Legal Process of Buying Land or Property in Kenya

Legal Process of Buying Land or Property in Kenya

In Kenya, locals and foreigners are permitted to buy commercial and residential real estate/lands located within a town or municipality without any restrictions whatsoever provided that comply with the laid down procedures.

However, for the agricultural land, foreigners or privately-owned companies whose shareholders are not all Kenyan citizens are not permitted to buy such land unless where such transaction has been exempted from the provisions of the Land Control Act by the President pursuant to section 24 thereof. The land control boards, which are established under the said Act, are prohibited from granting consent to transfer in respect of persons or companies that do not qualify to hold agricultural land.

Under the new Kenyan Constitution 2010, persons who are not citizens of Kenya, as well as companies whose shareholders are not Kenyan citizens, can only own land on a leasehold basis for a term not exceeding 99 years. In other words, such persons cannot own land on freehold tenure.

In summary, the procedure for buying land in Kenya is as detailed hereinbelow.

N/B: It is extremely important for buyers to use professional and reputable lawyers whenever they are buying land in Kenya in order to receive proper legal advice and representation in the entire sale process and thus avoid unnecessary pitfalls and dealing with cons. Equally important, the purchaser should avoid making any payment directly to the vendor or his agent, and such monies are better channeled through his lawyer so that he can take the requisite precautions.

1. Identification of the Land

The process of land purchase starts with the buyer identifying a suitable land for purchase. One can enlist the services of a reputable real estate agency firm to assist him in identifying a suitable land for purchase and connect him to the seller. Once the land has been identified, the buyer should endeavor to visit the site and satisfy himself or herself that the land meets the desired criteria including its physical location and boundaries.

2. Conducting the requisite searches and preliminary investigations

Land in Kenya is registered under three registration regimes

The previous land registration laws (that is, The Government Lands Act, the Registration of Titles Act, and the Registered Lands Act) have now been repealed and replaced by the Land Act, the National Land Commission Land, and the Land Registration Act. The Land Registration Act provides for a registration unit in every district and the land registries established under the repealed laws are still operational.

The buyer or his lawyer should get a copy of the title and National Identity Card of the seller and conduct the requisite searches both for the land at the relevant lands office and also of the person named in the title as the registered owner at the Registration of Persons Bureau.  The latter will help to confirm that the purported owner of the land is the real owner of the land an impostor.

To conduct a search, one is required to file a search application form and attached a copy of the title deed. The search is then required to be lodged at the registry and the requisite search fees (current at KShs. 500/- paid. It takes 2-3 days to get search results from the Lands registry. The search result should be able to reveal the following details:-

(i) the registered owner of the property;

(ii) its size;

(iii) any encumbrances registered against the titles like prohibitions, court orders, cautions, and caveats;

If the search results are satisfactory, one should also check whether the land is included in the Report by the Commission of Inquiry on the Illegal and Irregularly Allocated Land, commonly known as the Ndung’u Land Report.

Moreover, it is usually prudent for the owner to enlist the services of a registered surveyor who shall be able to confirm the beacons on the land and conduct further preliminary checks at the Survey Department.

3.  Price and terms negotiation and the sale Agreement

If the proposed buyer is satisfied by the preliminary investigation and check highlighted in 2 above, he should, together with his advocates, or alone, engage the vendor or his agent for purposes of discussion and agreeing on the terms of sale including the price and the terms of payment. Usually, the buyer is required to pay a 10% deposit and the balance of the purchase price upon completion of the sale transaction.

Once the parties have agreed on the terms of sale, the Vendor's advocates should prepare the sale agreement and send the same to the vendor for his approval.

The sale agreement will set out the terms of sale including the name of the parties, the purchase price and mode of payment, the completion period (which is usually 90 days) and the completed documents to be furnished by the seller/ vendor to enable registration of the transfer of property in favor of the purchaser. Invariably, the sale agreement will incorporate the Law Society Conditions of Sale (1989 Version), which is a codification of the customary terms of sale adopted by the Law Society of Kenya, and these terms will apply, by reference, to the agreement of the parties unless otherwise excluded or varied by the parties in their agreement. It is also common for the sale agreement to incorporate a suitable arbitration clause, which provides for a mechanism of ease dispute resolution.

Where the balance of the purchase price is being financed by a bank or financier, the same should be stated in the sale agreement. In such a case, the transfer of land in favor of the purchaser and the charge over the property in favor of the financier are registered concomitantly, and once the original title and security documents have been forwarded to the financier by the financier's advocates, the financier shall settle the financed balance of the purchase price to the Vendor or his advocates.

It is important to note that where the purchase is being financed in the payment of any part of the purchase price, any part of the purchase price that is not being financed must be paid to the vendor's advocates and the purchase's advocates or the advocates acting for the financier must furnish the vendor's advocates with a suitable professional undertaking to secure the payment of the financed balance of the purchase price. If such undertaking is satisfactory to the vendor's advocates, he should forward the requisite completion documents to the financier's advocates to undertake the stamping and registration formalities.

Once the terms of the sale agreement have been agreed between the parties, the agreement is engrossed and executed by the parties or their power of attorney.  The purchaser should be the first to sign the sale agreement, which should be forwarded to the vendor's advocates for the vendor's execution accompanied by the deposit cheque or evidence of the payment of the same.

Once the vendor has executed, the vendor's advocates should note to present it for stamping with duty (currently KShs. 200 for the original and KShs. 20 for each counterpart) at the land's office. This is important because of the rule that unstamped documents cannot be accepted by a court of law as evidence in the event of a dispute.

