Real Estate 2021 Comparisons

Last Updated April 13, 2021

Contributed By MMC ASAFO

Law and Practice


MMC ASAFO is a full-service commercial law firm based in Nairobi and Mombasa, Kenya. MMC teamed up with the international law firm ASAFO & Co to bring the first real pan-African law firm with international expertise and “on-the-ground” experience in Africa to the market. Outside Kenya, the firm also has a presence in the cities of Paris, Casablanca, Abidjan and Johannesburg, which serve their respective hubs in Africa. The multilingual team is qualified in multiple jurisdictions and has recognised capacity in civil law, common law and OHADA law. The firm is strong in many different practice areas in addition to real estate, including M&A, private equity and funds; project development and PPP; banking, finance and fintech; and it handles transactions and projects in various sectors, including energy and power; infrastructure, transportation and logistics; banking and insurance; and innovation, technology and telecommunications.

As a consequence of having been colonised by Britain, Kenya is a common law jurisdiction.

The main laws governing the real estate sector in Kenya are as follows:

  • the Constitution of Kenya, 2010 (CoK), chapter five of which provides for the categories of land, principles of land policy, landholding by non-citizens and regulation of land use, and the establishment of the National Land Commission (NLC);
  • the Land Act, 2012 (LA), which consolidates all the different land laws in Kenya and provides for sustainable administration and management of land and related resources;
  • the Land Registration Act, 2012 (LRA), which revises, consolidates and rationalises the registration of titles, giving effect to the principles and objects of devolved governments in land registration;
  • the National Land Commission Act, 2012 (NLC Act), which provides for the functions, powers and internal procedures of the NLC;
  • the Land Control Act (LCA), 1989, which establishes the Land Control Board (LCB) to regulate transactions affecting agricultural land;
  • the Stamp Duty Act (SDA), 1982, which contains provisions on the stamping of documents, penalties, exemptions and the rates applicable;
  • the Law of Contract Act (LoCA), which requires contracts relating to disposition of interest in land to be in writing;
  • the Landlord and Tenant (Hotels, Shops and Catering Establishments) Act (LTA), 1972, which provides for protection of controlled tenants;
  • the Sectional Properties Act (SPA), 2020, which provides for the division of buildings into units, ownership of common property of buildings, and the use and management of units and common property;
  • the Distress for Rent Act, 1982, which provides procedures for levying distress for rent in lease transactions;
  • the National Construction Authority Act, 2011 (NCA Act), which establishes the National Construction Authority (NCA), its powers and functions;
  • the Environment and Land Court Act, 2011 (ELC Act), which establishes the Environment and Land Court (ELC), its powers and functions;
  • the Environmental Management and Co-ordination Act, 1999 (EMCA), which establishes the National Environment Management Authority (NEMA);
  • the Physical and Land Use Planning Act, 2019 (PLUPA), which provides the procedures for preparation and implementation of physical development plans; and
  • the Special Economic Zone Act, 2015 (SEZ Act), which provides for the establishment of special economic zones (SEZ) and the development of an enabling environment for investments.

Affordable Housing

The government of Kenya is working towards providing affordable housing for its citizens. This has been necessitated by the housing deficit resulting from the mushrooming populations in urban areas due to rural-to-urban migration. In order to achieve this, the government has proposed the establishment of a housing fund into which employees will make mandatory monthly contributions. The affordable housing framework requires a developer to build houses priced at a maximum of KES3 million (approximately USD30,000), with the government guaranteeing uptake in three years.

Alternative Cities

Master-planned communities have emerged in Kenya through the creation of alternative cities, such as Tatu City, Infinity and Tilisi. These alternative cities are built with a focus on the principles "live, work and play"; they include industrial, commercial, retail and residential developments as well as schools, hospitals and recreational facilities.

Less Centralised Development

Unlike under the previous regime in which Kenya only had a centralised government, leading to concentrated real estate development in Nairobi, Mombasa, Kisumu and a few other large towns, real estate developers now have a choice of 47 alternatives (the county government headquarters) in which to progress development.

Green Building Technology

In order to reduce operating costs and provide a safe environment for workers, developers have been employing green building technology, which has increased employee productivity. Green building entails the creation of structures that have low environmental impact throughout their life cycle, encompassing their design, construction, operation, maintenance, renovation and demolition.

The most significant deals in real estate in Kenya have been Tatu City, Tilisi Development and Konza City.

Disruptive technology is technology that takes the place of established technology and changes the face of an industry. Where an existing and established technology has been improved upon, this is called a "sustaining technology".

Government Initiatives

The government of Kenya is committed to embracing modern technology in the delivery of services to its citizens. The e-citizen portal enables citizens to access various government services such as business, land and immigration. The State Department of Information, Communication and Technology (ICT) and Innovation under the Ministry of ICT is tasked with promoting government information technology services. 

The Business Reforms and Transformation Department under the Ministry of East African Community and Regional Development is also aimed at promoting the ease of doing business in Kenya by proposing amendments to various laws, including those relating to ICT.

In line with the above initiatives, the Ministry of Lands and Physical Planning (MoLP) has embarked on digitisation of land transactions across the country aimed at improving delivery of services. The adoption of blockchain technology, decentralised finance, proptech and other forms of disruptive technology contributes to a large extent towards implementation of this initiative.


