Case of the week: Clara Modu Grant V. Maiden Pharmacy Limited

Court of Appeal| Civil Appeal No. H1/196/07| 23^rd April, 2009| Ghana

Introduction:

When does a tenant’s failure to exercise an option to renew, combined with the landlord’s later acceptance of rent, amount to a waiver or a new tenancy, and when does the Rent Act instead treat the occupier as a statutory tenant? 

This case examined renewal clauses, waiver by acceptance of rent, and the effect of Act 220 on a tenant who remains in possession after expiry of a fixedterm business tenancy.

Facts:

The Plaintiffs, including Clara ModuGrant, owned premises at House No. 877/4, Station Street, Okaishie, Accra, and in 1980 let a onedoor storeroom to the Defendant, Maiden Pharmacy Ltd, for use as a pharmacy.

In 1991, the parties executed a written tenancy agreement for 10 years, with an option to renew for a further 10 years, exercisable by written notice three months before expiry. The landlords alleged that the tenant failed to give the required written notice within time and, by letter dated 16^th March, 2001, informed the tenant that they needed the premises for their personal use and would recover possession.

The tenant admitted to not giving written notice but argued that they could not serve written notice because the landlords’ postal address was omitted from their tenancy agreement and their attorney, William Abbey, was unavailable.

The landlords treated the continued occupation of the tenant as trespass and sued in the High Court for recovery of possession, arrears of rent of 1,200,000 cedis, mesne profits and costs; the tenant on the other hand contended that by accepting rent after expiry, the landlords had acquiesced in a renewal and seeking an order compelling renewal for 10 years and an injunction against ejectment.

The High Court held that the landlords had waived their right to recover possession by accepting rent, treated the tenant as a statutory tenant under Act 220, dismissed the landlords’ claim for possession and ordered them to renew the tenancy for another 10year term on terms to be agreed.

Dissatisfied, the landlords appealed to the Court of Appeal on four grounds, challenging the finding on rent arrears, the inference of waiver, the failure to give due weight to the nonexercise of the renewal option, and the holding that the tenant was a statutory tenant.

Issues for Determination:

1. Whether the trial judge was right to state that the Defendant paid the rent arrears the moment it was served with the writ of summons.
2. Whether the landlords’ acceptance of rent arrears after expiry amounted to waiver of the tenant’s failure to exercise the option to renew and to recognition of a new contractual tenancy.
3. Whether, on the facts, a new contractual tenancy could be inferred between the parties.
4. Whether the Defendant became a statutory tenant under the Rent Act, 1963 (Act 220), and whether its breaches deprived it of that status.
5. Whether, under section 17(1)(h) of Act 220, the landlords had proved that they reasonably required the premises for their own business purposes so as to justify recovery of possession.

The Court’s Holding:

The Court of Appeal accepted that the GHS 1,200,000 paid after service of the writ did not cover all rent due up to June 2002, but held that the trial judge’s statement could fairly be read as referring only to the arrears endorsed on the writ; ground 1 was therefore not a strong basis to upset the judgment.

On waiver, the Court reaffirmed that waiver requires an unequivocal act by the landlord recognising the continued existence of the lease, and that mere acceptance of rent after expiry, especially in the face of clear notices to quit, does not, by itself, justify inferring that an option to renew has been exercised or that a new tenancy exists.

Reviewing the sequence of events – landlords’ notice of intention to recover, the tenant’s late pleas for renewal, payment of GHS 1,200,000 as arrears through emissaries, and the landlords’ lawyer’s firm letter maintaining the intention to recover possession – the Court held that acceptance of payment did not unequivocally recognise a new contractual tenancy and did not amount to waiver.

The Court found the tenant’s excuses (absence of postal address, absence of attorney) unconvincing, noting that the managing director knew the landlords’ family house and another appointed attorney, and describing the tenant’s conduct as neglectful and unconcerned with its obligations under the tenancy; no new contractual tenancy could therefore be inferred.

 On statutory tenancy, the Court held that once the contractual tenancy had determined and the tenant remained in possession under the protection of Act 220, it became a statutory tenant under sections 36(1)(a) and 29(1)(a), holding from month to month on the terms of the original tenancy so far as consistent with the Act; defaults in rent or failure to renew did not automatically strip that status, though they might ground an application for recovery under the Act.

Considering section 17(1)(h), the Court agreed with the High Court that the landlords had led no evidence to show they reasonably required the premises for their own business purposes and thus could not succeed on that ground for recovery of possession.

In the result, the appeal succeeded on the waiver/new tenancy grounds but failed on the rentarrears and statutorytenancy grounds; the Court set aside the order compelling the landlords to renew the tenancy for another 10 years, holding that the tenant remained in possession only as a statutory tenant under Act 220 and could not force the landlords into a new contractual tenancy.

Implication of the Decision:

The decision underlines that a landlord’s acceptance of rent after expiry of a fixedterm tenancy will not automatically be treated as waiver or renewal; the courts will scrutinize the entire factual context, including clear notices to quit and any prejudice to the landlord, before inferring a new contractual tenancy.

It also confirms that tenants who remain in possession after expiry under the shelter of Act 220 are statutory tenants whose status does not fall away merely because they default in rent or fail to exercise a renewal option, and that landlords who rely on section 17(1)(h) must adduce concrete evidence of reasonable need and intended personal business use if they wish to recover possession.

Significant Quote:

“A statutory tenancy comes into being when the contractual element of a tenancy is terminated and the former tenant remains in possession of the property because of the protection he derives from a statute. He is therefore called a statutory tenant. By section 36(1)(a) of our Rent Act, 1963, Act 220, a tenant becomes a statutory tenant when he remains in possession of the rented premises after the determination, by any means, of the contractual tenancy and he cannot, in view of the Act, be deprived of possession of the premises by the landlord.

By virtue of section 29(1)(a) of the Act, the statutory tenant remains in possession as a tenant from month to month and he holds such possession under the same terms as are contained in the original tenancy…”

“…Section 17(1)(h) of Act 220 permits an order to be made for recovery of or ejectment from rented premises where the tenancy has expired and the premises are “reasonably required by the landlord to be used by the landlord for the landlord’s own business purposes”. The premises must have been constructed to be used as business premises, and the landlord must have given not less than six months’ written notice to the tenant of his intention to apply for an order for recovery of possession of or ejectment from the premises.”

Commentary

When a lease expires, many people assume the tenant must immediately leave. Under Ghana’s Rent Act, 1963 (Act 220), that is not always the case. If a tenant remains in possession after the contractual tenancy has ended, the law may recognise the person as a statutory tenant. This means the original contract is over, but the tenant stays on under the protection of the statute, not by virtue of a new agreement.

In this situation, the tenant holds the premises from month to month, generally on the same terms as the old tenancy, so far as they are consistent with the Act. The landlord cannot simply evict the tenant without following legal procedures.

However, protection is not absolute. A landlord may recover possession if the premises are reasonably required for the landlord’s own business purposes, provided proper evidence is shown and at least six months’ written notice is given. The law therefore balances tenant security with legitimate landlord interests.