property solely for investment (renting) as a private sector-led business was non-existent.  The huge investments sunk into our fledging economy to develop purely for rental, office spaces, shopping malls and other related purposes in one location under one ownership and/or management, in certain desired locations in the country has come to overtake the assumptions that underlie the Act. Examples of such developments are the Accra, Marina, West Hills, A&C Mall, the Oxford Street Mall, the Achimota Retail Center and the Garden City Shopping Mall.

The Act was passed to replace the Rent Control Ordinance and was excluded from application in a number of areas including those subject to the Rent Stabilisation Act of 1962 and in leases and concessions which were all serious commercial concerns. At the time of the passage of the Act, Ghana’s economic policies were without doubt influenced by ideals which were aimed at providing a system in which there was a price control regime (an incident at variance with our current constitutional dispensation) and protection from eviction of individuals by “whimsical landlords”. The Act was also used as the basic framework to guide the relationship between landlords and tenants which were mostly not evidenced by written contracts.

The current provisions of the Rent Act, which are applicable to business (commercial) properties, do not, with respect, provide any “fulfilling” remedy to the Landlord who is not an individual to fit into the Act’s definition of ‘own use and occupation’ for the purpose of  ejecting /evicting a Tenant as in section 17(h) of the Rent Act. The class of people who fit into definition of ‘own’ is limited to natural persons of certain blood relations. This situation, to say the least, is frustrating in the light of the fact that the ultimate sanction of a Landlord’s agreement with a Tenant is ejectment.

This paper seeks to bring to the fore some of the legal challenges arising from the enforcement of the current provisions of the Rent Act vis-à-vis commercial property owners. The paper also suggests a solution to the problem.

We will now proceed to attempt to make a case for a need to review certain provisions of the Rent Act.

Rent Act and Business Premises

The Rent Act is made up of eight parts with 38 sections. This paper will however be limited only to the provisions that are applicable to the operations of business premises.

We would like to start by establishing that the Rent Act is applicable to commercial properties as described herein. Section 1 of the Act deals with premises/buildings that are exempted from the provisions of the Act. It is provided in section 1 (2) that the Act shall not apply to—

(a) any premises of which a public officer is a Tenant by reason of his employment and of which premises the Government is the Landlord;

(b) any lease of any premises when such lease, whether entered into or renewed before, on or after the date of the commencement of this Act, was entered into or renewed as a lease of land upon which there were no premises at the time of the grant or renewal of the lease;

(c) where a lease whether entered into, before, on or after the date of the commencement of this Act, was entered into as a lease of land upon which there were premises but the premises were demolished and new premises erected within five years after the grant of the lease, such lease after the erection of the new premises;

(d) any lease certified as being valid under the law for the time being in force relating to concessions;

(e) any lease under which the Landlord is the Government and which relates to premises certified by the Minister as being premises let at a rent which yields no financial gain to the Government;

(f)  any market stall owned by a Council;

(g) any land subject to the Rents (Stabilization) Act, 1962 (Act 109) or any regulations made thereunder; or

(h)  prescribed premises.

On the application of the interpretive principle of “expresso unius et exclusio alterius”, we can safely say that because such commercial properties as described herein are not specifically mentioned in here as an exemption, then it means that the Rent Act is applicable to such commercial buildings as a business premises.

Having established that commercial premises are not exempted from the application of the provisions in the Rent Act, we will now focus on the provisions in the Act which are applicable to commercial/business premises.

In view of the ramifications of the law and the exemptions it prescribes, it is imperative to properly define Commercial Property Investment to create the necessary parameters within which the request we are making could be considered.

Commercial Property Investment is a focused investment which is registered with the Ghana Investment Promotion Council in terms of the Ghana Investment Promotion Act, 2013, with the sole purpose of the investor being the creation of spaces in approved purposely designed and built structures for rental purposes, and for which the relationship between the landlord and tenant is evidenced by a properly executed contract.

For a property to qualify as Commercial Property Investment, it must satisfy the following criteria:

  • It must be focused property investment
  • The ownership entity must be registered with the Ghana Investment Promotion Centre
  • The objects of the ownership entity must solely be for the renting of the spaces created in a purposely designed and built structure approved by  the required statutory authorities
  • The relationship between the landlord and a tenant should be evidenced by a properly executed contract.

Rent Assessment

The first provision to be touched on is Section 5 of the Act which permits the Rent Magistrate to alter the rent recoverable by the Landlord from the Tenant in respect of the premises. This provision applies irrespective to the rent agreed to be paid by the Tenant before the contract was executed.

