Waterfront Karen mall owners sue Shoprite for Sh520m

The family of late billionaire Nelson Muguku has sued Africa’s biggest supermarket chain, Shoprite Holdings, for Sh520 million in lost rent just months after the retailer closed shop at The Waterfront Karen mall.

Shoprite announced the closure of its Karen branch in April citing reduced flow of shoppers, leading to loss of jobs for about 104 staff that worked at the outlet.

Consequently, it issued a three months’ notice to terminate its lease contract at the mall, owned by the Muguku family, ending the store’s less than a year operation at the high-end facility.

Now, two companies under the Muguku empire - Crossroads Limited and Karen Waterfront Phase Two Limited – have gone to court to demand the payment, in US dollars, from Shoprite. 

The Muguku firms argue that they still have a 10-year contract with Shoprite, and that the lease agreements did not provide for termination.

EXPECTED RENT FOR 10 YEARS

Daniel Muthanji Muguku, a director of the two firms, told the court that the mall had expectation of receiving rent for a decade.

He argued that Shoprite was the anchor tenant at the Waterfront and was key to pulling shoppers to the mall. He also argues that the retailer’s exit had triggered panic and fear of loss of business among other tenants.

The Muguku family is demanding $4.88 million (Sh520 million) for anticipated loss in rental income for the remainder of the tenancy period. 

The court case is expected to shed light on the struggles retail chains are facing amid increased competition. 

It will also offer insights on the performance of swanky malls seeking to attract international retailers and well-known brands that need a concentration of well-heeled shoppers to justify their investments.

'DECEIVED SHOPRITE'

Shoprite’s General Manager, Andrew Mweemba, has hit back at the Mugukus, informing the court that Waterfront had deceived the South African retail chain that the mall would have a mix of tenants - including banks, telcos, branded clothes outlets and ATMs – all of which would guarantee traffic to the supermarket. 

Shoprite also denied that it was the anchor tenant, arguing that its rival, Game Stores, had more strategic space at the mall, and, therefore, should be regarded as the premier resident.

The two Muguku firms have suffered a blow ahead of the suit going to full hearing after the High Court dismissed the petition to have the retail chain deposit Sh520 million as security for its appearance in court.

The two firms based their application on the fact that the six directors of Shoprite are foreigners with no known assets in Kenya. 

However, Justice David Majanja said Shoprite maintains a presence in Kenya and there was no reason to order the store to provide security. The judge observed that the lease agreement does not impose a liability on Shoprite directors whom the court dropped as parties to the suit. 

“There is no allegation in the plaint that each or any of the directors committed fraud of the kind that would make them liable for acts which are ordinarily within the purview of authority of the company,” said Justice Majanja.  

The judge said the issue of whether the companies are entitled to the full rent for the remainder of the lease period is a matter for trial.

The closure of the Karen store put a dent to Shoprite’s expansion plans in Kenya, where it has three branches and had targeted to open seven stores, including six in Nairobi.

BUSINESS EMPIRE

The family of the late Muguku, a poultry farmer who made billions as a top shareholder at Equity Bank, opened the multi-billion-shilling complex in the  upmarket suburb in December 2018. 

Mr Muguku, who died in 2010 aged 78, had built his business empire from humble beginnings as a poultry farmer based in Kikuyu on the outskirts of Nairobi.

At the time of his death, his estate was valued at approximately Sh10 billion, mainly generated from the Muguku Poultry Farm, a modern hatchery, and his then 6.8 percent stake at Equity Bank where he was the top individual shareholder.

When setting up shop in Kenya, Shoprite had said it was taking advantage of the disarray in Kenya’s retail sector that had resulted in the collapse of established supermarkets like Nakumatt and Uchumi. 

Nakumatt’s collapse opened the door to retail chains such as Shoprite, Game and Carrefour while offering business for malls like Waterfront.