How to Avoid Scams When Buying Property in Kenya While in Diaspora.
“It is common knowledge, and well documented, that the land market in Kenya is a minefield and only a foolhardy investor would purchase land with the alacrity of a potato dealer in Wakulima market. “
These are words of the Court of Appeal Judges in the case of Arthi Highway Developers Limited v West End Butchery Limited & 6 others [2015] eKLR where the court appreciated the risks of buying land in Kenya and emphasized on the need by a Purchaser to undertake and exercise due diligence before buying the land.
The way to avoid being “scammed” when investing in land/property is by following the right legal steps and engaging the right professionals all throughout the process until completion.
The Procedure of Land Acquisition in Kenya.
- Due Diligence
- Sale Agreement
- Completion Documents
- Charges/Costs related to land transactions
- Interests under which Land can be Owned in Kenya
- Due Diligence
Due diligence is the process by which a purchaser investigates the Vendor’s title to determine its validity and inspects the condition of the property to enable the Purchase make an informed decision on whether to proceed with the transaction.
Due diligence involves investigation of:
- the Vendor’s title to the property (or interest) to ensure that the Vendor has a good title to the property
- the extent of any legal rights, restrictions, caveats and encumbrances on the property.
- whether any third-party consents are required e.g. spousal consent, Land Control Board Consent e.t.c.
- any other legal liabilities or obligations resulting from the purchase (eg VAT, stamp duty land tax liability and Land Registry fees)
It is the duty of the Purchaser in the contract of sale of land to conduct due diligence and inform and inform herself on all the relevant aspects concerning the property he seeks to purchase.
To undertake extensive due diligence, it is advisable to conduct the following:
- Official Search: This is done by the registrar at your request. The registrar then issues you with a search certificate containing the ownership details, whether there are any caveats, restrictions, e.t.c;
- Personal Search: You visit the land registry and carry out an inspection of the documents/parcel file to confirm that the entries on the title/register are supported by requisite documents.
- Search at Survey Office: Every land registration district has a survey office. The survey office maintains a registry index map which determines the boundaries, acreage and confirms that the property is actually registered. Registration of land starts from Survey department since it issues L.R numbers.
- Physical Inspection of the property: This assists in confirming who is in possession/occupation of the land, boundaries.
- Due diligence on the identity of the Vendor. Where the vendor is a natural person, a copy of Identity Card and K.R.A PIN Certificate would be sufficient. KRA Itax Website provides for PIN Checker from which you can validate the PIN and the I.D Card.
- If the Vendor is a company, a copy of the Certificate of Incorporation and CR12 (list of directors) is sufficient. Always confirm these documents by conducting a search at the company’s registry.
In addition to legal due diligence, the Purchaser may require the following professionals to carry out due diligence:
- valuers to advise on the value of the property;
- surveyor to advise on the boundaries and size of the property;
- physical planner to advise on likelihood of success of a proposed planning/development application.
ii.Sale Agreement & Transfer
Any contract for sale of land and any disposition of land must be made in writing. Section 38 of the Land Act 2012 as well as Section 3 of the Law of Contract Act provide that for an agreement to buy land to be enforceable in court, it ought to be in writing and signed by each party with witnesses attesting to the signatures. This means that if you enter into an oral agreement to buy or sell land, the courts would not recognize the agreement as having taken place in the event there are any disputes.
Section 35 of the Advocates Act provides that any document dealing in disposition of land must be drawn by an advocate. In addition, parties to the sale agreement must execute/sign and the signature of each person must be attested by a qualified person. Both the Law of Contract Act and Land Act define a qualified person for attestation as an advocate, magistrate, judge or deputy registrar.
Contents of the agreement for sale:
- Identity of the parties- including the names, identity card/passport numbers and the address. If possible, include even an email address.
- Identity of the property being sold. Identity of the property should include legal description i.e land reference, plot number. Also includes physical description, including the location and condition of the property e.g vacant or in possession.
