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Overview of Real Estate Transactions in Kenya

By Joseph Itume Ndegwa - Lawyer

Overview of Real Estate Transactions in Kenya

Transfers and Leases

The Legal Framework Governing Real Estate Transactions

Pre 2010

Post 2010

  • The Constitution of Kenya
  • The Land Act No 6 of 2012
  • The Land Registration Act No 3 of 2012
  • The National Land Commission Act No 5 of 2012
  • The Sectional Properties Act of 2020
  • The Landlord and Tenant Bill of 2021 (Repeal 296 and 301)

Post 2010

1. The Kenyan Constitution

Dedicates Land to Chapter 5 Part 1 - Section 60 to 68

  • Public Land – it cannot be disposed of or used unless within the terms specified in law
  • Community Land – land held on the basis of ethnicity, culture of a certain community

Private Land

  • Leasehold or freehold
  • Non-citizens cannot hold freehold property

National Land Commission

  • Manage public land
  • Recommend national policy
  • Assess tax on land as designated by law

The Land Act 2012

2. Land Act 2012

The Substantive Act

  • Defines the Tenures of how land is held in Kenya
  • Outlines how title over land may be acquired – transfer, lease, prescription, allocation etc.
  • Outlines the implied terms, rights, and obligations of parties to a land transaction, reliefs, whether it is a lease, transfer, charge, etc.

Section 38 to 42

Specifically deals with Contracts over Land

  • For a contract to be enforced:
    • It must be in writing (except for auctions)
    • Signed by all parties
    • Each signature attested to be a witness who was present at the signing
  • Vendor can only regain possession:
    • Peaceably
    • Order of court

General Provisions

  • Recognizes a vendor’s right to sue for damages and any term of a contract which conflicts with this section 40 (on damages) is inoperative.
  • Section 42 provides for each party's rights under rescission
  • Section 43 to section 54 deals with general provisions on transfers, transmissions, transfers subject to leases and to charges.
  • Section 55 to 78 deals with leases

Periodic Leases

  • No term or notice for termination is specified – for the term shall be implied based on the period to which rent is payable except for agricultural leases 6 months
  • Where terms lapse and lessee remains in possession, the lease shall become a periodic lease and the terms of the previous lease.
  • Where the agreement is not in writing it shall be deemed to be a periodic lease
  • Termination notice – length of the period of the tenancy

Short Term Leases

  • Made for a term of 2 years or less without an option for renewal
  • A periodic lease, verbal lease
  • A short-term lease is not registrable
  • Where a lessee remains in occupation without lessor’s consent after expiry of the lease
  • Lessee is subject to all obligations until possession is given up
  • Lessor who accepts rent after expiry or termination is not deemed to have agreed consented to the lessee remaining on premises or to have given up on remedies or rights against the lessee and after 2 months a periodic tenancy is deemed to have come into force

Future Leases, 5-Year Leases, Joint Lessors and Lessees

  • A lease may start in the future but not more than 21 years from execution
  • A lease for more than 5 years shall be of no effect unless it is registered
  • Where leases are signed by 2 co-lessors or lessees then both must terminate or renew

Implied Covenants

  • Section 65 outlines implied covenants on the part of the lessor
  • Section 66 outlines conditions on leases on the part of the lessee
  • Implied covenant Lessor not to unreasonably withhold consent to transfer, assign, sublet, part with possession, change permitted use, extend or improve building, charge a lease
  • Where consent is given or refused, it must be in writing but nothing stops the lessor from including in the lease a provision stopping the lessee from making an application in respect of the above

Unreasonable Withholding of Consent

  • Part with additional consideration, imposition of an unreasonable condition or precondition, object to gender, nationality or other personal characteristic of transferee etc.
  • If one parts with consideration, lessee can sue for a refund

Merger and Assignment of Interest

  • Where a sub-lease is surrendered to head lessor or lease is surrendered to landowner the Landowner or Head Lessor shall have the right to enforce the terms of the sub-lease or lease.
  • Burden and benefits of a reversion to run with transfer or assignment
  • Payments made to assignor discharge the lessee unless Lessee had notice and registration of the assignment shall not be actual notice to lessee
  • In contrast to common law, the assignor or transferor shall cease to be liable for personal covenants to the Lessor unless the assignor or transferor remains in possession.
  • A lessee who with the Agreement of a lessor vacates the land before termination of lease is only liable to pay the rent or remedy breach for a period of 1 year unless the Lessor leases them before the end of the year.
  • A term in a lease in conflict with these provision is null and void

Remedies: Forfeiture and Eviction

  • Lessors right to forfeit if Lessee commits breach, liquidation, bankrupt
  • Can only be enforced where:
    • Lessee or other person claiming through them is not in possession
    • Court order
  • Acceptance of rent does not negate notice of forfeiture
  • Forfeiture determines or subleases created thereunder unless court determines otherwise
  • A lessee is considered to have been evicted if they cannot access the Property
  • A lessee who is evicted is not under any obligation to perform under the lease

The Land Registration Act

3. The Land Registration Act of 2012

An act to revise, consolidate and rationalize registration of titles to land

  • Concerned with how we register interest on land
  • An interest in land shall not be disposed of or dealt with except in accordance with the Act and any attempt to do so shall be of no effect – Section 36
  • Section 36 (2) Nothing in this section shall be construed as preventing any unregistered instrument from operating as a contract.
  • Section 42 (2) – an unregistered instrument shall be of no effect unless such instrument is exempted under the Act
  • Section (4) – this section shall not affect operation of a contract for disposition under the Act
  • Transfers shall be effective immediately
  • Conditions which fetter the transferee’s absolute rights shall be null and void
  • Conditions which determine the transferee’s interest in the future are null and void
  • No partial transfers unless the land is subdivided
  • The instruments shall adhere to format provided by the Registrar