A blockchain is a time-stamped series of immutable records of data that is managed by a cluster of computers owned by various entities. Each of these blocks is secured and bound to the next one using cryptographic principles. Since it is a shared and immutable ledger, the information in it is open for everyone to see. Blockchain is a disruptive technology that can be used in real estate to eliminate the need for third-party intermediaries.

The MoLP has adopted the Land Information Management System (LIMS) which is based on blockchain technology and is aimed at preserving the sanctity of title by preventing fraud and double ownership. LIMS enables people to undertake land transactions, such as conducting searches, paying land rent, undertaking valuations, and lodging documents for registration.

Decentralised Finance

Decentralised finance ("DeFi") describes a financial system that is built on public blockchains which enables anyone with an internet connection and a smartphone to access financial services.

DeFi has been adopted in Kenya in the form of financial technology, which is aimed at delivering essential financial services in a way that better serves the needs of customers and ultimately delivers value to the investor. Payment technologies available in Kenya include mobile money, cards and PayPal.

In Kenya, people are able to pay for various land transactions using mobile money through the e-citizen portal, such as land rent, consents to transfer or charge, and registration fees.


Property technology (proptech) is a collective term that defines start-ups offering technologically innovative products or new business models for real estate markets. Proptech seeks to ensure change in the way property is built, used and managed in order to achieve more operational efficiency. Real estate firms are increasingly putting technology at the forefront of their business operations as the industry adjusts to a brave new world brought about by advancements in proptech. 

xPodd Company Limited, a proptech real estate firm, has expanded its reach in Kenya, thus providing a real-time platform for real estate solutions. The online platform enables the public, businesses and real estate developers to connect on one platform, eliminating middlemen who have sometimes duped unsuspecting property dealers. The firm offers solutions for both commercial and residential properties across major towns in Kenya by allowing sellers and buyers, and lessors and lessees, of property to connect.

In order to fully implement these new technologies, Kenya will be required to build new capabilities and capacities. If fully adopted, disruptive technologies will make the real estate marketplace more meaningful, since users will be able to connect more easily and reduce cases of fraud in real estate transactions.

Digitisation of Land Transactions

The MoLP appointed a task force in August 2018 to prepare guidelines for digitisation of land transactions. This is aimed at ensuring efficient and effective service delivery that will lead to enhanced access to information, increased customer confidence, reduced business timelines and enhanced revenue collection.

The task force has since completed its report on the proposed implementation of the digitisation process. The recommendations of the report include the amendment of various land laws to allow for digital processes. The success of this programme will require the co-operation of the Ministry of ICT for the purpose of creating the necessary digital platform at a national level, and the Treasury for the purpose of integrating suitable payment solutions relating to land transactions. 

Land Dispute Resolution through Alternative Dispute Resolution Mechanisms

The CoK encourages the use of alternative dispute resolution mechanisms. These are advantageous since they are less costly and take less time. Land disputes are mainly handled by the ELC. The proposal in this case is for an amendment to the ELC Act to provide a limit on matters that are filed as ELC. This will reduce the backlog, leading to faster resolution of cases.

The two main property rights that can be acquired in Kenya are freehold and leasehold.

A person has freehold interest when they are the outright owners of a property for an unlimited period. Leasehold interest is a temporary right to occupy property subject to payment of a fee to the grantor.

The main laws that deal with transfer of property in Kenya are the LA and LRA. The LA is the substantive law, while the LRA contains procedural provisions on transfer of title.

SPA deals with sectional titles in Kenya.

The process of acquisition of property begins with the purchaser’s advocate conducting due diligence on the property.

The seller’s advocate prepares the agreement, which is executed by the parties upon approval by the purchaser’s advocate.

The seller’s advocate procures completion documents, as the purchaser’s advocate prepares the transfer for execution by the parties.

Once executed, the transfer is filed at the Lands Offices for valuation to enable the purchaser to pay stamp duty.

Once stamped, the transfer is filed for registration together with the completion documents. Upon registration, the purchaser is issued with a new title. 

There are no mandatory requirements for purchasers to insure their titles. As such, title insurance is not common. However, financing companies would require that insurance be obtained in the case of a financed purchase.

A certificate of title issued upon registration is taken as prima facie evidence that the person named as proprietor is the absolute owner, subject to registered encumbrances, and the title is not subject to challenge except on the grounds of fraud or misrepresentation to which the person is proved to be a party or where a certificate of title was acquired illegally, unprocedurally or through  corruption.

Ways of investigating title include searches, pre-contract inquiries and requisitions.

There are two types of searches: 

  • official searches done by an official of the relevant lands registry at the request of a party upon payment of the requisite fees, where the registry guarantees the accuracy of the results; and
  • personal searches done by a member of the public inspecting the relevant register at the registry.

Pre-contract inquiries are preliminary questions relating to the physical condition and location of the property and matters not covered by the searches.

Requisitions take the form of forthright questions arising after a perusal and assessment of the title.

Some of the typical representations and warranties include warranties to the effect that:

  • the seller is the legal and beneficial owner of the property;
  • the seller is not engaged in or threatened by any litigation relating to the property;
  • there is no dispute regarding ownership, boundary, easements or rights of way;
  • the seller has not received any notice from the government or any third party which has not been complied with; and
  • the property is not subject to any overriding interest in favour of third parties.