- General conditions: Apply or are implied to a contract by application of the law unless otherwise stated. These include LSK conditions for sale. They regulate right of the parties to receive deposits, charge interest or right of forfeiture of deposit, when possession is to be granted to the purchaser.
- Special conditions: these are the terms that are specific to the particular transaction. E.g who is to obtain the consent, pay stamp duty, legal fees and completion period.
- Completion Documents
These are the documents held by the seller which are handed over to the buyer in exchange of payment of the balance of the purchase price to enable the Purchaser transfer the title/ownership of the land/property to herself.
Completion documents vary depending on the tenure of the property. The most basic & common completion documents include:
- Original Title Deed/Certificate of Title/Lease/Conveyance
- Executed transfer of interest in land/indenture of conveyance
- The Land Control Board application for Consent to
- Land Control Board Consent to Transfer
- Head Lessors/Manager’s Consent (where the property is sub-lease e.g apartments)
- Spousal Consent
- Identification documents such as National Identity Cards, KRA PIN Certificates and coloured passport size photographs
- For newly completed properties, certificates such as Certificate of Practical Completion and/or Certificate of Occupation.
i.v Charges/Costs incidental to acquisition of land
- Stamp Duty:
Stamp duty is a tax charged pursuant to the Stamp Duty Act, Cap 480 on several transactions such as stock, shares or transfer of property.
The rate of stamp duty on transfer of immovable property varies depending on the location of the property.
Rural areas attract a stamp duty of 2% of the value of the land while urban areas attract a duty at the rate of 4% of the value of the land.
It is the buyer’s responsibility to pay the stamp duty on transfer of immovable property.
- Rates & Rates Clearance Certificate:
Rate is imposed pursuant to the Valuation for Rating Act, Cap 266, which allows/authorizes all County Governments authorities established under the County Governments Act to raise revenue from land located within their municipalities/towns/jurisdictions.
For you deal with land in municipalities/towns you require a Rates Clearance Certificate which is issued once the Rates have been paid.
- Land Rent
Where land is held under leasehold tenure, you are required to pay annual rent to the government. Once you pay the annual rent, you must apply for and you are issued with a Land Rent Clearance Certificate.
- Interests under which Land can be Owned in Kenya
Article 40 of the Constitution guarantees the right of every individual to acquire and own land in Kenya, either individually or in association with others. However, this right does not extend to property that is found to have been unlawfully acquired. In this regard, Kenyan citizens have the right to own land of any description in any part in Kenya.
Further, they cannot be deprived of their right over or interest in land, except under exceptional circumstances provided by the Constitution e.g compulsory acquisition.
Rights and interests can be divided into two classes: freehold and leasehold.
- Free-hold Interest.
Free-hold is, in simple terms, an interest which can be held for life. It is an interest which on the death of the owner, can descend to the heirs and the estate may continue forever.
- Lease-hold Interest.
Unlike freehold interest, leasehold interest is granted for a fixed term. The terms can be 50 years, 99 years, 999 years or a period otherwise stated in the title document. The common thread that runs through the terms is that a leasehold interest in land is an interest for exclusive possession and profit of land for a fixed period and usually in consideration of payment or rent.
On expiry of a leasehold term, the property reverts to the government. Proprietors of leasehold titles should ensure that they adhere to the conditions under which the land is held and apply for renewal. The process of application for renewal should commence at least two to three years before the term expires.
- Foreigners and Interests in Land
While the Constitution grants all persons the right to own land in Kenya, Article 65 states that foreigners can hold land in Kenya only under a leasehold tenure. Such a leasehold tenure cannot exceed a 99-year term. However, on expiry of the leasehold term, lease renewal may be sought.
Any document which purports to confer on a foreigner an interest in land greater than a 99-year lease is regarded as conferring a 99-year lease and no more. This means that foreigners can purchase freehold land and leasehold land for more than 99 years. Even so, the implication of the Constitution’s provisions is that this is deemed as conferring a 99-year leasehold interest only on the foreigner.
