A Review of the Salient Features of the Sectional Properties Act, 2020 and the Sectional Properties Regulations, 2021

 1.0 Introduction

The Sectional Properties Act, 2020 laws of Kenya (the “new law”) has effectively repealed the Sectional Properties Act of 1987, laws of Kenya (the “repealed law”).

The sectional properties law seeks to sub-divide buildings into units to be owned by individual proprietors and common property to be owned jointly by the proprietors as tenants in common.

The new law seeks to simplify the process of registration of sectional properties and create an enabling environment for investors and property owners. It seeks to guarantee the rights of property owners by conferring absolute rights to individual unit owners over their units and vest in them the reversionary interests thereto.

This will give the unit owners greater power and liberty to deal with their units as they please and it is anticipated that their transactional ability to access financing and dispose their units will be dramatically expanded. This will also motivate lenders and financiers to offer credit facilities to the individual unit owners as they may now charge the individual units directly without requiring the consent of the developer and or the manager.

We highlight the salient features of the Sectional Properties Act, 2020 as below: -

1.1. Leasehold Tenure

The sectional properties law applies to land held on a freehold tenure or on land held on leasehold tenure where the intention is to confer ownership. The new law has reduced the leasehold period to twenty-one years from the forty-five years required under the repealed law. This enlarges the purview of the sectional properties laws to extend to proprietors of all long term leaseholds which are defined in law as leases for a period of twenty-one years and above.

1.2. Nexus Between The Sectional Properties Act 2020 And The Land Registration Act, 2012

The efforts of the Ministry of Lands and Planning (the “Ministry”) in the recent past have been geared towards phasing out the different land registration regimes that have existed and give effect to the Land Registration Act, 2012 (the “LRA”); such that all dealings in or dispositions of land shall be registered under the LRA. The new law makes express reference to this by providing that the title to a sectional property shall be deemed to be issued under the LRA and all dealings and dispositions regarding the sectional property shall be in accordance with the LRA.

1.3. Registration And Mandate Of The Management Corporation

Upon registration of a sectional property, the individual owners are constituted in a Corporation which is responsible for management of the common property. The new law provides that upon registration of the sectional plan, the registrar shall issue a Certificate of Registration in respect of the Corporation. This was not the case under the repealed law.

The new law mandates the Corporation to do all things to ensure the common property is well managed and may engage the services of a property manager or any other person to this end. The new law further mandates the Corporation to establish an internal dispute resolution mechanism through the Committee established under the Act to hear and determine any disputes. It also empowers the Corporation to execute any of its duties by the use of technology. These provisions were not in the repealed law and reflect the dynamics of the current world.

The new law has repealed section 29 of the old law which provided for the compulsory appointment of an institutional manager and extensively set out the qualifications and duties of the said institutional manager who would be responsible for management of the units, any property of the Corporation as well as the common property. As discussed above, section 20(1) of the new law provides that the Corporation may, if it deems it necessary appoint a property manager to manage the common property.

1.4. Conversion of Sub-Leases

The new law further provides that all long term sub-leases intended to confer ownership on a mansionette, apartment, flat, town house or office that were registered before the new law shall be reviewed to conform with section 54(5) of the LRA and the proprietors thereto shall be issued with certificates of lease. The import of this provision is to transition all buildings to sectional status and guarantee the absolute rights of the owners of such units to deal with the same without being subject to the power and direction of the developer and or the management company.
This said review and transition of sub-leases shall be done within a period of two years from the date of commencement of the new law. This will not entail a transaction from scratch and an owner who has already paid stamp duty in respect of the said sub-leases shall not be required to pay stamp duty during the revision.
The process of conversion may be commenced by the developers, the management company or the individual unit owner. If the developer is unwilling to surrender the mother title for purposes of the conversion, the registrar may register a restriction against the title to prevent any further dealings on it.

The review process anticipated in the new law must be read and understood alongside the provisions of the Gazette Notice Number 11348 of 31st December, 2020 providing for conversion of land titles. It would appear that the efforts of the Ministry are geared towards bringing all land dealings in Kenya under the purview of the LRA as earlier discussed. The surrendered sub-leases would be subject to the new land registration units established under the said Gazette Notice depending on where the property is situated. Noting the timelines set out for conversion of the land titles commencing from the month of April, 2021, a diligent unit owner should peruse the Gazette Notice to confirm whether the mother title is part of the phase one of the conversion of land titles. It is not clear which of the two between the conversion and the surrender and revision of the sub-leases should precede the other or whether they can be undertaken at the same time.

1.5. Registration And Removal Of Caution In Respect Of Unpaid Amounts

The Corporation may register a caution against the title to an owner’s unit for any amounts due and unpaid by the owner, provided that upon payment of the amounts due, the Corporation shall within thirty days of payment withdraw the caution. The new law has prescribed the period within which the caution should be withdrawn. The repealed law was silent on this.

1.6. Renting Of Residential Units

Under the repealed law, an owner renting out their unit was required to disclose to the Corporation the amount of rent chargeable to the unit as well as pay a deposit to the Corporation for maintenance, repair and or replacement of the common property. This is not a requirement under the new law which recognizes the autonomy of an individual unit owner to deal with their individual unit as they please independent of the common property and the mandate of the Corporation.

