The main sources of real estate law in Kenya are as follows:

• the Constitution of Kenya, 2010 (the “Constitution”) is the supreme law prescribing land rights and policies in Kenya;
• the Land Act, Chapter 280 (LA) is the principal statute on the administration and management of land and land-based resources;
• the Land Registration Act, Chapter 300 (LRA) governs the registration of interests in public, private and community land;
• the Community Land Act, Chapter 287 governs community land;
• the National Land Commission Act, Chapter 281 prescribes the functions of the National Land Commission (NLC);
• the Land Control Act, Chapter 302 (LCA) governs dealings in agricultural land;
• the Landlord and Tenant (Hotels, Shops and Catering Establishments) Act, Chapter 301 (LTA) governs controlled tenancies related to business premises;
• the Distress for Rent Act (DRA), Chapter 293 relates to distress for rent;
• the Physical and Land Use Planning Act, Chapter 303 (the “Physical Planning Act”) governs the planning, use and development of land;
• the Sectional Properties Act, Chapter 286 (SPA) governs the registration and management of sectional properties;
• the Law of Contract Act, Chapter 23 prescribes the formal requirements for contracts related to dealings in land;
• the National Construction Authority Act, Chapter 118 (the “NCA Act”) establishes the National Construction Authority (NCA) and prescribes its functions;
• the Environmental and Land Court Act, Chapter 8D establishes the Environment and Land Court (ELC) to hear and determine disputes relating to the environment and land;
• the Environmental Management and Co-ordination Act, Chapter 387 (EMCA) is the framework environmental law;
• the Special Economic Zones Act, Chapter 517A (the “SEZ Act”) establishes special economic zones (SEZs);
• the Survey Act, Chapter 299 makes provision in relation to surveys and geographical names and the licensing of land surveyors;
• the Housing Act, Chapter 117 provides for loans and grants of public monies for the construction of residential dwellings;
• the Affordable Housing Act, 2024 establishes a framework for development of affordable housing and institutional housing;
• the Climate Change Act, Chapter 387A establishes a regulatory framework for enhanced response to climate change for the purposes of achieving a low-carbon climate development; and
• the National Rating Act, 2024 provides a comprehensive framework for imposition of rates on land and buildings by county governments.

Sustainable Real Estate Finance

Sustainable real estate finance continues to gain traction in Kenya, with notable developments including the following:

• publication by the Central Bank of Kenya (CBK) of the Kenya Green Finance Taxonomy (KGFT) and the Climate Risk Disclosure Framework (CRDF) in April 2025, intended to support the classification of environmentally sustainable activities and strengthen climate-related financial disclosures;
• establishment in September 2025 by the Kenya Bankers Association of the Centre for Sustainable Finance and Enterprise Development, further signalling increased institutional focus on sustainable finance and ESG-linked lending;
• commitment by EIB Global (the European Investment Bank’s development arm) of EUR21.5 million in equity to the IHS Kenya Green Housing Fund to support the construction and acquisition of energy-efficient, green-certified affordable housing in Kenya; and
• a significant increase in green financing portfolios of major banks (eg, KCB Bank announced in 2025 that its green loans portfolio constituted 21.32% of its total portfolio, edging closer to its 2025 target of 25%).

Affordable Housing Scheme (AHS)

Affordable housing remained one of the most visible themes in the Kenya real estate market. The Affordable Housing Regulations, 2025, which came into effect in July 2025, operationalise parts of the Affordable Housing Act. Project delivery has continued across a number of counties, with official updates showing that, in early 2026, more than 260,000 units were under development countrywide. In December 2025, approximately 4,500 units were handed over under the Mukuru Affordable Housing Project.

Private developers are also investing in affordable housing products independent of the AHS, including TSAVO, HIS Kenya and Acorn Holdings Limited.

Significant Real Estate Deals Over the Last 12 Months

Key projects and deals include the following.

• A KES65 billion (approximately USD500 million) deal to develop commercial and residential units at Tatu City SEZ.
• In the REIT market, ALP Industrial USD REIT was licensed in August 2025 and listed on the Nairobi Securities Exchange in 2026. The TRIFIC Green USD income REIT was licensed in September 2025, and the REITS Association of Kenya sponsored the REIT incubator initiative, aimed at nurturing assets for future listings.
• The International Workspace Group significantly expanded its flexible office locations in Kenya, responding to growing demand for hybrid and flexible work arrangements.
• In the hospitality sector, G Marriott International launched the Ritz-Carlton safari camp in Masai Mara and continues with plans to launch luxury safari camps under its Ritz-Carlton and JW Marriott brands. In addition, according to data from Knight Frank, an estimated 1,500 services apartment units and 2,000 new hotel rooms are under development;
• Airtel Africa, through its data centre subsidiary Nxtra (Airtel Africa), broke ground in September 2025 on what is set to become East Africa’s largest data centre; and
• in the retail sector, various malls in the neighbourhood/community category were completed, such as Beacon Mall Upperhill, OUR Mall Magadi Road, Waris Mall Ruai and Promenade Mall Westlands.

Impact of Inflation Environment and 2025 Interest Rates

In 2025, the Kenyan real estate market was affected less by fresh inflationary pressure and further interest rate increases than by the after-effects of the earlier tightening cycle. CBK progressively reduced the CBK Rate from 10.75% in February to 9% in December 2025, while commercial banks’ weighted average lending rates also trended downward. In practice, however, borrowing costs remained elevated enough to continue affecting affordability, leverage levels and project timing. Developers therefore tended to favour phased developments, prime and income-generating assets and refinancing or alternative sources of capital where available.

CBK also announced the issuance of a revised risk-based credit pricing model anchored on the overnight interbank average rate (KESONIA), signalling a move towards greater pricing transparency and a more market-linked benchmark framework for debt going forward. KESONIA took effect from 1 September 2025 for all new variable-rate Kenya shillings loans and from 28 February 2026 for existing variable-rate Kenya shillings loans.

Impact of Disruptive Technologies

The following digital solutions have been adopted:

• the digitisation and digitalisation of courts, not only reducing the time taken to file and process cases but also increasing transparency;
• the continued rollout and use of the Ardhisasa platform has further embedded digital processing in land administration and land transaction workflows, notwithstanding ongoing operational and technical challenges;
• proptech solutions such as Airbnb, xPodd, virtual reality site visits and smart homes, which are popular in Kenya;
• technology-related real estate, the demand for which has also become more visible through investor interest in digital infrastructure and data-centre related assets; and
• construction 3D printing, which has begun to appear in Kenya, including in affordable housing and small-scale development projects, although it remains an emerging rather than mainstream construction method.

These technologies will have the following effects:

• certain land administration and transaction processes that have been digitised are more efficient; and
• construction technologies may improve speed and efficiency in specific projects, although adoption remains limited.

