Maybe you’ve been asking yourself how to go about with purchasing property in Kenya. Cherd Africa Limited has summarized the laws of property buying and the process involved during purchasing.
The Real Estate industry in Kenya is governed by;
- The Estate Agent Act Cap 533 of the laws of Kenya. The act provides for registration of persons who by way of business, negotiate for or otherwise act in relation to a selling, purchasing or letting of land and buildings erected thereon; for the regulation and control of the professional conduct of such persons and their remunerations.
Beside regulating real estate operations, it also protects members of the public from exploitation / fraud.
- The Land Registration Act, 2012 provides that the rights of a proprietor, whether acquired on first registration or subsequently for valuable consideration or by a court order cannot be defeated except as provided in the Act.
The Act further provides that the Certificate of Title issued by the Registrar on registration, or to a buyer of land on a transfer or transmission by the proprietor, must be taken by all courts as prima facie evidence that the person named as proprietor of the land is the absolute and indefeasible owner, subject to the encumbrances, easements, restrictions and conditions contained or endorsed in the Certificate.
The title is not subject to challenge except on the grounds of:
- Proven fraud or misrepresentation in which the person named as proprietor is proved to be a party.
- Where the Certificate of Title has been acquired illegally, unprocedurally or corruptly.
The Act also provides the right to indemnity. Any person who suffers damage due to any rectification of the register under the Act, or any error in a copy of or extract from the register or in a copy of or extract from any document or plan certified under the Act, is entitled to an indemnity.
- The National Construction Authority Act, 2011 which establishes the National Construction Authority and sets out its powers and functions. The National Construction Authority shall oversee the construction industry and coordinate its development and is given power for necessary performance. It also sets out application requirements and procedures for registration of persons and firms as construction contractors and punitive measures for contravening by individuals them. Additionally, the Act gives the Board power to inquire into the conduct of a contractor on its own initiatives and sets out suspension conditions for contractors.
- Environment and Land Court Act, 2011 (ELC Act) which establishes the Environment and Land Court (ELC) and sets out its powers and functions to hear and determine disputes relating to the environment and the use and occupation of, and title to, land, and to make provision for its jurisdiction functions and powers, and for connected purposes.
- Environmental Management and Coordination Act, 1999 (EMCA) which deals with environmental issues and establishes the National Environment Management Authority (NEMA). Act provides for environmental protection through;
- Environmental impact assessment
- Environmental audit and monitoring
- Environmental restoration orders, conservation orders, and easements.
- Physical and Land Use Planning Act (Act No. 13 of 2019) (PLUPA) which repealed the Physical Planning Act, Cap 286 and provides the framework on matters relating to land use development planning, development control, enforcement and dispute resolution;
- Stamp Duty Act (Cap 480) which provides for the levying and managing of stamp duties.
- Income Tax Act (Cap 470) which provides the legal framework for levying and computation of capital gains tax on transfer of property.
- The Value Added Tax, 2013 which provides the legal framework for levying of value added tax on the sale, leasing, renting of commercial properties.
- The Land Laws (Amendment) Act 2016 which amended the land laws to align them with the Constitution. The Act places restrictions on transactions in “controlled land”. No transaction in controlled land, including a transfer for a consideration or by way of trusts, gift inter vivos or otherwise to an ineligible person, shall be dealt with without the prior written approval of the Cabinet Secretary. it also concerns the prohibition of unlawful occupation of private community or public land and eviction from such lands.
- Value for Rating Act which empowers County Governments to value land for the purposes of rates. This Act imposes a duty on local authorities to cause a valuation to be made of every rate able property within the area of the local authority in respect of which a rate on the value of land is imposed. This shall be done at least once in every five years or such longer period as the Minister may approve. The values of the valuation shall be entered in a valuation roll.
- The sectional properties act, 2020 provide for the division of buildings into units to be owned by individual proprietors and common property to be owned by proprietors of the units as tenants in common and to provide for the use and management of the units and common property and for connected purposes.
Foreigners Purchasing Regulations
Just like Kenyan citizens, foreigners are permitted to buy commercial and residential properties/ land located within a town or municipality without any restrictions whatsoever, provided that they comply with the laid down procedures.
Article 65 of the Kenyan constitution limits foreigners to holding only leasehold titles to a maximum of 99years but permits future renewal on condition that the subject property held under that title is economically active and is not required for public use purpose.
This therefore means that if a foreigner purchases a property held under a freehold title, it will revert to leasehold.
- Identifying of property
The purchaser begins with identifying a suitable property for purchase.
The purchaser should endeavor to visit the site and satisfy themselves that it meets the desired criteria including its physical location and boundaries.
- Formal Expression of interest
The buyer makes a formal expression of interest/ offer subject to contract detailing their offer price, terms of payment and advocate details.
If the offer is accepted by the seller, then the vendor prepares a Letter of Offer confirming the details of agreed transaction.
- Due Diligence
After an offer has been accepted, the buyer conducts due diligence on the property.
In addition to conducting an official search on the tittle at the land’s offices, they also engage a licensed surveyor to ascertain that the land size and boundaries indicated on the deed plan match what’s on the ground. Also, the purchaser checks whether the vendor has paid all outstanding land rates and land rents.
The documents required from the vendor for due diligence include;
- Title deed
- Approved plan
- NEMA Approvals
- NCA Approvals
- Certificate of incorporation if vendor is a company
- ID if seller is an individual
- Contract Stage
If due diligence is successful, buyer then instructs advocate to proceed.
The procedure may vary slightly depending on whether one is buying a complete property (ready for occupation), land or an off-plan property. The main difference is the payment term.
Buyer signs the letter of offer as a sign of assurance to transact. Normally the turnaround period for signing the Letter of Offer is between 7 to 14 days from the date of issue.
Some letters of offer demand that buyers pay a down payment / deposit of at least 10% of the purchase price immediately after signing it.
In this case, the deposit is held by the sellers advocates as stakeholders pending completion of the transaction in accordance with the terms of the sale agreement. Alternatively, the buyer and seller can mutually agree to open a joint account mandating both their advocates to oversee the purchase fund until completion of a sale.
- It is important to note that in Kenya, Letter of Offer are always subjected to contract and not treated as legally binding contract but rather a part that in principle, both parties have accepted to deal at an agreed price.
- Execution of sales agreement
Transaction only becomes legally binding after signing the sales Agreement.
Buyers will normally forfeit a percentage or all of the deposit if the default or are refunded the said deposit if the seller is unable to complete the transaction.
Execution of sale agreement is done by both parties consenting to it.
Execution under the relevant Kenyan law consist of the person appending his/her signature or affixing his/her thumb print or other mark as evidence of personal acceptance of the instrument
Execution of sales agreement outside Kenya is permitted, however the same should be endorsed on it or have attached to it a certificate in the prescribed form, completed by the judge, magistrate, notary public, commission of oaths.
- Completion of sale
On completion date, buyer is required to pay full balance of the purchase price in exchange for the completion document from the seller.
Similarly, buyers opting for mortgage funding on the balance of purchase price, must provide an irrevocable undertaking / bank guarantee issued by their banks advocate to the seller’s advocate.
Once the buyers’ advocates are in receipt of the completion documents, they make arrangements for the property to be assessed for stamp duty by the government valuer and subsequently stamping of transfer documents.
Thereafter, they proceed to lodge the property for registration in favor for the buyer. After the registration process, the seller advocate is legally permitted to release the full proceeds of the sale to the seller.
Consequently, the buyer is officially handed over possession of the property and becomes the new legal owner.