These are not statutorily prescribed but are negotiable by the parties.

A misrepresentation by the seller entitles the buyer to terminate the transaction and claim damages, where the misrepresentation goes to the root of the transaction.

The most important areas of law for investors to consider when purchasing real estate in Kenya are:

  • land laws as discussed in 1.1 Main Sources of Law;
  • planning laws that deal with procedures to be complied with before developing real estate (these include PLUPA, the County Governments Act (CGA) and the Urban Areas and Cities Act);
  • environmental laws, specifically EMCA and its subsidiary legislation (EMCA establishes NEMA, which oversees all matters relating to the environment); and
  • construction laws which address the approvals to be obtained before a development can be declared fit for habitation.

A buyer is strictly liable for any contamination of the property that pre-dated the sale. 

To avert this, it is important for buyers to conduct environmental due diligence before purchasing real estate.

Zoning is a system of land-use regulation in various urban areas which designates permitted uses of land based on mapped zones.

The three main zoning classifications are residential, commercial and industrial.

Due diligence involves review of the relevant county zoning by-law and communication between the seller and the relevant county regarding the degree of compliance with zoning laws.

Special conditions of the title would also indicate the permitted use of the property.

Development agreements between public authorities and developers are not statutorily prescribed.

Article 40(3) of the CoK allows the state to compulsorily acquire property where the property is required for a public benefit, followed by prompt compensation of those affected. 

Section 107, LA provides the procedure for compulsory acquisition of land by the government as follows:

  • the respective cabinet secretary submits a request for acquisition of land to NLC to acquire land on its behalf; 
  • NLC may reject the request if it establishes that the request does not meet the prescribed requirements;
  • in the event NLC has not undertaken the acquisition within 30 days, it is required to give the acquiring authority the reasons for the delay and what must be done;
  • upon approval, NLC publishes a notice in the Kenya Gazette, delivers a copy of the notice to the registrar of lands and the interested persons; 
  • upon service of the notice, the registrar makes an entry in the register; and
  • just compensation is paid promptly and in full to all persons whose interests in the land have been determined (see below); and
  • the acquiring body is required to deposit the compensation funds with NLC, in addition to survey fees, registration fees and any other costs, before the acquisition is undertaken.

The Land (Assessment of Just Compensation) Rules 2017 set out the factors to be considered by NLC in assessing compensation. These include:

  • market value of the land;
  • damage sustained or likely to be sustained by interested persons;
  • reasonable expenses incidental to relocation of the affected persons; and
  • damage resulting from diminution of the profits of the land.

Real estate transactions are by law subject to taxation. The applicable taxes are stamp duty and capital gains tax. 

Stamp duty is payable at a rate of 2% of the value for agricultural land and 4% for properties in urban areas.

The following transfers of property are exempt from payment of stamp duty:

  • to a family-owned company;
  • between associated companies;
  • between spouses;
  • in favour of any body of persons established for charitable purposes; and
  • by transmission. 

Capital gains tax (CGT) is comprehensively discussed under 8 Tax.

Registration costs are not statutorily prescribed and vary from one registry to another.

Stamp duty is chargeable at a rate of 1% if a property is registered as a company, and transfer is by way of shares rather than title.

Gains made on the transfer of shares in private companies within Kenya are subject to CGT, and incidental costs are allowable to reduce CGT.

The CoK restricts ownership of land by non-citizens to leasehold of not more than 99 years. A corporate body is only regarded as a citizen if it is wholly owned by Kenyan citizens.

Under LCA, LCB is not permitted to approve applications with respect to transactions involving agricultural land where the beneficiary is a foreigner.

Real estate lending requires the borrower to issue collateral for the title to be charged to the lending institutions. Commercial real estate could also be funded through REITs and, in the case of government-owned projects, through public-private partnerships (PPP).

A borrower acquiring or developing real estate will create a legal charge over immovable property in favour of the lender.

There are no restrictions on granting security over real estate to foreign lenders. Similarly, there are no restrictions on repayments being made to a foreign lender.

Stamp duty is payable at a rate of 0.1% of the loan amount for registrable securities. For unregistrable securities, the stamp duty payable is nominal.

Legal fees are payable to advocates involved, as prescribed in the Advocates’ Remuneration Order (ARO). Registration costs are payable to the registry.

It is necessary for a company to demonstrate commercial benefit before issuing its real estate asset as security for a loan to a lender, even if the lender is a related company. Where commercial benefit does not exist, the companies are required to enter into a commercial benefit agreement for payment of an agreed fee to the company providing the asset.

Financial assistance relating to the acquisition of real estate assets is not prohibited provided that commercial benefit can be demonstrated.

Where there is a valid security and the borrower defaults in loan repayments, the lender can exercise the statutory power of sale.

Before exercising this power, the lender is required to serve the borrower with one month's notice stating the default and the remedy required of the borrower. This is followed by a 40-day notice of sale.

Before exercising the right of sale, the lender is required to conduct a valuation of the property.

Once appointed, the auctioneer is required to serve the borrower with 45 days' notice within which the borrower may redeem the property by paying the outstanding amount.

Unless otherwise provided in the charge, charges rank in the order in which they are registered.