The Land Control Bill, 2022 seeks to rationalise the law on dealings in agricultural land with the provisions of the Constitution, the Environmental and Land Court Act, the LA and the LRA. The Bill proposes to introduce Land Control Committees, which will regulate dealings in agricultural land in accordance with the law and traditions, customs and way of life of the community of the controlled area. If enacted, it will be significant for investment, ownership and development transactions involving agricultural land.

The Real Estate Regulation Bill, 2023 seeks to introduce a new framework for regulating real estate agents and projects in general and would repeal the Estate Agents Act, Chapter 533. If enacted, it could have a material effect on the marketing and sale of real estate projects, and on the wider regulatory environment for real estate service providers.

There are two main categories of property rights:

• leasehold tenure – a lease interest in immovable property for a specific period, subject to the payment of a lease premium or rent to the owner; and
• freehold tenure – an absolute ownership interest in immovable property, subject only to the provisions of law.

The LA and LRA are the primary statutes that apply to the transfer of real estate title, be it residential, retail, industrial, business or hotels. For community land, the Community Land Act also applies. The SPA is the primary statute governing the transfer of sectional titles.

Conducting Due Diligence

Transfer of title begins with due diligence being performed by the purchaser; see 2.4 Real Estate Due Diligence.

Preparation of an Agreement for Sale

Agreements for sale must generally meet the requirements under Section 38 of the LA and Section 3 of the Law of Contract Act, and therefore must:

• be in writing;
• be signed by all the parties to the contract; and
• have the signature of each party attested by a witness.

The agreement is prepared by the seller’s advocates.

Obtaining Completion Documents

The seller’s advocates obtain the completion documents, which include the title document, the signed transfer document and Land Control Board (LCB) consent (where applicable). The transfer is drafted by the purchaser’s advocates.

Transfer of Title

Upon payment of the full purchase price to the seller or the issuance of suitable undertakings to the seller or the seller’s advocates for payment of the financed balance of the purchase price (if any), the seller’s advocates release the completion documents to the purchaser’s advocates. Thereafter, the transfer is submitted through Ardhisasa for valuation of the property for purposes of assessing the stamp duty payable. Although the roll-out of Ardhisasa has been phased and remains county- and transaction-specific, all valuation of property for stamp duty purposes across the country will be processed through Ardhisasa. All parties to the transaction will be required to have Ardhisasa accounts. Subsequently, the purchaser pays stamp duty and files the transfer at the land registry for registration.

If the property is on Ardhisasa, the transfer is initiated on the platform and signed by the parties electronically. Valuation of the property will be initiated online, and payment of stamp duty done via Ardhipay. When the transfer is registered, the original title and registered documents are collected from the land registry.

The law does not require landowners to insure their titles. Title insurance is not common in Kenya.

Title due diligence in Kenya is not just about the current register entry. Increasingly, purchasers are also undertaking deeper title and development due diligence in order to verify the history and legality of the title and to identify planning, environmental and public land risks that may not be apparent from the register alone.

The purchasers’ advocates conduct due diligence as follows:

• review the title document to confirm the landowner and property details;
• conduct relevant searches and enquiries to establish the root of title and basis upon which the title was allotted;
• conduct a title search at the land registry to confirm the property details, including existing encumbrances;
• undertake a search at Survey of Kenya to confirm the boundaries and permitted use of the property – the purchaser may also appoint a surveyor to identify the property on the ground and confirm the boundaries and size;
• peruse the report by the Commission of Inquiry into the Illegal/Irregular Allocation of Public Land, 2003 and other available records to ascertain whether the property is adversely mentioned or originated from public land;
• peruse all notices published by the NLC to ascertain whether the title is due for revocation due to any illegalities in acquisition;
• peruse the gazette notices published by the Ministry of Lands and Physical Planning to ascertain whether the property is listed for conversion;
• ascertain whether the property falls under the SPA and, if applicable, whether sectional titles have been or will be obtained for units of the property;
• physically inspect the property to confirm the absence of squatters, suitability for purpose and compliance with environmental laws; and
• perform searches on the seller to confirm identity and capacity to contract – this may include a company search, where applicable.

Increasingly, purchasers are also instructing professionals such as surveyors and planners to undertake in-depth due diligence over properties to determine whether properties are on a road reserve, airport land, forest land or public utility land, and to confirm beacons and boundaries.

Representations and Warranties

On the purchaser’s insistence, the seller may issue representations and warranties to the effect that:

• the seller is the legal and beneficial owner of the property and has good title to it;
• the seller has full authority to enter into the contract for sale and, where the seller is a corporate entity, all necessary approvals have been obtained;
• the property is not situated on public land, riparian land or in a buffer zone or road reserve;
• the property is not subject to any undisclosed encumbrance, restriction, caution, overriding interest or third-party right;
• the seller is not engaged in any litigation, dispute or investigation relating to the property;
• there are no notices issued by any governmental authority for compulsory acquisition, revocation, planning enforcement, demolition, environmental non-compliance or other adverse action affecting the property; and
• the seller is not in breach of planning, zoning or environmental laws, or building requirements.

Representations, warranties and their survival periods are not prescribed by law; they are negotiated by the parties. A seller may cap their liability as at the date of the agreement for sale, while a purchaser may negotiate to extend the seller’s liability until the date of transfer or a reasonable period thereafter. A seller may also cap their financial liability to the purchase price amount.

Enforcement of Representations and Warranties

The agreement for sale gives the purchaser the option to:

• terminate the agreement in the event of material misrepresentation or breach of a warranty; or
• claim damages, indemnity or other contractual remedies if the breach is not material.

Representation and warranty insurance is not common in Kenya.

In addition to those discussedin 1.1 Main Sources of Law, the following laws are also significant:

• the Stamp Duty Act, Chapter 480, which prescribes stamp duty payable on the purchase of immovable property;
• the Urban Areas and Cities Act, Chapter 275, which provides for the classification, governance and management of urban areas and cities;
• county by-laws; and
• the laws governing investors’ real estate investment vehicles, including the Companies Act, Chapter 486 governing operations of companies and the Limited Liability Partnership Act, Chapter 30 (the “LLP Act”) governing limited liability partnerships (LLPs).

The starting point is the polluter-pays principal, so primary liability does not automatically attach to a buyer merely because they have acquired contaminated property. However, a buyer may still face regulatory and practical exposure as the current owner or occupier of the property, especially if contamination is ongoing or remediation is required for the continued use of the land. Accordingly, it is critical for a buyer to manage this risk by environmental due diligence and contractual protections such as disclosures, indemnities and remediation obligations on the seller.

Permitted Use

The Physical Planning Act and county laws govern zoning and planning at the national and county levels, respectively. The use or development of land must be in accordance with the National and County Physical and Land Use Development Plans. The permitted use of a parcel of land is usually indicated on some title documents. Where this is not the case, the permitted use can be ascertained by a search at the land registry or survey of Kenya, or by inspecting documents relating to the application and approval of change or extension of use.

