Contributed By MMC Africa Law
The two main property rights that can be acquired in Kenya are freehold and leasehold interests.
A person has a freehold interest when they are the outright owner of land or property for an unlimited period. Leasehold interest, by contrast, is a temporary right to occupy land or property subject to the payment of a fee to the grantor.
The main laws that deal with transfer of property in Kenya are the LA and the LRA. The LA is the substantive law on land transactions, while the LRA contains procedural provisions on transfer of title.
The SPA deals with transfer of sectional title in Kenya.
The process of acquisition of property begins with the purchaser’s advocate conducting a search on the property.
The vendor’s advocate prepares the agreement for sale for execution by the parties upon approval by the purchaser’s advocates.
The vendor then embarks on preparation of the completion documents. In the meantime, the purchaser’s advocate prepares the transfer document for execution by the parties upon approval by the vendor’s advocates.
The transfer is then filed at the Lands Offices for valuation purposes. The purchaser pays stamp duty once valuation is finalised.
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 buy real estate title insurance. As such, title insurance is not common. However, financiers would require that insurance be obtained in the case of a financed purchase.
A certificate of title issued by a registrar upon registration is taken as prima facie evidence that the person named as proprietor is the absolute and indefeasible owner subject to any registered encumbrances, and the title shall not be 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 has been acquired illegally, unprocedurally or through a corrupt scheme.
The three ways of investing title are searches, pre-contract inquiries and requisitions.
Searches are of two types:
Pre-contract inquiries are preliminary inquiries relating more to the physical condition and location of the property, as well as to matters not covered by the searches.
Requisitions take the form of forthright questions arising after a perusal and assessment of the title document.
Some of the typical representations and warranties include warranties to the effect that:
Representations and warranties are not statutorily prescribed but are freely negotiable by the parties.
A misrepresentation by the seller will typically entitle the buyer to claim damages and termination of the transaction where the misrepresentation goes to the root of the transaction.
The most important areas of law for an investor to consider when purchasing real estate in Kenya are:
A buyer of real property becomes strictly liable for any contamination of the property that pre-dated the sale, even if it was caused by the seller.
To avert this liability, it is important for purchasers of real estate to conduct environmental due diligence before purchasing real estate.
Zoning is a system of land use regulation in various urban areas and cities which designates permitted uses of land based on mapped zones.
The three main zoning classifications are residential, commercial and industrial.
Due diligence will basically involve review of the relevant county zoning bylaw, including communication between the seller and the relevant county regarding the current degree of compliance with zoning laws.
Special conditions of the title would also indicate the permitted use of the property. It will therefore be important to conduct a search on the title to confirm the permitted use.
Development agreements between public authorities and developers are not provided for in the statutes.
Article 40(3) of the CoK allows the state to compulsorily acquire property where the property is required for a public purpose or interest. Such acquisition should be followed by prompt compensation of the person affected.
Section 107 of the LA provides the procedure for compulsory acquisition of land by the government as follows:
Real estate sale and purchase transactions are by law subject to taxation. The applicable taxes are stamp duty (payable by the purchaser) and capital gains tax (payable by the seller).
Stamp duty is payable at the rate of 2% of the value of the property for agricultural land and 4% for properties in urban areas.
The following transfers of property are exempt from payment of stamp duty:
Capital gains tax is comprehensively discussed under 7 Tax, below.
Registration costs are not prescribed in statute and vary from one registry to another. They are payable by the purchaser.
Stamp duty is chargeable at the 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 of private companies within Kenya are subject to capital gains tax and incidental costs are allowable to reduce the tax due.
The CoK restricts ownership of land by non-citizens to leasehold of not more than 99 years. It further provides that if a provision purports to confer on a non-citizen an interest in land greater than 99 years, this will be regarded as conferring a 99-year leasehold interest and no more. A corporate body is only regarded as a citizen if it is wholly owned by Kenyan citizens.
Under the LCA, the LCB is not permitted to approve applications for consent with respect to transactions involving agricultural land where the beneficiary is a foreigner.