The rule on priority of security is based on date of registration, with the earliest-registered security taking precedence. Where it is necessary for existing secured debt to be subordinated to newly-created debt, this may be achieved by the registration of a deed of variation in relation to the existing security, coupled with an inter-lender agreement to record that understanding.

A lender holding security over real estate has no liability if it did not cause environmental pollution, since the creation of a security does not transfer interest in the property to the lender.

Insolvency does not affect the security interests of a secured creditor. Section 590 of the Insolvency Act provides protection to secured creditors by providing that an administrator should not do anything that affects a secured creditor’s right to enforce its security.

The key consequences of the expiry of LIBOR in 2021 are as follows:

  • International Swaps and Derivatives Association (ISDA) master agreements between counterparties will have to be amended, since LIBOR is applicable to futures and derivatives (the ISDA master agreement is a standard document that governs over-the-counter derivatives transactions);
  • business debts tied to LIBOR, such as mortgages and home equity lines of credit, will have to be amended unless a back-interest rate is referenced in the original documentation;
  • mortgage-backed securities, loans and floating rate bonds tied to LIBOR will have to be addressed by agreement between the parties; and
  • parties involved will need to come to a consensus that the compensating spread between LIBOR and the new rate is fair.

In order to manage the risk associated with the expiry of LIBOR, the Federal Reserve tasked the Alternative Reference Rate Committee (ARRC) with being responsible for the transition from LIBOR to a new benchmark rate called the Broad Treasury Financing Rate (BTFR). BTFR contains a broad set of US treasury market-based financing transactions.

BTFR will run in parallel with LIBOR for a while in order to help determine a fair compensatory credit spread between LIBOR and BTFR for those financial assets that will be affected.

However, except for external debt, most borrowing in Kenya is governed by the Central Bank Rate published by the Central Bank of Kenya.

Planning in Kenya is undertaken by both national and county governments. The national government is responsible for formulation of the laws, while the implementation of the laws is undertaken by the counties.

Each county has a legislative framework based on the national laws that impose planning and zoning controls which apply to all sub-counties within a county.

Part XI of CGA requires county planning frameworks to integrate economic, physical, social, environmental and spatial planning.

PLUPA is responsible for the following:

  • it governs physical development in Kenya, and vests the physical planning function in the Office of the Director of Physical Planning;
  • it establishes physical planning liaison committees which act as a mechanism for appealing decisions of the Director of Physical Planning; and 
  • it provides for separation of powers between national and county governments so that the national government is responsible for policy and strategy formulation, while the power to consider and give development approval is vested in the county governments.

The NCA Act established the NCA, which is mandated with overseeing the construction industry in Kenya. Every construction project is required to be registered with the NCA prior to commencement.

County governments are empowered to regulate the use and development of land in the interests of proper and orderly development. The applicable legislation is PLUPA and county by-laws.

Section 57 of PLUPA makes it an offence to carry out development within a county without obtaining development permission.

Under Section 58 of PLUPA, any person requiring development permission should make an application to the relevant county accompanied by such plans and particulars indicating the purposes of the development.

When considering a development application, the county may consult with various officers including the Director of Survey, NLC and the Chief Engineer (Roads).

The county may either grant the applicant development permission, with or without conditions, or refuse to grant permission stating the grounds for refusal.

Third parties will only have an opportunity to object during public participation, which is required before an environmental impact assessment licence can be issued.

Any person aggrieved by the decision of the county may appeal to the County Physical and Land Use Planning Liaison Committee.

Any person aggrieved by a decision of the County Physical and Land Use Planning Liaison Committee may appeal to the ELC.

Large development projects require the developer to enter into agreements with government agencies for provision of certain services. These include agreements with county governments for provision of sewerage services; with Kenya Power and Lighting Company for provision of electricity; and with the road authorities for construction of access roads to the development.

If the county discovers that a development has been or is being carried out without development permission or that any of the conditions of permission have not been complied with, the county may serve an enforcement notice on the developer. Unless an appeal is lodged over the enforcement notice, the enforcement notice takes effect once the notice period expires.

Appeal Process

If a person is aggrieved by the notice they may, within the notice period, appeal to the relevant liaison committee.

Any person aggrieved by a decision of the liaison committee may appeal to the National Liaison Committee.

An appeal against a decision of the National Liaison Committee can be made to the High Court.

Main Investment Structures

The main investment structures for real estate include limited liability companies (LLCs), limited liability partnerships (LLPs) and real estate investment trusts (REITs).


An LLC is a company limited by shares with legal personality to own property distinct from its owners. This could be a private or public LLC.


Once registered, an LLP becomes a body corporate with perpetual succession with legal personality separate from that of its partners.


REITs are real estate companies or corporations which own, develop or manage different types of properties.

Income REITs (I-REITS) are where investors pool their resources into a trust with the aim of investing in income-generating real estate segments. Development REITs (D-REITs) involve pooling assets together to procure qualified land for improvement and development ventures which may incorporate residential and commercial projects.