Development Agreements

It is possible to enter into development agreements with relevant public authorities in order to facilitate a project; see 4.6 Agreements With Local or Governmental Authorities.

Compulsory Acquisition

Article 40 (3) (b) of the Constitution allows the state to compulsorily acquire land for a public purpose, subject to the fair and prompt compensation of the interested persons. Section 107 of the LA prescribes the process of compulsory acquisition, which takes place in four stages as follows.

• The pre-inquiry stage:
1. The cabinet secretary, or the County Executive Committee member of the national or county state agency, wishing to compulsorily acquire the land submits a request for acquisition to the NLC.
2. The NLC requests a verification meeting with the state agency, which provides a list of the affected parcels of land and the owners, title search details, cadastral maps of the affected areas, a resettlement action plan and a list of persons affected by the acquisition.
3. The NLC may reject the request if the constitutional requirements are not met. If the request is approved, the NLC maps out and values the land.
4. The NLC then publishes a notice of intent in the Kenya Gazette and the County Gazette, and delivers a copy of the notice to the land registrar and any person interested in the land.
5. On receipt of the notice, the land registrar makes an order restricting further dealings on the affected land until it vests in the state agency. The land registrar also makes an entry in the register of the intended acquisition.
• The inquiry stage:

1. At least 30 days after publishing the notice, the NLC publishes another notice in the Kenya Gazette announcing the date of an inquiry to be conducted by the NLC.
2. Before the date of the inquiry, the interested persons submit their written claims for compensation to the NLC.
3. On the hearing date, the NLC examines the interested persons to confirm their proprietary interests in the land and hears claims for compensation.
• The post-inquiry stage:
1. After the inquiry, the NLC prepares a written award in favour of the interested persons and serves a notice of the award on each interested person.
2. Upon acceptance of the award, the NLC promptly pays compensation to the entitled persons within one year of taking possession of the land. Compensation may be monetary or otherwise, including land swaps.
• Possession and vesting:

1. After an award has been made, the NLC may take possession of the land by serving a notice to each interested person and the land registrar, specifying the day of possession. The title then vests in the national or county government (as the case may be).
2. Upon taking possession and payment of just compensation in full, the land vests in the national or county governments, free from encumbrances.
3. The landowner is required to deliver the title documents to the land registrar for cancellation if the whole land has been acquired, or for registration of the resultant parcels and issue of their titles if only a portion of the land is acquired.

Disputes may arise around valuation methodology, delay in payment or whether the acquisition steps were strictly followed.

Taxes in Direct Sale of Real Estate

Capital gains tax (CGT) and stamp duty are applicable in real estate transactions. CGT is paid by the seller at a rate of 15% of the net gains received upon sale of the immovable property. Stamp duty is paid by the purchaser at a rate of 2% of the value of the property if located in a rural area, or 4% of the value of the property if located in an urban area.

The Income Tax Act, Chapter 470 prescribes transfers exempted from CGT, including the transfer of property to a registered family trust. Similarly, the Stamp Duty Act prescribes transfers that are exempt from stamp duty, including transfers to first-time homeowners under the AHS.

The Value Added Tax Act (the “VAT Act”) exempts the sale of land or residential premises from VAT. However, the sale of commercial premises is not exempt from VAT.

In addition, transfer of a business as a going concern is now classified as a supply exempted from VAT. Transfer of an income-generating real estate property could be classified as a transfer of an asset that constitutes a going-concern business, which is exempt from VAT, although this depends on the facts and should not be assumed automatically.

Taxes in Sale of Real Estate by Way of Shares

Where real estate is purchased by way of the acquisition of shares in a land holding company, stamp duty will be paid by the purchaser at the rate of 1% of the value of the acquired shares. The seller will pay CGT at a rate of 15% of the net gain on the transfer of shares. In instances where the holding company is incorporated outside Kenya, CGT will still be payable where the shares or comparable interest derive more than 20% of their value directly or indirectly from immovable property in Kenya.

Transaction Costs

The transaction costs typically borne by the seller are:

• costs of subdivision or change of use of the land, if required (unless otherwise agreed);
• costs of obtaining relevant consents, including LCB consent in the case of agricultural land;
• CGT; and
• legal fees (unless otherwise agreed).

The transaction costs typically borne by the purchaser are:

• costs for valuation of the property;
• stamp duty;
• registration fees for the transfer; and
• legal fees.        

Foreign Ownership of Land

Article 65 of the Constitution prohibits foreigners from owning freehold land. Foreigners may own land based on a leasehold tenure only, and such leases are for a maximum period of 99 years. Any freehold land or lease for a term exceeding 99 years held by a foreigner is deemed to be a lease of a maximum period of 99 years from 27 August 2010.

Under the Constitution, a body corporate is regarded as a Kenyan citizen only if it is wholly owned by Kenyan citizens. Where the property is held in trust, it is regarded as being held by a Kenyan citizen if all its beneficiaries are Kenyan citizens.

Dealings in Agricultural Land

Sections 6 (1) (a) and (c) as read with Section 9 (1) (c) of the LCA prohibit LCBs from approving:

• the sale, transfer, lease, mortgage, exchange, partition or other disposal of or dealing with any agricultural land situated within a land control area where the beneficiary is not a citizen of Kenya; and
• the issue, sale, transfer, mortgage or any other disposal of or dealing with any share in a private company or co-operative society that, for the time being, owns agricultural land situated within a land control area in favour of a person that is not a citizen of Kenya.

The acquisition of commercial real estate is usually financed as follows:

• by borrowing from financial institutions, including commercial banks and savings and credit co-operatives;
• through REITs; or
• through joint ventures.

Where the government is involved, acquisition may be financed by the government itself or by public-private partnerships.

A commercial real estate investor that is borrowing funds to acquire or develop real estate will typically create the following security.

• A legal charge over the real estate in favour of the lender.
• Assignment of receivables: During the development, the receivables will include insurance proceeds, rights in project bank accounts and/or rights and interest to contracts and agreements relevant to the project. After the development, the receivables will typically be rental income.
• Direct agreements with respect to key construction contracts (required by certain lenders).

There are no restrictions on granting security over real estate to foreign lenders, nor on making repayments to a foreign lender under a security document or loan agreement. However, like citizens and Kenyan corporations, a foreign lender or foreign security trustee would be required to have an Ardhisasa account in order for security over immovable property to be created in its favour. For security over movable assets, the foreign lender would need to appoint a Kenyan agent (typically, Kenyan counsel) to register relevant notices at the Collateral Registry on its behalf. Foreign lenders should also note the potential implications of Section 974 of the Companies Act, which prohibits a foreign company from carrying on business in Kenya unless it is registered. Recent High Court decisions have not been entirely uniform on the consequences of non-registration: some decisions have taken a strict approach to locus standi while more recent decisions suggest that non-registration does not itself bar a foreign company from suing and that whether it is carrying on business in Kenya is a matter of fact. Accordingly, although a foreign lender may validly take Kenyan security, it should consider the recent High Court decisions.