Execution of Instruments

  • Section 44 deals with execution of instruments and section 45 with the verification
  • Though the law prescribes the process, it does not say what will happen to a document that is not executed in accordance with these provisions.
  • Though it is presumed that the Registrar will not accept a document that is not so executed and verified.
  • For documents that are exempt from registration, it is not clear what a failure to execute them as prescribed means

Registration of Leases

  • This is carried out by endorsing the lease on the mother title
  • No dealing in the lease thereafter will be permitted unless its compliance with its terms
  • Section 54 (3) makes a note that dealings with Properties registered under Sectional Properties Act shall be dealt with in accordance with that Act
  • Section 54 (5) makes a note that the Registrar shall register long term leases and issue certificates of Lease over apartments, maisonettes and townhouses having the effect of conferring ownership if the property is properly georeferenced and approved.

Sectional Properties Act

4. Sectional Properties Act

The Sales Process

1. The Letter of Offer

Buyer

When representing the buyer I am very wary of signing letters of offer without your Advocate. I want to know that I can get out of the deal without losing money if we cannot agree on the terms

Seller

On the other hand when acting for the seller I want to lock the buyer in very fast before they get legal advice

2. Negotiating the Sale Agreement

Buyer

  • Instruct an Advocate
  • Conduct a search Property
  • Draw out a plan of financing the Purchase price and fit it into the agreement
  • You want to identify your financier and find out what they will require
  • Find out how much financing you qualify for

Seller

  • Instruct an Advocate
  • Ensure your title is clean; good to do a current search too
  • If the Property is encumbered you might want to discuss with the chargee how they want to be paid off and incorporate their terms into the agreement

Buyer

Be hesitant to sign off on letters of offer or agreement until all ducks are in a row otherwise you risk losing money.

Seller

As a seller you want it very clear what are the consequences of buyer failing to make any payment on time. You don’t want to be stuck with ambiguous provisions where you cannot move ahead without you being in breach as well. The Advocate for the seller is one who is char

3. Between Execution and Completion Date

Buyer

  • Pay the deposit to the Seller’s Advocate
  • If being financed by the bank, provide a copy of Agreement to Bank immediately and apply for facility
  • Ensure property is valued by the bank as soon as possible
  • If Bank is not financing the entire balance, determine how you will finance the balance
  • Obtain letter of offer from the Bank

Seller

  • Agree where the deposit will be held with the Advocate
  • Obtain completion documents
  • Pay off any outstanding rates and land rents
  • It is good practice to obtain clearance certificates even where these are not required for registration
  • Obtain consents for the transaction where these are required
  • Get in touch with the Bank’s Lawyers and obtain all necessary guarantees and undertakings to the seller’s advocates
  • Procure execution of transfers – these will be prepared by the Advocate of the buyer

3. On the Completion Date

Buyer

  • Pay balance of PP to Vendor’s Advocate/ Provide undertaking and guarantee of financier
  • If Buyer is not being financed then it is the Seller’s Advocate who gives buyer’s advocate an undertaking not to part with the Purchase Price until the buyer has completed registration of the title in its name.

Seller

  • Forward all completion documents to buyer’s advocate against undertaking to be paid the balance of the PP at a future determinate date or after receiving the full purchase price.

4. The Completion Documents

  • Original Title
  • Passport coloured photos of all signatories
  • Certified copies of national identity cards or passports and KRA Pin Certificates of all the Parties
  • Land Rates Clearance Certificate and
  • Land Rates Payment Receipts
  • Land rent and clearance where applicable
  • Consent for the transaction where applicable
  • Spousal consent of the Vendor agreeing to the sale of the Property or a statutory declaration detailing why the same is not required.
  • The spousal consent if submitted should be accompanied by proof of marriage, identification document and passport photo of the spouse.
  • Spousal consent of the Buyer to charge the Property where the purchase price is being financed by charging a Property

Completion Date to Registration Date

Buyer

  • Buyer pays stamp duty and has documents franked
  • Advocate lodges all documents at the registry for registration
  • If there is a financier on board, this is done by the Advocate for the Financier
  • Once documents are lodged then the Advocate should share a booking form with everyone

Seller

  • Prepare documentation for payment of CGT tax

Upon Registration

Buyer

  • Buyer obtains Title in name
  • Buyer’s advocate releases seller’s advocate to release the money to the seller
  • Buyer’s advocate to share a copy of transfer for seller’s records
  • Financier to release balance of purchase price to the Seller

Seller

  • Upon receipt of funds to release parties on undertakings
  • To ensure CGT is paid in good time
  • To pay off agents
  • To pay other taxes which may accrue on seller

Lease Registration Process

Landlord

  • Instruct and Advocate to prepare the lease
  • Once parties agree on terms – execute the lease
  • Advocate assesses stamp duty on lease
  • Obtain any consents required
  • If lease is for more than 2 years or with an option to renew, then it must be registered against the title section 58 (1) and (3) Land Act

Tenant

  • Once parties agree on terms to execute the lease
  • Once stamp duty is assessed to pay the same within 30 days of assessment
  • Everybody gets a copy of their stamped and registered lease.
  • Leases of 5 or more years to begin at a future date shall be of no effect until it is registered Section 61 (2) Land Act

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