Preferred Investment Vehicles

For a long time, LLCs have been the preferred investment vehicles. However, with the enactment of the LLP Act, LLPs are gaining popularity because:

  • an LLP must have at least two partners (natural persons or bodies corporate) and one manager (natural person);
  • an LLP is a separate legal entity from its partners – it is therefore similar to a company and different from a general partnership; 
  • partners of an LLP are not liable for the partnership’s liabilities, nor are they liable for each other’s liabilities; 
  • LLPs enjoy perpetual succession in that the death or exit of one or more partners does not affect the existence of the LLP; and
  • LLPs offer participants flexibility in business ownership (partners have the authority to decide how they will individually contribute to the business and manage its operations).

Private LLC

The minimum number of members is one and the maximum 50. A private LLC should have at least one director. 

Public LLC

The minimum number of members is seven, with no maximum. A public LLC must have at least two directors and one must be a natural person.

Memoranda and articles of association are required before a company can be registered.


Under Section 26 of the LLP Act, an LLP is required to have at least two partners. Section 27 provides that it must have at least one manager who is resident in Kenya.


REITs in Kenya are structured as trusts rather than companies. The properties are held in the name of a corporate trustee who is the custodian of the REIT's assets but they are managed by a corporate manager. The primary sponsor of a REIT is usually allowed majority ownership of up to 75%. Other investors’ stake should be a minimum of 25%.

There are no minimum capital requirements for private LLCs or LLPs.

Public LLCs are required to have an authorised minimum capital of KES6.75 million.

The minimum value of starting assets of an I-REIT should be not less than KES300 million. For D-REITs, it is KES100 million.


A public LLC is required to have a company secretary; a private LLC is only required to have one if it has share capital of over KES5 million.

A public LLC is required to have a minimum of four board meetings per year.

A private LLC is required to hold an AGM within six months of the day following its accounting reference date, and thereafter, within three months of the end of its financial period. 

LLCs listed on the Nairobi Securities Exchange are required to comply with the code of corporate governance for listed companies.

If the company has share capital, it must file annual returns like any other LLC. If it has no share capital, it must file an annual return stating the address of the registered office. 

If the register of members is not kept at the registered office, the address of where it is kept must be stated. 

Particulars of the directors and the secretary are required to be kept in the register of directors and secretaries. Particulars of the company’s indebtedness are required to be registered.


An LLP must:

  • have a manager;
  • file a solvency report annually;
  • keep proper accounting records; 
  • have a registered office in Kenya; and
  • ensure that all documents issued by the LLP bear its name and registration number and a statement that it is an LLP.


Under the Capital Markets (Real Estate Investment Trusts) (Collective Investment Schemes) Regulations, 2013 a REIT must have:

  • a trustee licensed by CMA (being a financial institution); 
  • a REIT manager appointed by the trustee and approved by CMA; and
  • a structural engineer appointed by the trustee in consultation with the manager.

A REIT is required to keep proper books, records and accounts in respect of the fund and scheme.

The manager is required to prepare and present semi-annual and annual reports for the REIT to the trustee and CMA.

The trustee is required to: 

  • ensure the accounts of the REIT are audited at least annually;
  • notify CMA within seven days of any changes in its structure; and
  • appoint a valuer for the purpose of valuation of the assets of the REIT.

The annual cost of filing returns for an entity is nominal, but the professional fees payable by the entity will depend on the accountancy or legal firm chosen.

The two ways by which real estate can be occupied for a short term are by way of leases and licences. A lease entitles the lessee to exclusive use and quiet enjoyment of the property, while a licence is merely permission to use the premises.

The various types of leases under the LA are:

  • commercial leases in respect of commercial premises including offices, shops and hotel establishments;
  • periodic leases, the term of which is not specified and regarding which there is no provision for giving notice to terminate – the term of such leases is deemed to be the interval at which rent is paid;
  • short-term leases are for a term of two years or less, without an option for renewal;
  • farm leases are entered into in respect of agricultural land;
  • leases terminating on the occurrence of a future event; and
  • future leases commencing at a later date.

Rents and terms of leases are freely negotiable. However, some terms implied in leases as provided in the LA are:

  • quiet enjoyment of the lease by the lessee subject to compliance with the lease terms;
  • non-derogation from the grant by the lessor;
  • repair of the roof, all external and main walls, main drains, the common parts and installations by the lessor;
  • the lessor’s duty to ensure that the premises are fit for habitation;
  • the lessor’s duty to suspend payment of rent if the premises are destroyed by a force majeure event;
  • payment of rates and taxes by the lessor;
  • the lessee’s obligation to pay rent; and
  • the lessee’s obligation to keep the property in a reasonable state of repair.

Although no regulatory enactments affecting lease terms had been made at the time of writing, the Tax Laws (Amendment) Act, 2020 was enacted in April 2020 amending various tax laws such as the Income Tax Act (ITA), the Value-Added Tax Act, the Excise Duty Act and the Miscellaneous Fees and Levies Act. Amendments to these statutes reduced taxes, thereby cushioning Kenyans from the economic impact of inflation.

Tax rates were, however, revised again through the Tax Laws (Amendment) No 2 Act, 2020 published in December 2020 and Kenyans reverted to pre-COVID-19 tax rates effective January 2021.

As at the date hereof, the Senate is debating the Pandemic Response and Management Bill, 2020 (PMB) which, if passed, will provide a framework for a co-ordinated approach in the management of activities during a pandemic. Section 29 of the PMB provides that where a pandemic has affected the financial capacity of a tenant to meet their obligations, the tenant shall give notice of this in writing to the landlord and the contracting parties shall agree on how the tenant shall meet their obligation after the pandemic.