When granting security, the borrower will be responsible for the following costs:

• stamp duty at a rate of 0.1% of the borrowed amount for registrable securities such as legal charges;
• the legal fees of the borrower’s and lender’s advocates, as prescribed by the Advocates Remuneration Order based on the amount secured; and
• nominal registration fees charged by the relevant registries.

In addition, the borrower is usually responsible for the lender’s enforcement costs, including legal fees.

The following requirements must be met:

• the borrower must have the capacity to give the security under its constitutive document;
• the directors of a corporate guarantor should be satisfied that the company derives corporate benefit from giving security over its real estate assets, even where the borrower is a related company;
• the borrower should comply with the 30-day registration timeline for security as set out in the Companies Act, unless extended by the court; and
• financial assistance for the acquisition of real estate assets is not prohibited.

Enforcement of a Legal Charge

Section 90 of the LA prescribes the formalities for the enforcement of a legal charge in the event of default by the borrower. If the borrower is in default for one month, the lender issues a notice of the default to the borrower, requiring the borrower to remedy the default within the notice period (at least three months if the default relates to non-payment). If the borrower fails to do so and the lender opts to exercise statutory power of sale, the lender issues another 40-day notice. Upon lapse of the notice period, the property is valued and sold. The time taken to sell the property would vary according to market demand and could range from a month to more than a year.

The LA also provides additional remedies available to the lender:

• appointment of a receiver; suing the chargor;
• leasing the property; and
• taking possession of the property.

Enforcement of these remedies may take longer than exercising the statutory power of sale, especially if the matter is contentious.

Priority of Legal Charges

According to Section 81 of the LA, charges rank according to the order in which they are registered, unless the charge instrument (with the prior written consent of a prior security holder) states otherwise.

According to Section 81 of the LA, charges rank according to the order in which they are registered. However, existing legal charges may be subordinated to newly created legal charges by agreement between the lenders. The holder of the prior registered charge would typically sign a consent form on the subsequent charge, consenting to the creation of the subsequent security and confirming that its security ranks subsequent to the new charge. Lenders can also enter into an intercreditor agreement.

Kenyan courts apply the “polluter pays” principle, under which the person responsible for environmental damage is liable for it.

A lender is not liable for non-compliance with environmental laws since a legal charge does not constitute a transfer of the property. However, when enforcing the security by the appointment of a receiver or the leasing or taking possession of the charged property, a lender qualifies as an “owner‟ under the EMCA and will therefore be liable for non-compliance with environmental laws.

A borrower’s insolvency does not, in and of itself, affect a lender’s security interest. However, where an administrator has been appointed, the consent of the appointed administrator or approval of a court of competent jurisdiction would need to be obtained in order to enforce security. In addition, although an administrator’s proposals may not affect the rights of a secured lender without that lender’s consent, the secured lender’s remedies are still subject to the insolvency process and any applicable court supervision. Security may be challenged if it was granted at a relevant time before insolvency as a preference, or as part of a transaction at an undervalue, and the court’s remedial powers include releasing or discharging that security.

The following taxes apply to loans.

• Withholding tax (WHT) at a rate of 15% is payable on interest income earned by resident and non-resident persons, subject to any applicable statutory exemption or treaty relief.
• Deemed interest where the loan is provided free of interest WHT is also applicable to such deemed interest. The Kenya Revenue Authority (KRA) determines the deemed interest rate and WHT rate. The deemed interest rate is published periodically by KRA, while the WHT rate is 15%. Banks and other financial institutions licensed under the Banking Act, Chapter 488 are exempted from paying taxes on deemed interest.
• Excise duty at a rate of 20% is imposed on fees charged by financial institutions. This does not apply to interest on loans or returns on loans.

The national government is responsible for developing planning policies and co-ordinating planning by the county governments, and the county governments are responsible for county planning and development.

The principal laws for strategic planning and zoning in Kenya are the Constitution, the Physical Planning Act, the Urban Areas and Cities Act, the National Building Code, 2024, the EMCA, the NCA Act, applicable county legislation, zoning instruments and development plans.

The principal public authorities involved are:

• the NLC, which manages public land on behalf of the national and county governments, and oversees land use planning and development;
• the relevant county government and its planning organs (the Directorate of Physical and Land Use Planning at the national level);
• the National Environment Management Authority (NEMA) for environmental approvals and enforcement;
• the NCA for contractor and project registration and construction oversight;
• the ELC and the statutory physical and land use planning liaison committees for appeals and planning disputes; and
• sector regulators where the development affects a regulated area or activity (eg, dealings in agricultural land requiring LCB consent).

Process

The Physical Planning Act requires development permission to be obtained prior to the improvement of land, which entails the submission of building plans prepared by a qualified planner. The development permit will be issued only if the development complies with zoning laws. The permit may also prescribe conditions for undertaking the development. It is rare for the permit to prescribe requirements on the appearance of the development or method of construction. However, the methods and standards of construction are regulated under the NCA Act.

The Physical Planning Act requires the developer to apply to the relevant county government for development permission. Upon receipt, the county government circulates the application to the relevant state agencies, including the Director of Surveys, the NLC and NEMA, for their comments. The state agencies may object to the issuance of the development permit if the development does not comply with the law. The county government also publishes a notice in the Kenya Gazette and newspapers circulated nationwide, inviting public participation in the proposed development. After considering the comments of the state agencies and the general public, the county government may reject the application or issue the development permit.

In addition, the following approvals are required, among others.

• The developer must conduct an environment impact assessment (EIA) of the project and apply to NEMA for an EIA licence. NEMA is required to consult with the relevant state agencies and allow for public participation before the EIA licence is issued.
• The project must be registered with the NCA.
• LCB consent is required if the land is agricultural.
• A Water Resources Authority permit is required if a borehole is to be drilled.
• The consent of the Kenya Railway Authority is required if the development is adjacent to a railway line.
• The consent of the Kenya Forest Service is required if the development may affect conservation areas or wildlife.
• The consent of the Kenya Civil Aviation Authority is required if the development may affect the airspace in any way.

Appeal

A developer may appeal a county government’s decision not to grant development permission before the National or County Liaison Committee (as applicable). The developer may lodge a further appeal against the decision of a County Liaison Committee to the National Liaison Committee. Thereafter, an appeal against a decision of the National Liaison Committee may be made to the ELC.

