Overview
- It is imperative for Court to consider whether Commercial arrangements exist before concluding that a sale could be compensated by damages.
- The value of such agreements should also be preserved before the main issues are heard and determined by Court
Editor’s Note
WAREN Law Advocates LLP acted for the Applicant in Kinyua v Absa. The matter was led by Ephraim Ndegwa, Partner and Head of Strategy assisted by Ms. Barbra Katasi, Associate Advocate in the Debt Solutions Department and Ms. Yvonne Ndombi, Trainee Advocate in the Litigation team.
This case note examines a significant aspect of the Court’s reasoning and its implications for commercial lending and the banks power to exercise its statutory power of sale considering third party complexities
The Issue
Applications seeking to restrain the exercise of a lender’s statutory power of sale often encounter a familiar judicial response: if the property can be valued, any loss can ultimately be compensated through damages.
While this reasoning may be appropriate in many circumstances, it raises a more difficult question in the context of commercial property.
Can a commercial property be treated simply as a saleable asset when it is embedded within a network of tenancies, leases, financing arrangements, development rights, management contracts, and other third-party legal relationships?
In other words, what exactly is being lost when a commercial property is sold before the underlying dispute is determined?
The Court’s Reasoning
A notable feature of the decision in Kinyua v Absa was the Court’s recognition of what it described as “third-party complexities.”
Commercial properties rarely derive their value solely from land and buildings. They frequently function as operating commercial ecosystems supported by multiple contractual and legal arrangements involving parties who may not be directly involved in the dispute between borrower and lender.
These arrangements may include:
- Existing tenancies and leases;
- Financing structures involving multiple lenders;
- Property management agreements;
- Commercial contracts linked to the property; and
- Other third-party interests that contribute to the property’s value.
The Court recognised that a forced sale may do more than transfer ownership. It may disrupt or dismantle these arrangements long before the substantive dispute is heard and determined.
By the time the matter reaches trial, tenants may have vacated, contracts may have been terminated, financing arrangements may have collapsed, and commercial relationships may have been irreversibly altered.
The decision therefore reflects a broader inquiry: whether the subject matter requiring preservation extends beyond the physical property itself to include the commercial relationships attached to it.
Why It Matters
The significance of this reasoning extends beyond the facts of the case.
Many modern commercial properties; including office developments, shopping centres, hotels, logistics facilities, industrial parks, and mixed-use developments, operate through complex networks of legal and commercial relationships.
In such circumstances, the value of the commercial arrangements associated with a property may equal or even exceed the value of the physical structure itself.
The decision highlights an important practical reality. While damages may compensate for the value of a building, they may not easily restore:
- Long-standing tenant relationships;
- Commercial goodwill;
- Development opportunities;
- Financing structures; or
- Interconnected contractual arrangements involving multiple stakeholders.
Where commercial arrangements are disrupted at an interlocutory stage, the result may be additional litigation involving tenants, purchasers, financiers, and other affected parties. Preserving the status quo pending determination of the primary dispute may therefore serve both commercial certainty and efficient administration of justice.
Key Takeaway
Kinyua v Absa is noteworthy not because it departs from established principles governing interlocutory injunctions, but because it applies those principles through a distinctly commercial lens.
The decision reflects an appreciation that commercial property is often more than a physical asset. It may constitute a commercial ecosystem comprising multiple legal and economic relationships whose value and utility cannot easily be recreated once disrupted.
As commercial transactions continue to grow in complexity, courts may increasingly be called upon to consider not only the value of the property itself, but also the value of the commercial arrangements that surround it.
At WAREN LAW ADVOCATES LLP, we help our clients not only set up investments but also protect them as they grow.
