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Corporate

KQ locked in a row over Sh1bn staff houses deal

Kenya Airways chief executive officer Titus Naikuni (left) and chief operating officer Mbuvi Ngunze during a past Press briefing at the KQ Pride Centre in Nairobi. Photo/SALATON NJAU
Kenya Airways chief executive officer Titus Naikuni (left) and chief operating officer Mbuvi Ngunze during a past Press briefing at the KQ Pride Centre in Nairobi. Epco Builders wants the airline to pay Sh575,000 more on each of the two bedroom houses. Photo/SALATON NJAU  

National carrier Kenya Airways is locked in a dispute with a real estate developer over the pricing of a Sh1 billion housing scheme for its staff.

Epco Builders Limited wants Kenya Airways to pay Sh575,000 more on each of the two bedroom houses and Sh825,000 above the agreed price for each of the three-bedroom units constructed for its staff in Embakasi, Nairobi.

The developer claims that Kenya Airways failed to meet the terms of agreement, leading to delay in the construction of the 322 units which pushed up the cost of construction.

The firm, which won a tender to construct the houses for KQ staff in 2008, claims that delay in transferring three parcels of land held up construction and is seeking orders compelling Kenya Airways to compensate it for the extra cost.

“The plaintiff prays for judgment against the defendant (KQ) for increase in the cost of construction of each of the two bedroom flats of Sh575,000… and of each of the three bedroom flats of Sh825,000,” says Epco in documents filed in court.

Epco says Kenya Airways initially agreed to transfer its three parcels of land in Embakasi at a price of Sh100 million to allow Epco secure funding from lenders for the development of the houses.

But KQ allegedly insisted that three agreements for sale of the land had to be negotiated separately, and according to Epco the sale deal was entered in September 2011.

The contractor says the delay in transfer of the property also led to delay in securing funding, which in turn hampered construction.

It accuses KQ of failing to prevail upon the commissioner of lands to transfer the properties until September 2011, failing to secure re-routing of power lines and delay in settling city council rates on one of the plots.

The contractor says that it was given possession of the land in September 2011, and yet the agreement was that construction was to start in October 2009 and be completed by September 2011.

The unforeseen circumstances allegedly led to an increase in the cost which, the contractor says, called for re-negotiation of construction costs. But the contractor says KQ has ignored its proposal to increase the price of two bedroom houses by Sh575,000 and that of three-bedroom houses by 825,000.

Negotiation and settlement

As per the agreement, upon completion Epco will sell the houses to KQ employees at a price negotiated by the airline during the start of the project.

“At no time did any of the defendant’s intended purchasers or employees participate in the negotiation and settlement of the terms of the said proposed agreement for sale,” says Epco.

The firm further argues that due to KQ’s failure to secure extension of leases of the property and change of user of the premises, it has been unable to execute transfer of the houses to employees.

The firm claims that construction was completed a year ago. KQ is yet to file a response to the suit. The firm further says it is incurring costs of maintaining the houses as well as bank interest and penalties on the money borrowed for construction, which it wants KQ compelled to compensate it for.

“Epco commenced construction of the project on October 4, 2010 at its own cost even before they secured the loan for the construction cost which for (312 units) amounts to Sh1, 057,384,000. The Financing cost as at March 2014 are Sh154, 858,677.45 and continuing (to rise),” says Epco.

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