If NEMA declines to grant the EIA licence or revokes it, the developer may appeal such decision at the National Environment Tribunal (NET) within 60 days. A further appeal may be made to the ELC against the decision of the NET.

If the LCB declines to consent to the development of agricultural land, the developer may appeal to the Provincial Land Control Appeals Board within 30 days of the decision being delivered. A further appeal may be made to the Central Land Control Appeals Board. If the developer is not successful, they can consider effecting a change of use of the land to avoid the need to obtain the LCB consent for the development.

If the NCA declines to register a construction project, the developer may appeal to the Appeals Board established under the NCA Act.

Enforcement

Section 72 of the Physical Planning Act enables the County Executive Committee member for physical and land use planning to issue an enforcement notice to an owner, occupier, agent or developer of land (the “recipient”) if a developer commences development without a development permit, or if any conditions of the development permit are not complied with. The enforcement notice will prescribe the remedial action to be taken by the recipient, who will face imprisonment and/or be subject to fines if they do not comply with the notice.

Section 108 of the EMCA enables NEMA to issue environmental restoration orders instructing the recipient to refrain from causing harm to the environment and/or prescribing remedial action to restore the environment to its original state. The order may also impose fines against persons contravening environmental laws, or may award compensation to those affected by environmental degradation or pollution. The ELC may also issue environmental restoration orders.

Section 112 of the EMCA allows courts to grant environmental easements and conservation orders to preserve environmental resources.

Rule 28 of the NCA Regulations, 2014 empowers the NCA to set up a committee to investigate complaints against contractors and any developments if they are suspected of contravening the law. The committee may recommend the deregistration of a contractor or the revocation or suspension of its licence. Where a contractor is deregistered, all construction contracts being executed by that contractor will be terminated immediately.

The main vehicles for investment in real estate are limited liability companies (LLCs), LLPs and real estate investment trusts (REITs). LLCs are the most common and preferred investment vehicles, but LLPs are beginning to gain traction.

LLCs

LLCs are the most common and preferred investment vehicles, and are regulated by the Companies Act 2015. LLCs have corporate personality, and the liability of the members is limited. Given this, an LLC may own property, enter into contracts, and sue and be sued in the name of the company.

LLCs are tax residents in Kenya and are subjected to tax at a rate of 30%. The taxable income is calculated as the gross revenue less allowable expenses that were wholly and exclusively used in the production of income. Subsequent distribution of dividends by an LLC would be subject to WHT at the rates indicated in the following.

Aperson making payments on dividends and interest to a resident (or non-resident entity with a branch/permanent establishment in Kenya) will pay:

• 5% WHT on dividends paid to residents, although WHT is not payable where the dividend is paid to a resident company that directly or indirectly holds more than 12.5% of the payer’s shares;
• 15% WHT on dividends paid to a non-resident; and
• 15% WHT on interest.

A person making payments on dividends and interest to a non-resident will deduct 15% WHT for both the dividend and interest income.

LLPs

LLPs have gained traction as the real estate investment vehicles of choice, and are regulated by the LLP Act. LLPs have legal personality, and the liability of the partners is limited. LLPs may also own property, enter into contracts, and sue and be sued in the name of the LLP.

An LLP has a minimum of two partners and at least one manager, who must be a natural person. An LLP is not recognised as a distinct person for the purposes of income tax even though it has legal personality. Accordingly, tax on income accrued in or derived from Kenya is accounted for by the partners individually and not by the LLP. Each partner will therefore pay taxes on their share of the profit earned from the LLP based on the applicable income tax rates.

REITs

Following the enactment of the Capital Markets (Real Estate Investment Trusts) (Collective Investment Schemes) Regulations (2013), REITs have gained traction as the premier vehicle for collective investment in real estate in Kenya. They are licensed and regulated by the Capital Markets Authority (CMA). A REIT is structured as an unincorporated common law trust divided into units and established by way of a trust deed. REITs must have a licensed independent REIT trustee who holds the REIT assets on behalf of the investors and a licensed REIT manager who manages the day-to-day affairs of the REIT.

A REIT scheme may be structured as follows.

• In a development REIT (D-REIT), investors pool resources for the purposes of acquiring eligible real estate for development and construction. Upon the completion of construction, the D-REIT may be converted to an income REIT (I-REIT).
• In an I-REIT, investors pool resources for the purposes of acquiring long-term income-generating real estate. The capital gain and rental income are distributed amongst the unit holders.
• An Islamic REIT is a pool for investment in income-producing Sharia-compliant real estate products.

REITs are beneficial to investors because they are professionally managed and there is minimal capital risk, despite the variety of real estate products available. REITs also enjoy tax exemptions (see 8.5 Tax Benefits).

REITs are available in Kenya (see 5.2 Main Features and Tax Implications of the Constitution of Each Type of Entity). They may be unlisted or listed on the Nairobi Securities Exchange. Foreigners are allowed to set up and invest in REITs provided that they comply with the applicable laws. To register a REIT, the prescribed minimum capital requirements (see 5.4 Minimum Capital Requirement) must be met, and the CMA must declare the REIT to be an authorised scheme.

The advantages of REITs are that:

• they enable low-capital investors to invest in real estate, which is typically capital intensive;
• they are a source of capital for real estate development and investment;
• they allow investors to diversify their real estate portfolio based on the schemes’ pool of assets;
• if listed, they create liquidity by allowing easy and quick investment in real estate;
• they can, in the case of I-REITs, provide consistent income, since they are required to pay out at least 80% of their taxable income to unitholders in the form of dividends;
• since they are regulated entities, they benefit from transparency and professionalism in their management and operation; and
• they enjoy tax exemptions (see 8.5 Tax Benefits).

Despite the benefits, there is still a low uptake of investment in REITs in Kenya for various reasons including low investor awareness, market volatility and high set-up costs.

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

A public LLC must have a minimum capital of KES6,750,000 (approximately USD52,200).

REITs must have:

• a REIT trustee, who is required to have a minimum paid up capital of KES100 million (approximately USD773,100); and
• a REIT manager, who is required to have a minimum paid up capital of KES10 million (approximately USD77,300).

Private LLCs

A private LLC is generally required to:

• convene one annual general meeting, unless it is a single-member company or the registrar has extended the period;
• file annual returns at the companies registry;
• unless exempt under the small company, or if a dormant company, procure an annual audit of its accounts;
• comply with its tax filings and payment obligations; and
• maintain relevant statutory registers, including of its members, directors, charges and beneficial owners.

Public LLCs (Listed and Non-Listed)

Listed public LLCs are those listed on the Nairobi Stock Exchange. In addition to the governance requirements listed previously in respect of private LLCs, public LLCs are required to obtain a trading certificate for their operations. Furthermore, listed public LLCs must comply with the Capital Markets Act, Chapter 485A and relevant regulations applicable to listed companies.

