Last Updated April 30, 2019

Law and Practice

Contributed By MMC Africa Law

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MMC Africa Law was established in 1995 and is headquartered in Spring Valley, Nairobi, with a full-service office in the coastal city of Mombasa. The firm is made up of 12 Partners and over 30 lawyers with expertise in a wide variety of legal matters. As well as being a member of ALFA International, a global network of independent law firms, it has a close association with the leading global law firm of Orrick, Herrington & Sutcliff LLP. MMC Africa Law’s dedicated real estate team comprises three partners and 12 lawyers who pride themselves on their extensive experience handling sophisticated and complex transactions such as those relating to mixed-use developments, an emerging market in real estate. The team also offers specialised services in urban regeneration projects, construction law, REITs, hospitality and hotels, residential developments, commercial and farmland leases, land use and planning, environmental compliance, contractual agreements, conveyancing and conducting due diligence on property.

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:

  • official searches made by an official of the relevant lands registry at the behest of a party upon payment of the requisite fees, where the registry guarantees the accuracy of the results; and
  • personal searches made by a member of the public inspecting the relevant register, parcel or deed file availed by the registry.

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:

  • the vendor is the legal and beneficial owner of the property, with legal capacity to dispose of it;
  • the vendor is not engaged in nor threatened by any litigation or any adverse claim relating to the property;
  • there is no dispute regarding ownership, boundary, easements, rights of way or any other such matters;
  • the vendor has not received any notice from government or any third party which is yet to be complied with; and
  • the property is not subject to any overriding interest in favour of a third party.

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:

  • land laws as discussed in 1.1 Main Sources of Law, above;
  • planning laws that deal with the procedures to be complied with before developing real estate in Kenya (these include the PPA, the County Government Act and the Urban Areas and Cities Act);
  • environmental laws, above all the Environmental Management and Coordination Act (EMCA) and the legislation subsidiary thereto (the EMCA establishes the National Environmental Management Authority (NEMA), which exercises general supervision and co-ordination of all matters relating to the environment); and
  • construction laws which address the approvals that are required to be obtained before a development can be declared fit for habitation, including the NCA and the Building Code.

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:

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

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:

  • 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 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.

MMC Afica Law

MMC Arches,
Spring Valley Crescent,
Off Peponi Rd.
Westlands

+254 020 2329898

+254 720 585 785

eomulele@wakili.com www.wakili.com
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MMC Africa Law was established in 1995 and is headquartered in Spring Valley, Nairobi, with a full-service office in the coastal city of Mombasa. The firm is made up of 12 Partners and over 30 lawyers with expertise in a wide variety of legal matters. As well as being a member of ALFA International, a global network of independent law firms, it has a close association with the leading global law firm of Orrick, Herrington & Sutcliff LLP. MMC Africa Law’s dedicated real estate team comprises three partners and 12 lawyers who pride themselves on their extensive experience handling sophisticated and complex transactions such as those relating to mixed-use developments, an emerging market in real estate. The team also offers specialised services in urban regeneration projects, construction law, REITs, hospitality and hotels, residential developments, commercial and farmland leases, land use and planning, environmental compliance, contractual agreements, conveyancing and conducting due diligence on property.

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