A lease term is not regulated and the parties are free to negotiate it. Landlords would want commercial leases to be for not less than five years to avoid controlled tenancies.

Section 66(1e) of the LA requires tenants to keep all buildings covered by the lease in a reasonable state of repair save for the roof, all external and main walls and main drains, and the common parts and installations.

Frequency of rent payments is not statutorily regulated. Rent is payable either monthly or quarterly.

Rent abatements and force majeure are not statutorily prescribed. Leases do, however, contain force majeure clauses. Force majeure events are defined as conditions beyond the reasonable control of a party that prevent the party from fulfilling its obligations under an agreement. Parties can agree to suspend their obligations during the force majeure event. Parties can, however, exclude payment obligations from applicability of the force majeure clause.

Some leases have rent escalation clauses, hence there may be variation in the rent payable for each year. 

Rent escalation is based on either a percentage increase provided for in the lease, or the market rent payable at the time of the increase. Where the increase in the rent is to be calculated based on market rates, then the mechanism of determination of such rent, should be provided for in the lease.

VAT is payable on rent at a rate of 16%.

At the start of a lease, the tenant pays:

  • a security deposit on the rent;
  • a service charge deposit where applicable;
  • stamp duty on the lease at 2% of the average annual rent;
  • nominal registration fees;
  • legal fees payable to the advocate who prepares the lease.

Maintenance and repair of common areas are paid for by the tenants through apportioned service charges.

Meters are assigned to tenants for leased premises and tenants are responsible for paying the bills.

There will also be a meter for utilities in the common areas, with the bills being paid by all the tenants.

Furniture and fittings owned by the tenant are insured by the tenant. The landlord insures the structure as a whole.

Restrictions can be imposed by landlords on how tenants use real estate. Some covenants in the lease require a tenant to obtain the landlord’s consent before carrying out certain activities. 

The LA lists activities for which the tenant will require the landlord's consent. These include transferring or assigning the lease, subletting, improvement of the premises and charging the property to secure advances for the tenant.

Section 67(2e) of the LA disallows the tenant from altering or improving any building, beyond what is permitted in the lease, without consent of the landlord.

A lease would ordinarily provide the requirements and procedure for obtaining the landlord’s consent.

The LA applies to all leases whether residential, industrial or commercial.

Controlled Tenancies

Some leases for commercial premises are deemed to be controlled tenancies under the LTA.

A controlled tenancy is a tenancy of a shop, hotel or catering establishment which is not in writing, or which is in writing but is for a period not exceeding five years, or which contains provision for termination other than for breach within five years of commencement. 

A controlled tenancy cannot be terminated or varied without consent of the tenant. The landlord can only vary terms of the tenancy by an order of the BBRT and the tenant can contest the variation.

Rent Restriction Act

The Rent Restriction Act contains provisions restricting the increase of rent, the right to possession and exaction of premiums, and fixing standard rents in relation to dwelling houses. It applies to all dwelling houses except those which have a standard rent exceeding KES2,500 per month.

Public Health Act

The Public Health Act prohibits letting premises previously occupied by a person suffering from an infectious disease without having the same efficiently disinfected to the satisfaction of a medical officer of health.


At the time of writing, there is no specific legislation dealing with leases during the COVID-19 pandemic. However, as discussed under 6.3 Regulation of Rents or Lease Terms, the PMB, once promulgated, will apply to tenancies during pandemics.

Section 73 of the LA gives the lessor the right to forfeit the lease if the lessee is adjudicated bankrupt or, in the case of a company, if it is insolvent.

The security provided by the tenant is rent deposit which is forfeited in case of default. If the tenant is a company, its directors may be required to issue guarantees to the landlord securing performance of the tenant’s obligations.

The tenant does not have the right to continue to occupy the premises after the expiry of the lease. However, if the landlord allows the tenant to remain in possession of the premises after expiry of the tenancy, this will constitute a periodic tenancy. 

For a landlord to ensure that the tenant vacates the premises upon expiry of the term, they will need to serve the tenant with notice to vacate .

A tenant in possession by virtue of a lease is permitted to assign their leasehold interest for a specific period of time in compliance with the terms of the lease.


Section 63, LA allows tenants to sublet their interest for a term that is the same as or shorter than the remainder of the term of the head lease. The LA further provides that for an assignment to be effective, it has to be explicitly stated as such in the sublease.   

Section 67, LA provides that a lessor will not unreasonably withhold consent to assign the lease or sublet. The lessor is required to inform the lessee in writing, within reasonable time, of their acceptance or refusal to grant consent.


Some of the typical conditions that may be imposed by the lessor before granting consent to the lessee include:

  • a proposal that the lessee procures the assignee to execute a Deed of Adherence to perform and observe all the lessee’s covenants and all other provisions during the remainder of the lessee’s term;
  • a proposal that the draft instrument for assignment be reviewed by the lessor;
  • a requirement that the lessee transfers shares held by the lessee in respect of the leased premises to the assignee; and
  • a condition that the assignee shall not assign the leased premises further.

