Introduction

The Constitution of Kenya guarantees every person the right to own property.[1] A property owner is free to dispose their property as they will, and disposal of property in land has become a lucrative business in Kenya. With the supply of land remaining constant while the demand increases by day, land has become an invaluable commodity, desired and acquired by many. But just how easy is it to sell land in Kenya?

Pre-contractual stage

Selling property can be a complex process and without vigilance, a seller can easily stumble into pitfalls. Such pitfalls could cost a seller their investments and as such, the first step to selling property is to hire a lawyer. A lawyer will not only secure the seller’s interests in the transaction but also ensure legality in the completion of the transaction.

Secondly, it is important for a seller to open an Ardhisasa account. This is now mandatory   if the sale property is situate within Nairobi County. All transactions within the County can only be done through the Ardhisasa platform. This means that the seller must first ensure that their property is verified, before it can be disposed. Additionally, this will facilitate the purchaser to conduct due diligence more efficiently and timeously.

Thirdly, the seller should also confirm whether the property is subject to conversion. Conversion is the process of migrating land from the repealed registration laws and aligning them with the current land laws. Learn more about conversion here. A seller cannot deal in the property until it has undergone the conversion process. If the subject property has been listed for conversion, the seller should ensure that the property is converted before they can sell it. One can be able to navigate through these processes with the help of a qualified lawyer.

Contractual stage

The law requires all agreements for sale of land to be in writing, signed by all the parties and attested by a witness who is present when the contract is signed.This is a crucial stage where the seller needs a lawyer. The seller’s lawyer drafts the Agreement for Sale and negotiates the terms of the agreement on the seller’s behalf.

The seller n eeds to look out for the ‘Purchase Clause” which is vital in securing the vendor’s interests. It provides for the selling price and elaborates the manner in which payment is to be effected. This clause will be curved differently depending on whether the purchase is being financed or not. The lawyers also secure the vendor’s interests through a document known as a professional undertaking especially where the buyer is taking a loan facility to pay for the property. Professional undertaking is a promise given by an advocate to another qualified advocate, undertaking to do a certain action. This document enables the vendor to release completion documents upon assurance that they will receive the agreed purchase price.

The seller should also be keen not to allow the purchaser possession of the property before registration has taken place. This is because all the risks in the property are borne by the seller until registration of the transfer of the property is completed.  This is risky since the seller can only evict such a person peaceably or by court order (i.e. the buyer must leave on their own volition and if not the seller has no choice but to go to court).

Post-contractual stage

This stage mandates the seller to collate and surrender completion documents to enable the purchaser to register the transfer in their favour. The completion documents include the original title to the property, duly signed Transfer document, copies of the seller’s identification documents and KRA PINs.

Consents are essential completion documents that a seller is required to surrender to the purchaser to facilitate the process of registration. Consents help to validate land transactions by shielding the seller from a person who would have otherwise had a legal right to challenge the validity of the transaction. Such consents include Land Control Board Consent, Spousal consent. Most lawyers will require a seller who’s not married to swear an affidavit to that effect. This protects the seller from problems that could ensure thereafter. Once the seller has collated all the required completion documents, they are transmitted to the purchaser, upon payment of the remainder of the purchase price.

The actual transfer of interest in land is an obligation usually bestowed on the Purchaser. The seller’s mandate is to execute the transfer instrument. In the inception of Ardhisasa, the Seller’s obligations have been heightened to the execution and approval of the transfer on the Ardhisasa platform. This is to mean that both the Seller and the Purchaser must approve the transfer to signify that the transaction is voluntary.

The last facet of the transaction is fulfilment of tax obligations. The seller is required to pay Capital Gains Tax on the profit acquired on transfer of the property. Capital Gains Tax is payable on or before the actual transfer of the property, but not later than the 20^th day of the month following the month during which the transfer was completed. Initially, the Capital Gains Tax payable was 5% of the capital gained from the transaction. Currently, with the inception of the Finance (Amendment) Act of 2022, the rate has been increased by 10%. Therefore, Capital Gains Tax payable is 15% of the gains obtained from the sale of the property.

Conclusion

It is paramount for sellers to involve professional and creditable lawyers whenever they are selling land. This ensures that they receive proper legal advice and vigilant representation in protection of their interests. The above-discussed process can be daunting and complex. However, a lawyer irons out the complexity and helps the seller to avoid unnecessary pitfalls in the process.

