The role of the Firm/Advocate is to enable the client to make the right choices and deliberations regarding the intended property being purchased and get value for money. The Advocate plays the role of a manager in the entire transaction whereby all the talking/drafting is to be done by him/her on behalf of the client. The Law of Contract stipulates that all the contracts that relate to property ought to be in writing to ensure their enforceability, and this is possible through the advocate to cushion the client from dubious property deals.
The Advocate should in this case prepare the sale agreement, title documents, and approve the transfer. Some of the crucial details to be keen with include:
i. The details of any mortgage or charge of the property – if there is – the name of the lender and outstanding balance.
ii. The expected date of completion of payment especially in cases where the purchase is by installments.
iii. The procuring execution of the conveyance (transfer of property), attesting documents, receiving, and accounting for the proceeds of the sale to his/her client. Notably, the advocate for the buyer will require similar information and further advice on finances, legal costs, and possible future liability for taxes.
iv. As a purchaser, your advocate must be vigilant to cushion you from possible fraud lest he or she is wrapped for professional negligence.
v. The Advocate must carry out an official title search of the property at the Ministry of Lands towards ascertaining the legal owner.
vi. The Advocate should scrutinize the search certificate issued by the Ministry, approve the sale agreement, and prepare the transfer.
vii. The advocate will also stamp the legal documents and forward them for registration as required.
viii. The Advocate also has to obtain and pay the purchase money to the advocate representing the seller of the property.
ix. Further duties of the Advocate include obtaining a rates clearance certificate, land rent certificate, and consent of the Commissioner of Lands.
x. Others are obtaining consent from the land control board, town clerk and trustees, public corporation/authority where necessary.
It is worth noting that the procedure followed in purchasing property will depend on the type of property in question. The types of property include the purchase of a completed property (ready for occupation), vacant land, or off-plan property. The purchase of completed property or vacant land is quite straightforward compared to purchasing an off-plan property where one is required to consider the payment of installments to the vendor/developer.
Notably, the completion period for purchase of a completed property/vacant land is defined by the parties to the purchase agreement but most occasionally range from 90 days from the date that the agreement has been signed for the purchase and deposit paid. For the off-plan property purchase, the purchase price is payable in the form of installments as will be agreed between the parties, that is, the purchaser and the developer, until the project has been completed.
Further, that there are two regimes of land tenure in Kenya, the freehold property (that gives the owner of the title absolute ownership of the property and does not attract ground rent), and the Leasehold property (which confers to the owner a limited period of time to own the property which can be extended. The Kenyan constitution only allows leases of 99 years to non-citizen).
3.0 Legal Due Diligence
Before purchasing a property in Kenya, the buyer should conduct due diligence on the given property through the help of a qualified professional such as the advocate, surveyor, or architect. The potential buyer has to identify all the physical defects in the property which is only possible through the apparent help of qualified professionals.
The caveat emptor (buyer beware) rule imposes an obligation on any person intending to acquire an interest in the property to investigate the same. An official search should be conducted at the relevant Lands Registry to ascertain the legality of the title. An official search will show who the registered proprietor is and other material aspects like, restrictions and encumbrances (if any), and check for any land rates that may have accrued.
It is also advisable that the buyer ascertains that the property is not on a road reserve or riparian/wetland area. A look into the Report of the Commission of Inquiry into the Illegal/Irregular Allocation of Public Land (the Ndung’u Report) is also recommended to ascertain if the property is listed among those that were irregularly or illegally acquired.
It is also critical that a survey or physical inspection of the property is carried out by a qualified and licensed surveyor. This is important to identify the property beacons and boundaries to avoid disputes with owners of adjoining properties.
3.0 Contractual Stage/Sale Agreement
After parties have negotiated and agreed on the terms of the transaction like the purchase price, completion date among others, the terms are then crystallized in a written agreement. The Law of Contract Act (Chapter 23 of the Laws of Kenya) requires that a contract for disposition in the land should be in writing, signed by all the parties involved, and the signatures of the parties attested to by a competent witness. In most cases, the sale agreement will be prepared by the vendor's advocate. The Buyer should seek the services of an independent Advocate to ensure that his or her interests and rights are protected in the agreement.
In instances where either party is out of the country, the sale agreement can be signed by way of counterparts or by an attorney appointed by a duly constituted power of attorney to act on behalf of the party who is not present in the country.
4.0 Valuation
For purposes of stamp duty, an application for valuation must be made to the Government Valuer who then prepares a valuation report after making a site visit. The Government Valuer determines the true value of the property in the open market at the date of the transfer. The stamp duty payable is then calculated at a rate of 2% or 4 % depending on the nature of the property being acquired and the nature of the transaction.
5.0 Payment of Stamp Duty
The buyer is responsible for paying stamp duty, a tax levied by the Government based on the property value. Stamp duty is charged on the amount assessed by the Government Valuer after valuation or the purchase price, whichever is higher. The applicable rate of stamp duty is as follows depending on the nature of the property and its location:
· 4% for leasehold property mostly located in urban areas, municipalities, or cities.
· 2% for freehold land which is mostly agricultural land located in rural areas; and
· 1% for a property registered under a company and the transfer is by way of shares rather than title.
5.1 Commercial Property
For the purchase of a commercial property, the stamp duty/land tax is calculated as follows:
· 4% of the purchase price
· 1% if a property is registered as a company and transfer is by way of shares rather than the title
N/B- VAT is payable on the acquisition of trading commercial property. The current prevailing rate is 16% of the purchase price. This is in addition to paying the Stamp Duty.
6.0 Registration
Registration of the title is the last and most important stage when buying a property in Kenya. Registration is undertaken after completion. Completion will happen after the buyer pays the purchase price in full in exchange for the completion documents from the seller. The completion documents are then lodged at the Lands Registry for the transfer of ownership to be effected and a new title is issued thereafter. Once a buyer acquires a title of the property in their name, it is conclusive evidence of ownership. As for the Registration and disbursement fees, the Buyers are generally responsible for the cost of registration of titles in their name(s) together with other disbursement costs as may be advised by the seller’s advocate.
7.0 Agency fees
The agent is paid by the party who instructs them; either by the seller who instructs the agent to market their property or the buyer who instructs the agent for the property acquisition. The fee is on a scale capped at a maximum of 3% of the property’s value.
8.0 Legal fees
The seller and buyer each pay for the own legal fees as stipulated in the Advocates (Remuneration) (Amendment) Order of 2014. However, there is an exception where buyers pay legal fees for both parties when purchasing an apartment or property comprised in the development of many units. This is common practice informed by the fact that the seller's advocate registers the leases on behalf of the buyer.
8.0 Additional Information
Ownership of Property by Foreigners
Foreigners can own without any restrictions leasehold commercial and residential properties located within urban centers, municipalities, or cities. The Kenyan Constitution however limits foreigners to holding leasehold titles for a maximum of 99 years. Foreigners are however not allowed to own freehold properties including agricultural land.
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