''There is absolutely no reasonable justification for a lessee refusing to pay rent while insisting on continued occupation.'' The High Court declares Muwema & Co. to be in wrongful possession.

Case Overview

This decision of the Commercial Division clarifies the legal effect of an option to purchase clause in a lease, the construction of rent revision clauses, and the legal consequences of continued occupation without payment of rent after expiry and termination of a lease.

The Court rejected the tenant’s argument that invoking an option to purchase automatically transformed the lease into a sale, and reaffirmed that an offer does not create a binding contract unless accepted.

Court:	High Court of Uganda at Kampala (Commercial Division)
Suit No.:	Civil Suit No. 0621 of 2023
Presiding Judge:	Hon. Lady Justice Patricia Mutesi
Date of Judgment:	20 February 2026
Plaintiff:	Downtown Investments Ltd
Defendants:	1. M/S Muwema & Co. Advocates  2. Muwema Fred  3. Kagoro Friday
Plaintiff's Advocates:	Mr. Roger Mugabi & Ms. Patricia Mugisa of GEM Advocates
Defendants' Rep.:	Mr. Charles Nsubuga; 2nd & 3rd Defendants in person

FACTS

On 15 December 2014, Downtown Investments Ltd (Plaintiff/Lessor) and M/S Muwema & Co. Advocates (1st Defendant/Lessee) executed a five-year lease agreement in respect of Plot 50 Windsor Crescent Road, Kololo, Kampala. Key terms included monthly rent of USD 5,500 plus VAT, to be revised upward by 10% every 12 months after the first 24 months. Rent payable one year in advance and a first option for the 1st Defendant to purchase the leased premises at a floor price of USD 2,000,000 if the transaction was concluded within 12 months of lease commencement; thereafter, the market price would govern.

The lease expired on 15 December 2019. Despite the expiry, the 1st Defendant continued occupying the premises on the same terms. The Plaintiff contended that the Defendants defaulted in timely rent payments and, from 15 December 2021 onwards, ceased paying rent altogether. On 8 June 2023, following a demand notice, the Defendants paid USD 50,000 as partial settlement, leaving USD 148,300 outstanding.

The Plaintiff, through lawyers’ letters dated 30 May 2023 and 5 July 2023, terminated the lease and demanded vacant possession, but the 1st Defendant refused to vacate.

The Defendants, for their part, asserted that the rent revision clause was never properly invoked, and no increment was legitimately agreed. They had paid over USD 850,000 in rent and spent approximately USD 186,000 renovating the premises (which they allegedly found in a derelict state), costs that were never reimbursed or set off.

On 2 August 2021, the 1st Defendant exercised its contractual option to purchase at USD 1,050,000. The Plaintiff did not formally respond. Post-offer payments, they argued, constituted part payment of the purchase price, not rent, and the obligation to pay rent accordingly ceased.

The Defendants counterclaimed for breach of contract, alleging that the Plaintiff failed to conclude the purchase transaction.

ISSUES FOR DETERMINATION

1. Whether the Plaintiff sold the leased premises to the 1st Defendant.

2. Whether the Defendants are liable for breach of contract.

3. Whether the Plaintiff is liable for breach of contract.

4. What reliefs are available to the parties.

SUBMISSIONS

Plaintiff’s Submissions

The 1st Defendant’s August 2021 offer to purchase was never accepted; the lease continued in force and rent obligations subsisted.

Rent revisions were automatic under Clause 6 and were mutually agreed to be capped at USD 10,000 from December 2020.

The Defendants’ continued occupation without paying rent after lease termination constitutes unlawful possession.

The Plaintiff is entitled to rent arrears, mesne profits, general damages, interest, and costs.

Defendants’ Submissions

The option to purchase was validly exercised on 2 August 2021; any subsequent payments went toward the purchase price.

The Plaintiff’s unilateral purported cancellation of the option to purchase in 2016 was invalid.

Rent revisions required mutual agreement and were not automatic.

The Defendants incurred USD 186,000 in renovation costs, which should be set off against any rent owing or reimbursed by the Plaintiff.

The Plaintiff breached Clause 5 by refusing to conclude the sale transaction.

COURT’S FINDINGS

Issue 1: Whether the Plaintiff Sold the Leased Premises

The Court held that no sale occurred since the 1st Defendant’s 2 August 2021 offer was never accepted by the Plaintiff in the manner required by law. The Court underscored the trite principle that an offer only generates a binding contract upon its unqualified and communicated acceptance, as prescribed by Section 6 of the Contracts Act, Cap 284.

“It is simply false and misleading for the Defendants to insinuate that anything became of their 2nd August 2021 offer at law when it was not accepted in an absolute and unqualified manner as anticipated by Section 6 of the Contracts Act.”

The Court further found that the Plaintiff’s 2016 purported cancellation of the option to purchase was void and of no legal effect, the option endured beyond the first 12 months, as Clause 5 expressly contemplated a post-12-month sale at market price. However, the option to purchase confers only a right to be considered first; it does not compel the lessor to accept any particular offer.

The lessor’s informal response (communicated by the late Mr. Tushar Ruparelia via WhatsApp), rejecting the offer as too low, was sufficient to show the option had been duly considered and not accepted.

“An option to purchase does not bind the lessor to always accept the lessee’s offer at all costs. If the lessor considers a lessee’s offer first and finds it unsatisfactory and unconvincing, he or she is at liberty to consider and even accept other offers.”

The lessor–lessee relationship, therefore, persisted at all material times.