Article by June Njoroge Ngwele and Fridah Gatwiri

Introduction

The Constitution of Kenya, 2010 grants every Kenyan the right to own property in any part of Kenya. Article 40(6), however, places a caveat on the enjoyment of the right to own property. It provides that such right shall not be enjoyed in respect to property which has been unlawfully acquired. This position was reinforced by the Supreme Court in its recent decision in Dina Management Limited v County Government of Mombasa & 5 Others (Petition No. 8 (E010) of 2021. In this landmark decision, the Supreme Court deconstructed the doctrine of indefeasibility of title and enlarged the buyer’s role in the due diligence process.

Indefeasibility of Title

Kenya operates under the Torrens Registration System which ensures that all titles to land in Kenya are registered and such records are accurately kept. Therefore, titles issued to individuals are conclusive evidence of ownership. Hence, official search results generated by the Lands Registry are expected to be a depiction of the correct ownership of the property.

However, the Supreme Court has affirmed that search results from the Lands Registry do not always show the correct state of ownership. In the much-contested ownership of land between the Appellant and the County Government of Mombasa, the court noted that the title is an end product of a process. The Appellant in this case had acquired the disputed property from a seller who had initially acquired the property from H.E. Daniel Arap Moi. It was urged that the former president acquired the property by allocation. The Court noted that the allocation process had been irregular and illegal and as such, he could not have passed a good title. Accordingly, any person who acquired the property from H.E. Daniel Arap Moi could not have obtained a clean title. On this basis, the court denied the appellant ownership of the property, noting that it could not find refuge in the doctrine of indefeasibility of title. Moreso, the court was quick to note that irregularly acquired title cannot be sheltered by the law under the pretext of the right to property since the right can be limited by law.

If the process preceding the issuance of the title is tainted by fraud and illegality, the title cannot be protected under the doctrine of indefeasibility of title. This places a heavy burden on the Purchaser and their advocates in the investigation of title.

Investigation of Title

Due diligence is a crucial facet of a land transaction. The duty of investigating the title befalls the Purchaser to ensure that they will acquire a good title, devoid of encumbrances. This enables the Purchaser to avoid potential contestations of the title. The Supreme Court’s pronouncement has broadened the scope of due diligence. Initially, the buyer would make an application for official search at the Lands Registry and the results would suffice as the correct record of ownership.

However, there are several loopholes that may not be revealed by Official Search Results from the Lands Registry. Such loopholes include erroneous or irregular registration of property as was the case with the Supreme Court Case at hand. With the new decision, the buyer is obligated to conduct a historical search on the property to ensure that the entire process of acquisition beginning from the initial allocation of the land to the current title has been proper and legal. Failure to conduct such extensive due diligence exercise could result in the buyer obtaining an unclean title, incapable of being validly transferred.

The bona fide Purchaser for Value without notice

A bona fide purchaser is defined in the Black’s Law Dictionary as:

“One who buys something for value without notice of another’s claim to the property and without actual or constructive notice of any defects in or infirmities, claims or equities against the seller’s title; one who has in good faith paid valuable consideration for property without notice of prior adverse claims.”

The doctrine of bona fide purchaser for value without notice protects purchasers who acquire property in good faith and without knowledge of any other adverse claims. The Supreme Court cited the case of Samuel Kamere v Lands Registrar Kajiado [2015] eKLR which provided the threshold for consideration of a bona fide purchaser:

1. The purchaser must have acquired a valid and legal title;
2. The purchaser must have carried the necessary legal due diligence to determine the lawful owner from whom they acquired a legitimate title; and
3. The Purchaser must have paid valuable consideration for the purchase of the property.

Against this backdrop, the Supreme Court also found that the Appellant could equally not find solace under the doctrine of a bona fide purchaser for value without notice. This is because the Appellant had not acquired a valid and legal title and it had also not conducted historical due diligence to ascertain that indeed the property had been validly owned since the first allocation. This finding buttresses the heightened obligations on the buyer to investigate the title beyond the Official Search results issued by the lands registry.

Conclusion

A purchaser must be diligent in investigating the title by exhausting all avenues of information to ensure that they obtain a valid and legal title that can be defended against any contestation. This obligation is especially burdensome in the wake of the ongoing digitization process which has complicated access to historical records. Even though the digitization process aims to correct anomalies and make it easier for due diligence, we still have a long way to go due to system hitches. Essentially, the Supreme Court’s decision will affect land transactions and even the use of property as collateral in the lending sector.

 Disclaimer

This article is intended for general knowledge only. It does not create an advocate-client relationship between any reader and Mboya Wangong’u & Waiyaki Advocates. For particular expert advice on any matter dealt with above, please contact us through jnjoroge@lexgroupafrica.com or fgatwiri@lexgroupafrica.com