Section 73, LA empowers the landlord to forfeit the lease if the lessee:

  • commits any breach of its obligations;
  • is adjudicated bankrupt; or 
  • if a company, becomes insolvent.

However, controlled tenancies can only be terminated in accordance with the provisions of the LTA, as discussed in 6.14 Specific Regulations.

The two categories of leases in Kenya are short-term leases, for a term of less than two years, and long-term leases, for a term of over two years. Short-term leases are not registrable. Long-term leases for a term of less than 21 years are mainly commercial in nature and registration is not mandatory. Long-term leases of over 21 years are deemed to be titles and are therefore required to be registered at the lands registry.

Section 3(3) of the LoCA requires contracts for disposition of interests in land to be in writing, signed by the parties thereto with the signature of each party attested to by a witness present when the contract was signed by such party.

All registered documents relating to disposition of interest in land in Kenya must be recorded in the relevant lands registry. Before registration can be undertaken, the following fees and taxes are payable.

  • Stamp duty – payable by the lessee to the government on any instrument listed in the SDA. Stamp duty on long-term leases whose term exceeds 21 years is payable at a rate of 4% of the rent payable, if within an urban area, and 2% if within rural areas. For commercial leases, stamp duty is payable at a rate of 2% of the highest annual rent payable. Stamp duty on short-term leases is nominal.
  • Land rates – payable by the registered owner to the county government for properties within a rating authority.
  • Land rent – payable by the owner to the head lessor on leasehold property.
  • VAT – this is payable by a tenant or buyer of a commercial property. It is calculated at 16% of the sale value. VAT is not payable when acquiring or leasing residential property.
  • Legal fees are payable to the advocates involved, as prescribed in the ARO.
  • Registration costs are payable to the registry.

Forced eviction is not allowed in Kenya. However, when a tenant is in breach of the terms of a lease, the landlord is required to serve the tenant with notice to rectify the breach. 

In the case of a controlled tenancy, the tenant has the power to refer the matter to the BPRT, whereupon the notice shall be of no effect until a determination has been reached by the BPRT. 

If the tenant does not refer the matter to the BPRT and nothing is done to rectify the shortcoming, the landlord can terminate the lease and demand that the tenant vacates the premises.

Where a tenant declines to vacate the premises, the landlord would have to obtain an eviction order from the BPRT (for controlled tenancies) or a court order (for non-controlled tenancies). 

It would take between six months and two years to conclude eviction proceedings.

Despite the harsh economic times occasioned by the COVID-19 pandemic, no measures have been put in place by the state (as at the date hereof) to cushion vulnerable citizens from eviction from their premises for non-payment of rent.

Long-term leases conferring title can be terminated by the government if the lessee does not comply with the conditions contained therein.

The government can also cause a lease to be terminated if the property is required for public purposes, as discussed in 2 Sale and Purchase.

Market prices mainly determine the construction cost of a project based on a bill of quantities prepared by a quantity surveyor (QS) from the detailed architectural and engineering designs of a development.

The tendering process for a suitable contractor is usually competitive and begins by the project proponent sending out a request for proposals to various contractors.

Upon lapse of the timeline for submission of proposals, the project proponent evaluates the proposals submitted and awards the tender to the most competitive contractor based on technical and financial capability, as well as pricing.

There are two main options available for the design and construction of a project in Kenya.

  • The first option involves the project proponent or developer generating the designs and contracting an architect to create a visual representation of the concept. Once the architectural designs are approved by the developer, they are presented to an engineer who prepares detailed engineering designs. The architectural and engineering designs are passed on to a QS who prepares a bill of quantities. Thereafter, the QS sends out a request for proposal to various contractors with a set deadline for the submission of bids. The bids are then evaluated and the contract awarded.
  • The second option involves the project being designed by the contractor who then submits the designs to the developer for review and comments. The drawings, specifications, calculations and other information relating to the agreed design are then submitted to the engineer for approval before being presented to a QS for estimation of the materials and costs.

Management of construction-related risks is governed by the parties’ contract.

The contractor will be required to issue a performance bond to the developer to guarantee against the contractor’s failure to meet its obligations. The performance bond is issued by a reputable insurance company or bank.

Construction contracts also provide for limitation of liability in certain instances, including force majeure events.

Provisions relating to indemnification, warranties and limitation of liability are not provided for in the statute and the parties can agree as appropriate.

Management of schedule-related risk on construction projects depends on the structure of the project and the agreed timelines.

Delay damages can be imposed on the contractor if certain timelines/milestones are not met.

Causation is however taken into account in determining such fines, as some delaying factors could be outside the contractor’s control, such as force majeure events and delays on the part of the developer in providing the required information/payments.

It is common for developers to request additional forms of security from the contractor. In this regard, letters of credit, parent guarantees, performance bonds, escrow accounts, or third-party sureties can be availed on request. Failure to provide the security could be deemed to be an event of default and may lead to termination of the contract.

In the event of non-payment, the contractor will exercise its right of lien over the property. This gives the contractor legal recourse to get paid for its work.

The contractor’s lien can cause substantial delays in implementation of the project. To avert this, developers would require delivery of an undertaking before commencement of the works to the effect that the contractor will not exercise its right of lien.

Upon completion of construction, the architect issues a certificate of practical completion confirming that all the works have been finalised. A certificate of practical occupation is then issued by the relevant county government (planning authority) confirming the structure to be suitable for human habitation.