LLPs

LLPs are required to:

• file annual returns with the registrar of LLPs;
• maintain registers of partners, nominee partners and beneficial owners; and
• maintain accounting records pertaining to the LLP’s business, such as invoices.

Unless required under their partnership agreements, LLPs are not obliged to convene any meetings, nor to procure an audit on their accounts except during the winding-up and dissolution of the partnership. LLPs are also not required to file tax returns.

REITs

A REIT is required to:

• maintain a register of REIT security holders;
• convene an annual meeting of REIT security holders between 14 and 28 days after the circulation of the annual report;
• procure an annual audit of its accounts;
• remit and file tax returns in respect of WHT deductions on the payments to investors; and
• submit a copy of the first half financial year reports and accounts, the REIT’s annual report and audited accounts to the CMA.

The REIT trustee and the REIT manager are responsible for maintaining proper records in respect of the fund, the scheme and the REIT.

Nominal fees for annual entity maintenance are payable at the companies registry and the LLP registry for LLCs and LLPs, and at the land registry for trusts licensed as REITs. For REITs, additional compliance costs are incurred towards the renewal of the licences of the REIT trustee and REIT manager, and approval fees for any public offerings. The fees are paid to the CMA.

For accounting compliance, the costs will depend on the terms of engagement negotiated with the retained accounting firm.

Leases

Leases for a term of less than 21 years grant the tenant the right to the exclusive use and quiet enjoyment of the leased premises for the lease term. The same is true for leases that have longer terms but do not confer ownership.

Licences

A licence is a permit granted to the licensee to do some act in relation to the real estate (on a non-exclusive basis) that would otherwise constitute trespass.

Easements

An easement is a non-possessory interest in another’s land that allows the holder to use the land (or a portion of it) to a particular extent or requires the owner to undertake or refrain from undertaking an act relating to the land.

Public Rights of Way

This could be a wayleave or a communal right of way. The NLC may authorise a wayleave for the benefit of the national or county government, a public authority or any corporate body to enable them to carry out their functions in relation to the land. The NLC may also authorise a communal right of way for the benefit of the public upon application by a county government, an association or any group of persons.

The LA provides for the following types of leases.

Short-Term Leases

The LA defines a short-term lease as a lease for a term of two years or less without an option for renewal. A short-term lease is also a periodic lease.

Periodic Leases

The following are periodic leases:

• leases of an unspecified term with no provision for the giving of notice to terminate the tenancy;
• leases whose term is from week to week, month to month or year to year, or is any other periodic basis on which the rent is payable;
• where a tenant remains in possession of land with the consent of the landlord after the term of the lease has expired, unless the parties agree otherwise; or
• where an owner allows exclusive occupation of their land or part thereof for rent but without there being any agreement in writing.

Long-Term Leases

A lease is long term if it is for a period over two years. Leases of a period of 21 years and above may confer an ownership interest to the lessee.

Future Leases

Future leases are leases for a term that is to begin on a future date not being later than 21 years after the date on which the lease is executed. A future lease for a period above five years must be registered.

The terms of a lease, including the rent amount, are negotiated by the parties. However, Sections 65 and 66 of the LA impose some covenants on landlords and tenants, including:

• the tenant’s right to peaceful and quiet possession and enjoyment of the leased premises;
• the tenant’s obligation to pay rent;
• the landlord’s obligation to pay statutory charges; and
• the landlord’s responsibility to ensure the leased dwelling premises are fit for human habitation.

The LTA further regulates the revision of rent of the following controlled tenancies:

• commercial leases that are not in writing;
• written commercial leases of a period below five years, or which contain termination provisions other than for breach of covenant within five years of commencement of the lease; and
• leases over business premises gazetted as controlled tenancies.

The terms of a lease are contractual, except for the implied covenants under Sections 65 and 66 of the LA (see 6.3 Regulation of Rents or Lease Terms).

Length of Lease Term

The law does not prescribe the term of a lease, which is contractually agreed by the parties. For commercial leases, the term is typically above five years to avoid creating a controlled tenancy under the LTA.

Furthermore, where the term of the lease is not specified and no provision is made for the giving of notice to terminate a tenancy, the lease is deemed to be a periodic lease pursuant to Section 57 (1) (a) of the LA. In this case, the term of the periodic lease will be the period by reference to which rent is paid.

Finally, where the lease is terminated or the term lapses and the landlord accepts rent and allows the tenant to occupy the premises for at least two subsequent months, a periodic lease from month to month is deemed to have come into force, pursuant to Section 60 (2) of the LA.

Maintenance and Repair Provisions

Sections 65 (1) (c) and (d) of the LA impose an obligation on landlords to keep the exterior parts of leased premises in a proper state of repair, and to ensure dwelling houses are fit for human habitation.

Sections 66 (1) (c) and (e) of the LA impose an obligation on tenants to keep the interior parts of leased premises and boundary marks of land in a reasonable state of repair. Tenants are also required to yield up the leased premises in the same condition they were in when the term of the lease began (subject to fair wear and tear). The parties can agree to further terms.

Frequency of Rent Payments

The law does not regulate the frequency of rent payments, which is contractually agreed by the parties.

The law does not regulate rent variation, except in the case of commercial leases governed by the LTA, which sets out elaborate notice requirements and allows the tenant to challenge the proposed variation before the Business Premises Rent Tribunal (BPRT). If the lease is silent on rent variation, this can only be done by agreement between the parties.

Rent is varied based on a pre-agreed escalation rate indicated in the lease. The frequency of escalation is also indicated in the lease.

VAT is payable on rental income from non-residential premises at a rate of 16%. Rental income earned from the lease of residential premises is exempted from VAT payment under Part II of the First Schedule of the VAT Act.

The tenant bears the following costs:

• the cost of fitting out the premises;
• the security deposit on the rent and the service charge;
• the initial service charge;
• the stamp duty payable on the lease, which is charged at 2% of the average annual rent on leases over three years;
• nominal fees for registration of the lease; and
• the tenant’s legal fees and the landlord’s legal fees (as may be agreed by the parties).

The maintenance and repair costs for common areas are paid by the landlord or the management company from the service charge paid by the tenants. These costs are apportioned amongst the tenants.

Tenants generally bear the cost of installing individual utility meters (water, electricity, etc) for the leased premises, and pay utility costs directly to the utility providers. For shared utilities, the landlord or management company will apportion the costs to the tenants, who will pay the landlord or management company in the form of service charges for onward payment to the utility providers.

The real estate taxes relating to rental property are:

• stamp duty payable on the tenancy agreement; and
• tax payable on rental income.

Tenants are responsible for the stamp duty payable on the tenancy agreement, and landlords are responsible for payment of taxes on the rental income.

Resident persons (landlords) earning rental income between KES288,000 and KES15 million for the use or occupation of residential property during any year of income are liable to pay residential rental income tax at the statutory rate of 7.5% on the gross rental receipts as a final tax.