Issue 2: Whether the Defendants Breached the Lease Agreement

The Court answered this issue in the affirmative that the evidence, including pro forma invoices, demand notices, termination letters, police complaints, and WhatsApp conversations, overwhelmingly established that the 1st Defendant failed to pay rent from 15 December 2021, leaving USD 148,300 outstanding.

On the rent revision dispute, the Court held that Column 6 of the lease agreement, providing for revision “by 10% every 12 months after the first 24 months,” unambiguously meant an upward increment

“It would definitely not make commercial sense for the parties to have intended that the 10% revision would effect reduction in rent. The revision was intended to effect an increment in rent at the regular agreed intervals.”

The Court also accepted the informal agreement (corroborated by the Defendants’ own admissions under cross-examination) to cap monthly rent at USD 10,000 from 15 December 2020.

“It is utterly absurd that a landlord can be brought to his knees begging for his rent from a tenant.”

Issue 3: Whether the Plaintiff Breached the Lease Agreement

The Court dismissed the counterclaim on five distinct grounds defeated the Defendants’ renovation/reimbursement claim affirming that the lease required written approval for structural alterations (Column 17a; Clauses 1(iii) and 1(ix)). The Defendants obtained no such approval beyond a minor 2015 consent for two small windows. PW1’s on-site visits could not substitute for formal written consent.

Furthermore, column 17a explicitly placed renovation and electrical improvement costs on the 1st Defendant.

The court observed that D.Ex.3 merely listed 13 items with a single “estimated” total of USD 186,000, without receipts, bank transfers, or source records.

The Court noted that

“If the works had all been done as the Defendants claimed, the Defendants would already have gone past the stage of estimating the total cost of the works.”

Furthermore, the claimed renovation costs constituted special damages, which must be specifically pleaded and strictly proved; yet they appeared nowhere in the specific pleadings.

It was also observed that it is commercially improbable that a firm of eminent advocates would execute a lease for severely dilapidated premises without expressly incorporating repair obligations into the agreement.

On the failure to formally respond to the purchase offer, the Court found that this did not breach the lease agreement, as no clause required the Plaintiff to deliver a formal written response.

HOLDING

Judgment was entered for the Plaintiff against the 1st Defendant on the following terms:

Relief	Award / Order
Rent Arrears	USD 148,300 (period: 15 Dec 2021 – 30 May 2023)
General Damages	UGX 50,000,000
Mesne Profits	USD 224,000 @ USD 7,000/month (June 2023 – January 2026, 32 months)
Interest on Rent Arrears	6% p.a. from 1 June 2023 until full payment
Interest on General Damages	13% p.a. from date of judgment until full payment
Interest on Mesne Profits	6% p.a. from 1 June 2023 until full payment
Vacant Possession & Eviction	Order of vacant possession and eviction issued; 1st Defendant to vacate Plot 50 Windsor Crescent Road, Kololo forthwith.
Costs	Costs of the suit awarded to the Plaintiff

 Read the full case

CS-0621-2023-JUDGMENT.pdf

Download PDF • 10.71MB

KEY TAKEAWAYS

1.  An option to purchase in a lease agreement does not guarantee a sale.

An option to purchase confers upon the lessee only a right to be considered first as a potential purchaser, it does not bind the lessor to accept any offer. The transaction remains on a willing buyer/willing seller basis. The lessor retains the right to reject an unsatisfactory offer and deal with third parties thereafter, provided the lessee was given first consideration.

2.  Silence is not acceptance; an unaccepted offer creates no contractual rights.

An offer to purchase leased premises, even if made pursuant to a contractual option, must be accepted absolutely and unconditionally, and acceptance must be communicated (Section 6, Contracts Act Cap 284). An offeror cannot unilaterally derive rights, such as cessation of rental obligations, from a legally ineffective, unaccepted offer.

3.  A lessor’s purported unilateral cancellation of an option to purchase clause is void.

Where a lease agreement expressly provides for a continuing option to purchase (including post-initial-period scenarios), the lessor cannot unilaterally extinguish that right while the lease remains in force simply because the lessee did not exercise the option within the earliest price-fixed window.

4.  Rent revision clauses in commercial leases carry a rebuttable presumption of upward revision.

The Court established that, absent special devaluation conditions, a rent revision clause at defined intervals is presumed to contemplate rent increments, not reductions. Commercially, a downward revision would erode consideration and potentially invalidate the lease. Tenants who pay revised rents without protest are taken to have accepted those revisions.

5.  A tenant who refuses to vacate after lease expiry and termination is a trespasser.

Following lease expiry and an overt termination notice, a lessee who refuses to vacate and continues to withhold rent occupies the premises unlawfully and is exposed to an order of vacant possession, eviction, and an award of mesne profits. Mesne profits are calculated on what the wrongful occupier has saved/earned, not merely on the landlord’s direct loss.

6.  Renovation and improvement claims require written consent, proper pleading, and cogent proof.

A tenant seeking reimbursement or set-off for works done on leased premises must demonstrate that

(a) written contractual authorisation for the works;

(b) specific pleading of the expenditure as special damages; and

(c) definitive, documentary evidence of actual expenditure (receipts, bank transfers, expert reports).

Mere oral testimony, estimated totals, or itemised lists without supporting records will be insufficient.

7.  Contractual interest rates that are unconscionably high may be displaced by the Court.

The Court declined to apply the contractual 10% per month (120% per annum) interest rate for late rent payments, substituting it with 6% p.a. under Section 26(1) of the Civil Procedure Act Cap 282. Practitioners should be alive to the Court’s equitable jurisdiction to moderate punitive contractual interest rates.

DISCLAIMER: This legal alert is produced for general informational purposes only and does not constitute legal advice. Readers should seek independent legal counsel in relation to their specific circumstances.