It is important to note that the deposit monies should be held on stakeholders' terms (as trustee) by the Vendor's advocates pending the completion of the sale and should not be released to the vendor unless otherwise agreed by the parties. Moreover, where the purchase price is paid in full, the same should be held on stakeholder's terms by the vendor's advocates until completion of the sale transaction, which is signified by the registration of the transfer at the lands office in favor of the purchaser. For this reason, the purchaser must insist on the vendor's advocates being the reputable firms of advocates, and where the vendor's advocates cannot be trusted, the monies should be held in a joint account in the name of the vendor and the purchaser's advocates or an independent escrow agent.

4. Preparation of the Transfer and Getting the Completion Documents

The transfer is usually prepared by the purchaser’s advocate and approved by the vendor’s advocate. The documents should also be signed by both parties.

Unless otherwise stated in the sale agreement between the parties, it is usually the vendor's duty to obtain all the requisite completion documents, which are required to effect the registration of the property in favor of the purchaser) at his own costs. These documents include:-

(a) The original title for the property

(b) The transfer of property duly executed by the vendor/ seller (in triplicate);

(c) Identity Card/ Certificate of Registration of the vendor/ seller and Pin Certificate;

(d) Three(3) passport-sized photographs of the seller/vendor. If the seller is a company, photographs of two of its director or a director and company secretary and their Pin Certificate will also be required;

(e) Land Rent Clearance Certificate for the Property, where the land is a leasehold from the Government;

(f) Rates Clearance Certificate for the Property issued by the relevant local authority (if applicable);

(g) original receipts evidencing the payment of rates and rates;

(h)(h) Consent to transfer the property issued by the Commissioner of land, the relevant land control board, or where the land is a leasehold from a local authority, the consent is issued by the Town Clerk of the relevant local authority.

(i)Valuation form duly completed by the Vendor or his advocate;

If the property is a flat/apartment or office space and comprised the of a lease, additional completion documents will include:

(a) the original lease for the property and the transfer of lease duly executed by the parties, as appropriate;

(b) the consent by the lessor and/or the management company, incorporated in the transfer of lease,

(c) the letter from the management company confirming that the seller has paid all the outgoings;

(d) the original share certificate in the management company;

(e) the transfer of share form duly executed by the parties;

(f) Form D in respect of the share transfer duly signed by the company's auditors;

5. Stamping and Registration Formalities

The purchaser is usually responsible to cater to the costs of the stamp duty on the transfer of property and registration charges.  The stamp duty on the transfer of property is collected by the Kenya Revenue Authority and is payable pursuant to the provisions of the Stamp Duty Act, chapter 480 of the laws of Kenya. Before duty is determined, the vendor's advocates must apply for the valuation of the property at the Land Office, which is undertaken by the government valuers, who are required to determine the market value of the property. This application is done by lodging the duly signed transfer of property and the valuation for stamp duty form duly signed by the vendor or his advocates (referred to above).

Once the valuation has been completed, the market value of the property (not necessarily the value indicated by the transfer) will be indicated on the original transfer of property by the collector of duties. Thereafter, the vendor's advocates will need to present the documents to the lands office for assessment of the duty payable. This is done by filling a form known as the stamp duty Declaration, Assessment, and Pay-in Slip, which is complicated in quadruplicate.

As stated before, the stamp duty is collected by Kenya Revenue Authority and should be paid to the Commissioner of Domestic Taxes through various banks which have been appointed as collecting agents. Currently, these banks include Kenya Commercial bank Limited (KCB), and National Bank of Kenya Limited (NBK).

Once the duty has been paid over the counter through the collecting either of the collecting agent banks, the documents are then lodged at the lands office for stamping with duty. The collector of stamp duties will normally stamp the documents once he is satisfied that the collective amount of stamp duty has been paid.

The following are the rates applicable on the transfer of land:-

Where land is in a municipality- the duty is 4% of the market value of the land as determined by the Government valuer. The market value may be higher than the value indicated by the parties in the transfer documents.

Where land is agricultural or outside a municipality- the duty is 2% of the market value of the land as determined by the Government valuer.

In respect of a charge or mortgage – the duty payable is 0.1% of the mortgage amount.

Once the transfer of land or charge over the property has been stamp duty with duty, the transfer documents accompanied by the original titles, land rent and rates clearance certificate, consent to transfer, the duly completed valuation for stamp duty form, and the stamp duty declaration, assessment and pay-in-slip should be booked of registration.

Where the purchaser is being financed, the charge over the property and consent to charge must also be booked or lodged for registration together with the transfer.

6. Registration

The final process of land purchase is the registration of the transfer in favor of the purchaser, or the transfer of property/lease and the charge in favor of the purchaser and the financier, as the case may be.

Once the duly registered transfer has been released to the purchaser or his advocate, it is important to verify registration by conducting a search of the property.

Where the purchaser is being financed, the duly registered documents including the original title for the property, transfer, and the charge are forwarded to the financier to enable its to settle the balance of the purchase price. These will be held by the bank/financier until the loan has been repaid in full.

7. Development Permission

Where the property is intended for use in the construction or erection of a building, after the purchase, the owner will be required to obtain the requisite development permissions from the relevant local authority.

If the proposed development is likely to have any adverse impact on the environment, the owner will also be required to commission an environmental impact assessment report and obtain an environmental license from the NEMA before undertaking any development on his property.

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