Resident persons outside the income threshold mentioned previously, including commercial landlords, are taxed under the ordinary income tax bands.

Rental income paid to non-resident persons, on the other hand, is subjected to WHT at a rate of 30%. This is deducted by the tenant at source and remitted to the KRA as a final tax.

In addition, landlords operating rental businesses are generally required to issue eTims-compliant electronic tax invoices. This is particularly relevant to tenants because business expenditure is not deductible for income tax purposes unless it is supported by a valid electronic tax invoice.

The landlord insures the building while the tenant insures the contents in the leased premises, including the assets of the tenant within the premises. The lease indicates the insured risks, which may include fire, burglary and natural disasters. In the post-pandemic market, standard commercial property and business interruption policies exclude losses arising from viruses or communicable diseases unless expressly endorsed.

The landlord may contractually restrict the use of the leased premises by a tenant if such restrictions are permitted by law. Furthermore, the law imposes user restrictions on tenants, with the Physical Planning Act and county legislation regulating the use and development of land in Kenya. These restrictions may be indicated on the title document. The LA also implies covenants on the use of leased premises by tenants.

Section 67 (2) (e) of the LA restricts tenants from developing the leased premises beyond what is permitted in the lease. The landlord’s consent would be required for restricted developments and is granted on the following conditions:

• the tenant complies with the applicable laws, including obtaining all development approvals;
• the tenant engages the relevant qualified professionals, such as architects; and
• the tenant restores the leased premises to its original state (subject to reasonable wear and tear) at the expiry of the lease (unless otherwise agreed).

The LA applies to all leases, whether residential, industrial or commercial. The following categories of leases are governed by specific laws.

Controlled Tenancies Under the LTA

The LTA regulates controlled tenancies (see 6.3 Regulation of Rents or Lease Terms) over business premises to protect tenants from exploitation, including arbitrary rent revisions and illegal evictions.

Leases of Dwelling Houses Under the Rent Restriction Act (Rent Act)

The Rent Act regulates tenancies relating to dwelling houses of a standard rent of below KES2,500, to protect tenants from exploitation by landlords.

Leases Over Agricultural Land

The LCA regulates dealings in agricultural land, with the aim of advancing agricultural activities and restricting ownership by foreigners.

Under Section 73 (1) of the LA, the landlord has the right to terminate the lease if the tenant is declared bankrupt or goes into liquidation.

The tenant generally has no right to occupy the leased premises upon the expiry of the commercial lease, unless the lease provides otherwise or the landlord’s conduct gives rise to a further tenancy. To ensure that a tenant leaves on the agreed date, a landlord should ensure that the termination clauses are clearly drafted in the lease, serve any termination or non-renewal notices in good time, avoid conduct that may be treated as creating a fresh tenancy and avoid continuing to accept rent after expiry. If the tenant does not leave voluntarily, the landlord may evict the tenant; see 6.21 Forced Eviction.

The lease would typically prohibit the assignment of the lease or permit assignment subject to the landlord’s consent. If permitted, a tenant may assign its rights over all or part of the leased premises on the following conditions:

• the parties execute and stamp the deed of assignment;
• the assignee is restricted from further assigning its rights under the lease; and
• the tenant settles all obligations due to the landlord as at the date of assignment.

Section 73 of the LA allows the landlord to terminate a lease if the tenant:

• commits a breach of its express or implied obligations under the lease; or
• is declared bankrupt or goes into liquidation.

The lease may also allow for early termination by the parties giving reasonable notice. Termination may also be permitted in the event of the occurrence of a force majeure event.

Controlled tenancies (see 6.3 Regulation of Rents or Lease Terms) may only be terminated in accordance with the LTA, which requires the other party’s consent to be obtained. The aggrieved party can challenge termination at the BPRT. In this case, termination of the lease will be subject to BPRT’s orders.

The termination of commercial leases can also be challenging, since these leases generally do not contain termination provisions so as to avoid creating controlled tenancies under the LTA. In these instances, termination is by agreement between the parties or by the issuance of reasonable notice, which depends on the circumstances of the case.

Short-term leases for two years or less without the option of renewal are not registrable. Long-term leases for more than two years are required to be registered under the LRA.

Leases are required to comply with the formalities of a valid contract. The lease will also be subject to stamp duty, charged at a rate of 2% of the average annual rent. The stamped lease is lodged at the relevant land registry for registration. An entry of the registered lease will be made on the title document and on the deed file of the property maintained by the land registry. The tenant meets the registration costs and the legal fees of its advocates and the landlord’s advocates.

Long-term leases of a period of 21 years and above, and which confer ownership, are deemed to be transfers of title. Accordingly, stamp duty is payable at 2% of the value of the leased premises if located in a rural area, or at 4% of the value of the leased premises if located in an urban area. Upon registration, a title is issued to the lessee, who bears the registration costs and the legal fees of its advocates and the landlord’s advocates.

Where a lease is lawfully terminated by a landlord as discussed in 6.19 Right to Terminate a Lease, or on expiry of the lease term, the landlord should first comply with the lease terms and applicable statutory termination or forfeiture requirements. If the tenant remains in occupation without consent, the landlord should seek vacant possession through the appropriate legal process rather than rely on forcible eviction. A landlord is required to obtain a court order to evict a tenant.

A tenant may apply to the ELC to challenge the eviction notice. For controlled tenancies, the tenant may challenge the eviction notice at the BPRT. In this case, eviction will be subject to the BPRT’s orders. For commercial leases, the tenant may challenge the eviction notice in courts of law. In this case, eviction will be subject to the court’s orders.

For leases in respect of dwelling houses of a standard rent below KES2,500, the tenant may challenge an eviction notice at the Rent Tribunal. In this case, eviction will be subject to the Tribunal’s orders.

A lease can be terminated by the government in cases of compulsory acquisition; see 2.9 Condemnation, Expropriation or Compulsory Purchase.

Restrictions on Damages

There are no statutory limitations on damages that a landlord may collect in the event of a tenant breach. However, under the common law rules governing the award of damages and case law, general damages are at the discretion of the trial court. For special damages, the landlord would have to prove actual losses that have been incurred in monetary terms as a direct result of the tenant’s breach.

Remedies

The remedies available to a landlord are contractually negotiated. Typically, the lease will provide for a security deposit that will be forfeited in the event of a default by the tenant.

The following statutes prescribe other remedies available to landlords in the event of a tenant breach.