Section 5 (1) (a) states that the Rent Magistrate may “assess the recoverable rent of any premises (whether or not such premises are occupied) on an application made by any Landlord, Tenant or person interested in the premises, after such enquiry as he may think fit.”

This is fortified with the provisions of Section 5 (4) which reads  “except as otherwise provided by or under this Act, the appropriate Rent Officer shall not be able to alter any of the conditions of the tenancy other than the amount of recoverable rent”.

The problem with this provision is abundantly clear for all to see.

What this means is that the Tenant can agree to pay Gh₡ 1,000 per square meter and same will be included in the tenancy agreement. After he/she/it is let into the premises and finds it difficult raising the agreed amount, the Tenant can take advantage of this provision and seek a review of the rent payable only on the grounds that the amount charged as rent is not favourable to his/her/it’s business. Definitely, such a provision will throw away the principle of sanctity of contract and may be exploited by the Tenant to avoid his/her contractual obligations under the tenancy agreement.

On the application of this provision, the investor, who may have invested huge sums of money into the commercial project, may be at the mercy of a Tenant who will want to take advantage of this provision to renege from the terms of the tenancy agreement.

Right to Eject/Eviction

As stated earlier, the ultimate sanction of a Landlord’s agreement with a Tenant is ejectment. Unfortunately, it is this right by the Landlord that the Rent Act has sought to stifle to the advantage of the Tenant and the detriment of the Landlord. It goes without saying that these provisions tend to give the property developers less control over the properties which they have invested so much in.  We will now have a look at these provisions.

Section 17 (1) states that no order against a Tenant for the recovery of the possession of, or for the ejectment from, any premises shall be made or given by the appropriate Rent Magistrate, or any other Judge of a court of competent jurisdiction except the following circumstances among others prevail:

  • Non Payment of Rent

Section 17 (1) (a) provides that a Court will make an order of ejection where any rent lawfully due from the Tenant has not been paid or tendered within one month after the date on which it became lawfully due.

With this provision, the Tenant should have been in default of the rent payment for a month but which default will only be deemed to have occurred at the end of another month of the default. For instance, if the Tenant was due to pay the rent in January, he can only be deemed to be in default of rent payment and hence warranting an order of ejection, if he still fails to pay (or offers to pay) for the rent at the end of February. Be that as it may, the Courts have nevertheless been slow to order the ejection of a Tenant from the premises only because of default in paying for the rent as long as the Tenant offers to pay, and indeed pays into Court all the arrears owed to the Landlord.  This position is fortified by a decision of the Ghanaian Court of Appeal where the Judges held that “Since in the eyes of equity, the object of a right of forfeiture is to give the Landlord security for his rent, it will release the Tenant against the forfeiture if he pays all the arrears and costs, even though such payment does not take place until after the date for forfeiture has passed”. The effect of this is that a Tenant who may be in default for 6 months may not be ordered out of the premises by a Court only if that Tenant decides to pay for all the 6 months (without interest) before the judgment is delivered in the case.  The inconvenience of this provision to the Commercial Property Investor could be seen in the unnecessary hardships brought upon the investor in the potential default of his monthly bond obligations to his financiers/ funders.

  • Required for Landlord’s own use

Section 17 (h) also provides that a Court may make an order of ejection of a Tenant where the lease has expired and the premises are reasonably required by the Landlord to be used by him for his own business purposes, such premises being constructed to be used as such, if the Landlord has given not less than six months’ written notice to the Tenant of his intention to apply for an order for the recovery of the possession of, or the ejectment from, the premises.

Now, this is another provision which often comes to play in Landlord Tenant relations relating to commercial buildings. In simpler terms, this provision states that before a Landlord can evict a Tenant from the premises after the expiry of the lease, the Landlord must establish that he/she/it requires the premises for his own business purposes. The Act falls short of defining “own business purposes”. However in one case, the Court refused to order the Tenant to be ejected because the Landlord could not satisfy this caveat.  The Court of Appeal held in that case that “the Landlord claimed he needed the premises for his own business but the evidence showed that the business he claimed for were companies which had separate legal entities”. Per the ratio in this case, it means that a company, which owns a commercial property, cannot be held to require the premises for its own use if it fails to show that it will be running an office or be undertaking any of its object from that premises. In other words, if a company which owns premises seeks to eject a Tenant under this section, it will not be enough to show that the Landlord requires the premises to re-let to another Tenant because the business of the Landlord is to construct such properties for rent. This submission is fortified by the provisions in Rent Regulations, 1964 (L.I. 369). Regulation 18 of this regulation provides that a Landlord who seeks an order for ejection under Section 17 (h) of the Rent Act must first file an undertaking that he will not re-let the premises to another Tenant within a stated period.

