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Billionaire’s family seeks Sh520m from Shoprite in mall rent row

Late billionaire, Nelson Muguku’s family is seeking Sh520 million in lost rent from Africa’s biggest supermarket chain, Shoprite Holdings, after the retail chain cut short its operations at Karen’s Waterfront Mall.

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 after the tenancy deal went sour.

Shoprite in April issued a three months’ notice to terminate its lease contract at the Waterfront Mall after it announced the closure of the Karen branch due to reduced flow of shoppers, ending the store’s less than a year operation at the high-end mall.

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

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

The anchor tenant

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.

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 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.

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. Two of Kenya’s three top retailers, including Uchumi, were also in trouble.

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

This story first appeared in the Business Daily