• Section 65 (2) (b) of the LA prescribes the landlord’s right to terminate a lease due to non-payment of rent or breach by the tenant of any other obligations. This is an implied covenant that the parties can exclude from their lease arrangement.
• Section 74 of the LA prescribes the landlord’s right of forfeiture if a tenant breaches the terms of a lease, is adjudicated bankrupt or goes into liquidation (as applicable). The provision is not mandatory, and the parties can exclude it in their lease. However, in any event where the landlord invokes the right of forfeiture, they must comply with the notice requirements under Section 75 of the LA. Further, Section 76 of the LA permits the tenant to apply to court for reliefs against the landlord’s right of forfeiture.
• Section 3 of the DRA provides for the landlord’s right of distress when rent is in arrears. Distress for rent involves appointing a licensed auctioneer to seize the tenant’s assets for purposes of sale to recover the rent owed. The DRA prescribes the notice requirements, goods that may be seized, time for levying distress and procedures to be followed. The tenant may challenge the distress proceedings if the proper procedures are not followed.

The price of construction projects is determined by the procurement method. For government-related contracts, competitive bidding is generally required, so it is preferable for the price of the project to be fixed or capped. The price would typically include the construction costs and professional fees for the project team.

For negotiated contracts, there is more flexibility on pricing. The cost may be estimated but free of any cap. The parties may also enter a cost-reimbursable agreement, which would cushion a contractor if the construction costs exceeded the estimates.

The design and construction of a project may be allocated as follows.

• The project proponent may undertake the planning aspect of the project in-house in consultation with relevant professionals, including architects and engineers. In the case of government projects, public participation will be required in the design process. Once the design is approved, the project proponent invites bids for construction in accordance with the approved plan. In this case, the contractor’s scope of work is limited and, therefore, the cost of construction is reduced.
• The project proponent may invite bids for both the planning (design) and construction of the project. The competitive bidder is selected to undertake both functions. Once the final plan is approved, the contractor proceeds with construction in accordance with the approved plan.

Construction risk is largely managed as per the terms of the construction contract, which may provide for:

• proper risk allocation to the party best suited to manage the risk – usually the contractor;
• limitation of the contractor’s liability to the price of the contract;
• indemnity and warranty provisions to cushion the project proponent from construction risks;
• the requirement for the contractor to take up insurance against construction risks;
• force majeure provisions to cushion the parties from unforeseen circumstances that may delay or render the project impossible to implement; and
• performance guarantees and bonds, particularly in government projects.

The parties may agree to a milestone-based construction schedule. The contract may provide for liquidated damages to be paid by the contractor in the event of inexcusable delays in attaining the milestones. In cases of inordinate inexcusable delays, the contract may also provide for termination at the discretion of the aggrieved parties.

Project owners may call for additional security to guarantee a contractor’s performance, including:

• guarantees from the contractor’s parent company and third-party sureties;
• performance bonds from reputable insurers;
• payment guarantees from the contractor’s bankers;
• letters of credit from reputable financiers; or
• holding the contract sums in an escrow account, with payments being released to the contractor upon the attainment of relevant milestones.

Unless restricted in the construction contract, an unpaid contractor has a builder’s lien over the constructed property so long as it maintains possession of the property. Financiers may require a contractor to sign a waiver of a builder’s lien. Notably, the Government Proceedings Act prohibits the exercising of liens over government property.

For a project to be inhabited, a certificate of practical completion must be issued by a qualified architect, and a certificate of occupation must be issued by the relevant county government.

The sale of commercial premises is subject to VAT, while the sale of land and residential premises is exempt from VAT. The VAT Act also exempts the transfer of business as a going concern. That exemption may be relevant when structuring a transaction involving sale of income-producing real estate.

Large real estate investors mitigate tax liability by:

• sector-specific incentives where available, such as applying for the development to be declared an SEZ under the SEZ Act, which has many tax benefits, including reduced corporate taxes and exemption from the payment of CGT on transfers of property within the SEZ, stamp duty and excise duty – further, royalties, interest, management fees, professional fees, training fees, consultancy fees, agency or contractual fees paid by an SEZ developer, operator or enterprise to a non-resident person are exempt from tax for the first ten years of the establishment of the SEZ developer, operator or enterprise;
• setting up a REIT, which has the benefit of being tax exempt and avoids double taxation of both the REIT and the unitholders;
• where possible, structuring an acquisition as a share deal rather than a direct asset transfer since stamp duty on a transfer of shares lower than stamp duty on a direct transfer of immoveable property, although this does not eliminate other taxes (including CGT), and the wider tax consequences must still be considered (see 2.10 Taxes Applicable to a Transaction);
• investing in special programmes such as the AHS, which benefits from various tax incentives including a reduced corporate income tax rate of 15% in the case of a company that constructed at least 400 residential units in a year of income; or
• reliance on available statutory tax exemptions.

The landlord or owner is obliged to pay land rates to the relevant county government if the premises are within an urban area. Tenants may contribute towards land rates by way of the payment of service charges.

WHT

Foreigners are subject to WHT, which is levied at different rates depending on the category of income earned. The rate also depends on whether the foreigner is a resident or a non-resident. WHT is 30% on rental income earned by a non-resident, 15% on dividend and interest income earned by a non-resident and 20% on professional fees earned by a non-resident.

WHT is deducted by the payer at source and remitted to the KRA. Interest earned from loans obtained from foreign sources for purposes of investing in the energy or water sectors, or in roads, ports, railways or aerodromes, is exempt from WHT pursuant to Legal Notice No 91 of 2015.

CGT

Gains from the disposal of real estate are subject to CGT; see 2.10 Taxes Applicable to a Transaction.

Rental Income Tax

Rental income tax is paid by residents earning annual rental income of between KES288,000 and KES15 million. The tax is charged monthly at a rate of 7.5% of gross rent received per month. No expenses or capital deductions are allowed to be deducted while calculating the tax.

This tax is not applicable to non-residents. Rental income earned by a non-resident is subject to WHT at a rate of 30% of the gross rental income received.

There are no specific tax benefits from owning land. However, the following expenditures are allowable deductions when determining a person’s taxable income:

• capital expenditure incurred on legal costs and stamp duty in connection with the acquisition of a lease for a period not exceeding 99 years of premises to be used for business purposes;
• capital expenditure by the owner or occupier of farmland for the prevention of soil erosion;
• sums expended during a year of income for structural alterations to the premises where the expenditure is necessary to maintain the existing rent (this does not include the extension or replacement of the premises); and
• capital expenditure incurred by the owner or tenant of agricultural land in clearing that land, or in planting permanent or semi-permanent crops thereon.

REITs also enjoy the following tax exemptions.

• REITs and their investee companies that have been registered by the Commissioner of Domestic Taxes are exempted from income tax, pursuant to Sections 20 (1) (c) and (d) of the Income Tax Act, except for the payment of WHT on interest income and dividends as a resident person. This exemption does not extend to the unit holders and shareholders of REITs and investee companies.
• The transfer of assets into REITs and related transactions are exempted from VAT, pursuant to paragraph 33 of Part II of the First Schedule to the VAT Act.