1.7. Termination Of The Sectional Status Of A Building

Under the new law, the sectional status of a building may be terminated by unanimous resolution of the unit owners, the substantial all total destruction of the building or pursuant to an order for compulsory acquisition and the Corporation shall stand dissolved upon the termination of the said sectional property status. Under the repealed law, the sectional status would only be terminated by unanimous resolution or by an order of the Court. The Corporation was also required to apply to court for an order winding up the affairs of the Corporation.

1.8. Dispute Resolution

Under the repealed law, any disputes relating to the contravention of the by-laws of the Corporation were referred to a tribunal established under the Landlords and Tenants Act which was mandated to recover from an errant owner or tenant a penalty not exceeding Kenya shillings twenty-five thousands. Under the new law, disputes in relation to contravention of the by-laws are referred to the Committee which is an internal dispute resolution mechanism of the Corporation and without any prescribed limit as to the penalties to be levied.

Under the new law, in the event of non-compliance with an order of the Committee or if a party is disgruntled with the decision of the Committee, both may apply to the Environment and Land Court for enforcement of the order or in the case of an appeal from the decision of the Committee as the case may be. The repealed law provided that enforcement of an order of the tribunal in the event of non-compliance would lie with the Resident Magistrate Court and any right of appeal would be exercised at the High Court of Kenya.

The Sectional Properties Regulations, 2021

Introduction

The Cabinet Secretary for Lands and Physical Planning has gazetted the Sectional Properties Regulations, 2021 (“the Regulations”). Their objective is to operationalise the Sectional Properties Act, 2020 (“the Act”). The Act covers ownership of units in a building such as offices, apartments, flats, and townhouses. We summarize below the key provisions of the Regulations.

Salient features of the Regulations
A key aspect of the Act is that ownership of the unit is devolved to the unit owners and held exclusively by them. This is illustrated by the below:

Sub-division and Consolidation
Owner may sub-divide or consolidate their unit by registering a sectional plan of sub-division, or consolidation respectively. 

Where the subdivision or consolidation is likely to affect the incidental rights of other unit owners, their consent will be required. If the property is charged, the chargee’s consent will be required, as well. 

Apportionment of Rent and Rates 

The obligations to pay rent and rates is now on the unit owners. 

Rates Apportionment is determined by the County Government of the area the parcel is located. 

The Unit factor attributable to the unit, as computed below is one of the factors taken into account in determining rates or rent payable. 

Unit factors 

Each registered unit shall be allocated a unit factor/unit entitlement. The unit factor is critical in determining the ownership of Common Property held by all the unit owners as tenants in common and the number of votes that a person may cast in a poll. 

The unit factor may be determined in reference to any of these 3 factors or a combination: 

❖ by the unit floor area; or 

❖ by the selling/ value of the unit; or 

❖ by location/position of the unit e.g. a penthouse or a riverfront unit as opposed to the other units.

The recommended basis under the Regulations is the use of unit floor area, which is the simplest. The total of the unit factors for all units in the parcel is assumed to be 10,000, for ease in determining unit factors in whole numbers. 

Note: The size of the Common area is not factored in when determining the total area. 

Conversion 

Documents supporting a conversion application are the: sectional plan, sub-lease/ long term lease and the Title or a Copy of the Title of the parcel. Where the original title is unavailable, the applicant shall apply for a replacement title. 

After conversion, the Registrar shall issue the unitowner with a Certificate of Title/Lease. 

 Upon conversion, the management company should transfer all its assets and liabilities to the corporation within a period of one year from the date of registration of the corporation. 

If the property is charged, the application for conversion may be prepared by the developer, Management Company or unit owners but submitted by the chargee or its appointed representative for processing at the Lands Registry. Failure to make an application for conversion shall not invalidate a charge over a Unit meant to secure the unit owner’s obligations to a chargee. A charge may as well exercise its statutory power of sale and the Registrar shall issue a new sectional title in the name of the transferee upon registration of transfer by the chargee.

Conclusion 

The Regulations are a positive step towards the implementation of the Act, which seems to have a lot of confidence from the end purchasers.  

The Act requires conversion of long term leases within 2 years from its commencement i.e. December 28, 2020. With almost a year having lapsed before the publishing of the Regulations and considering any operational delays, it may be prudent that the Act is amended to allow the CS by gazette notice provide for the period within which conversion must be complete. 

Additionally, conversion where the Property is charged as security may be problematic for example where only a portion of the units have been sold. There would need to be co-operation between the developer and the buyers who were issued with long term leases, pursuant to a Partial Discharge. If these individual buyers had then used their units as security to other financial institutions, it presents another hurdle. Even where transfer of all units is complete to individual buyers, noting that securities are noted against the individual leases and not the Head Title, the accuracy of data to ensure no gaps in transition should be ensured. 

More so, a transparent and phased approach such as the one for Conversion of Land parcels, where a gazette notice is published identifying parcels that will be converted may be of some utility, as well as any records by Management Companies for any consents to charge also presented with the application.