A reading of Section 17 (h) and Regulation 18 will show clearly that the framers of these laws did not contemplate a situation where the business of the Landlord will solely be the renting out of premises. This situation poses problems for Commercial Property Investors s who put up huge structures not for their personal occupation but solely for the purpose of renting them. How can they meet this requirement of proving that they need the premises for their own personal occupation? They may as well never seek an ejectment of a Tenant under this provision.

  • Statutory Tenants

Another issue faced by commercial property developers is the situation of statutory tenancy. A statutory Tenant is defined as a “Tenant who remains in possession of premises after the determination by any means of his tenancy and cannot by reason of the provisions of this Act be deprived of such possession by his Landlord[1].” This means that any Tenant who decides to remain in possession of the premises after there is the occurrence of an event which will require him or her to give up possession of the premises becomes a Statutory Tenant and cannot be ejected except the Landlord goes through the laborious process of obtaining a Court Order to that effect.

The law further outlines the rights and obligations of a Statutory Tenant thus:

(a) he shall hold as a Tenant from month to month, and, subject thereto, shall observe and be entitled to the benefit of all the terms and conditions of his original tenancy, as the case may be, so far as the same are consistent with the provisions of this Act, so, however, that, in the case of a Tenant who has become a statutory Tenant by reason of the provisions of paragraph (c) of the definition of “statutory Tenant” in section 36, he shall in addition hold the premises subject to any restrictive covenants contained in the terms and conditions of the lease between the Landlord and the principal Tenant;

(b)  his tenancy shall be determinable by him by such notice as would have been required by law to determine a monthly tenancy of the premises containing no express provision for determination thereof; and

(c) he shall be subject to all the rights and powers conferred upon a Landlord under and by virtue of any provision of law relating to distress for arrears of rent.

A perusal of these provisions will reveal that in effect, a Statutory Tenant is given possession of the premises until such a time that the Statutory Tenant, will on his own volition, decides to vacate the premises, subject to him paying the rent agreed upon or any such rent as may be determined by a Rent magistrate. This provision applies irrespective of how the tenancy agreement is terminated and goes a long way to affect the business of commercial property developers who may have to face the situation of losing revenue because a Tenant has refused to vacate the premises even after the expiry of the tenancy.

Such a provision, obviously does not promote the business of commercial property investor because it restricts the investors ability to apply efficient asset management practices such as effective tenant mix strategies and realignment of the offerings of the various tenants to the needs of the market in order to sustain the viability of his property investment in the long term.

The Way Forward

Now that the problems with the application of certain provisions of the Rent Act to commercial buildings have been outlined, I will now attempt to proffer a solution to these problems.

Exemption as a Prescribed Premise

Among other options such as an amendment of the relevant provisions, I am of the humble opinion that the best option in the short term will be to explore the provisions in Section 1 (h) which states that the provisions in the Rent Act will not be applicable to any premises which is prescribed as exempted premises.

The Act does not state how a building can be described as exempted premises. However, the Rent Act provides that the Minister may by legislative instrument make such regulations as may be necessary for giving effect to the provisions of the Act. The “Minister” has been defined as the Minister to whom the functions under this Act have been assigned by the President. We can therefore safely assume that the Minister in this case will be the Minister for Works and Housing of the Republic of Ghana.

Going by the Prescribed Premises route, the Minister will only have to present a Legislative Instrument (L.I) before Parliament to exempt specific buildings from the application of the provisions of the Rent Act. The Minister has the discretion to determine which buildings fall in the category of commercial property investments   as defined above, should be exempted.

This represents a speedy and effective means of implementing the proposals contained herein.

Conclusion

There have been talks about amending the Rent Act. These talks have usually been championed by Landlords for obvious reasons. I do not think that the best way to solve a problem is to create another. Inasmuch as the provisions of the existing Rent Act is one sided in favour of the Tenant, it will do no good, if an amendment is enacted which will completely take away the rights of the tenant. There should be a middle ground somewhere to accommodate the interest of both the landlord and the tenant.  Where that middle ground will be is a question for politicians and other social scientist.

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  • Lead Consultant, Smith & Adelaide Law Accra, Ghana

[1] See Section 36 of Act 220

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