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 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, the shareholders. This could be a private or public LLC organised in accordance with the provisions of the Companies Act.

On being 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. RElTs are investment instruments that source funds to build or acquire real estate assets which they sell or rent to generate income.

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

There is only one I-REIT that is listed on the Nairobi Securities Exchange. This is because the REIT legislation is recent and is yet to be understood by investors in this market.

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

  • Membership – an LLP must have at least two partners and one manager. The partners may be natural persons or bodies corporate. However, the manager must be a natural person.
  • Body Corporate – an LLP is a separate legal entity from its partners. In this respect, it is similar to a company and different from a typical partnership.
  • Liability – partners of an LLP are not liable for the firm’s debts and obligations, nor are they liable for each other’s debts and obligations. This is not the case with general partnerships.
  • Perpetual Succession – LLPs enjoy perpetual succession in that the death or exit of any one or more partners does not affect the existence of the LLP.
  • Flexibility – LLPs offer participants flexibility in business ownership. Partners have the authority to decide how they will individually contribute to business operations. Managerial duties can be divided equally or separated based on the experience and qualifications of individual partners.

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 one, with no maximum. A public LLC must have at least two directors, of which one must be a natural person.

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

LLP

Section 26 of the LLP Act provides that a limited liability partnership is required to have at least two partners. Section 27 provides that it must have at least one manager who is resident in Kenya. It is not required for an LLP to create memoranda or articles of association. However, partners are required to execute an LLP Agreement to set out the agreement between the members.

REITs

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 assets but managed by a corporate REIT manager. The primary sponsor of REITs 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 limited liability companies or limited liability partnerships.

Public limited companies are required to have an authorised minimum capital of KES6,750,000.

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

Limited Liability Company

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

An LLC is required to hold an annual general meeting within six months of the day following its accounting reference date each year, and thereafter within three months of the end of its financial period.

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

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

Private LLCs are expected as a matter of best practice to comply with the code of conduct for private organisations.

If the company has share capital, it must file an annual return like any other limited liability company. 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 the place where it is kept must be stated.

The particulars of the directors and the secretary are required to be kept in the register of directors and secretaries. Particulars of the total amount of the company’s indebtedness in respect of all charges are required to be registered.

Limited Liability Partnership

An LLP must:

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

REITs

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

  • a trustee who is licensed by the CMA (this trustee must be a financial institution);
  • a REIT manager appointed by the trustee with the approval of the CMA;
  • 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 in accordance with the law.

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

The trustee is required:

  • to appoint an auditor to audit the accounts of the REIT at least annually;
  • to notify the CMA within seven days of any changes in its structure;
  • to appoint a valuer for purpose of valuation of the assets of the REIT.

Whereas the cost of filing the secretarial and tax returns is nominal, the professional fees payable by the entity will depend on the accountancy/audit or legal firm chosen by the entity.

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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