As discussed in 6.7 Payment of VAT, VAT is payable by the purchaser on the purchase price at a rate of 16%.

The first schedule of the VAT Act exempts sale, renting, leasing, hiring or letting of land or residential premises from payment of VAT. 

There is an ongoing court case in respect of payment of VAT on the sale of commercial premises. The case (David Mwangi Ndegwa v Kenya Revenue Authority) seeks to challenge the requirement to pay VAT on the sale of commercial premises based on the common law definition of land. Land is defined as the soil and the developments thereon. The argument is therefore that since sale of land is exempt from payment of VAT, commercial premises which are comprised in the definition of land should also be exempt from VAT. The matter is pending determination at the Court of Appeal.

Large real estate projects tend to mitigate tax liability in three ways.

Firstly, application for declaration of their developments as SEZs under the SEZ Act. The following tax advantages are accorded to operators within a special economic zone:

  • Corporate tax rates:
    1. 10% for the first ten years;
    2. 15% for the next ten years; and
    3. 30% for subsequent years.
  • VAT – perpetually exempt.
  • Stamp duty – perpetually exempt.
  • Investment deduction:
    1. outside Nairobi and Mombasa – 150%; or
    2. in other cases – 100%; and
    3. applicable on all construction of a building and purchases/installation of machinery for use by the SEZ enterprise.
  • Excise duty – perpetually exempt.

Secondly, since agricultural land attracts stamp duty at a rate of 2% of the consideration, real estate developers will acquire land as agricultural land and thereafter undertake change-of-use to allow for real estate development.

Thirdly, since VAT is payable on the purchase price of commercial premises, real estate developers would opt to acquire the premises prior to conducting a change-of-use to commercial use.

Rates are paid in Kenya pursuant to the Rating Act. Rates are levied by county governments in relation to properties in urban areas in order to meet all liabilities that need to be discharged out of the general rate fund. 

The following properties are exempt from rates under the Valuation for Rating Act:

  • properties used for the purposes of public religious worship;
  • cemeteries, crematoria and burial or burning grounds;
  • hospitals or other institutions for the treatment of the sick;
  • educational institutions;
  • charitable institutions, museums and libraries;
  • outdoor sports facilities; and
  • national parks and national reserves.

Withholding tax is payable by foreign investors and is dependent on the category of income. For instance, the withholding tax rate on management and professional fees is 20%. Dividends earned from a REIT are subject to withholding tax of 5% for East African residents and 10% for non-residents.

Under the ITA, tax at 10% of the gross rental income is payable in respect of annual rent from residential property which is in excess of KES144,000 but less than KES10 million.


CGT is charged at 5% of the net gain and is paid by the transferor.

The following are exempt from CGT:

  • income that is taxed elsewhere, as in the case of property dealers;
  • issuance by a company of its own shares and debentures;
  • transfer of machinery, including motor vehicles;
  • disposal of property through transmission;
  • vesting of property in a liquidator or receiver;
  • transfer of individual residence occupied by the transferor for at least three years before the transfer;
  • transfer of assets between spouses, including as part of a divorce settlement; and
  • sale of land by an individual where the proceeds are less than KES3 million.

Depreciation deductions do not apply to buildings. Such deductions do, however, apply to furniture and fittings in a building.

Under Section 20(1) of the ITA, REITs are exempt from corporation tax but are subject to withholding tax on interest, income and dividends.

Exemption is not automatic; the REIT must apply for exemption under the ITA Registered Unit Trust/Collective Investment Scheme (Rules 2003) and must show that: 

  • the REIT will undertake portfolio investments in accordance with CMA guidelines;
  • the sole purpose of the REIT is to carry on investments on behalf of the REIT's securities-holders;
  • six months after registration/exemption, no REIT securities-holder shall hold more than 12.5% of REIT securities; and
  • the REIT shall, within six months of its commencement, maintain at least 25 REIT securities-holders at any particular time.

Stamp duty is not applicable to transfers of real estate to a REIT. This is in accordance with Legal Notice No 73 of 2008, which provides that any instrument executed in respect of the transfer of property on setting up a listed property investment vehicle is exempt from the provisions of the SDA.

The Finance Act, 2017, amending the First Schedule of the VAT Act, 2013, provides for exemption from VAT for transfers of assets into REITs.


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off Peponi Road, Westlands
PO Box 75362
00200 Nairobi

+254 020 2329 898
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Law and Practice in Kenya


MMC ASAFO is a full-service commercial law firm based in Nairobi and Mombasa, Kenya. MMC teamed up with the international law firm ASAFO & Co to bring the first real pan-African law firm with international expertise and “on-the-ground” experience in Africa to the market. Outside Kenya, the firm also has a presence in the cities of Paris, Casablanca, Abidjan and Johannesburg, which serve their respective hubs in Africa. The multilingual team is qualified in multiple jurisdictions and has recognised capacity in civil law, common law and OHADA law. The firm is strong in many different practice areas in addition to real estate, including M&A, private equity and funds; project development and PPP; banking, finance and fintech; and it handles transactions and projects in various sectors, including energy and power; infrastructure, transportation and logistics; banking and insurance; and innovation, technology and telecommunications.