CHAPTER 1: THE NATURE OF LAND AND CONVEYANCE LAW
1. JURISPRUDENTIAL FOUNDATIONS OF PROPERTY LAW
(i) First occupancy theory:
o The ‘first possession theory of property’ holds that ownership of something is justified simply by someone seizing
it before someone else does
o This theory proceeded on the basis that the first human user of a natural resource – a piece of land, for example
– is distinguished from all others in that he did not have to displace anyone else in order to take possession. It does not matter how he took possession of it or what sort of use he made/is making of it – what matters is that he was acting as the owner without displacing anyone else
(ii) Labour theory:
o This is a theory of natural law that holds that property originally comes about by the exertion of labour upon natural resources
o It is the justification of private property that is based on the natural right of one’s ownership of one’s own labour and the right to nature’s common property to the extent that one’s labour can utilize it (it is often used to analyse the natural rights of inventors, authors and artists in their own creations)
(iii) Utilitarianism + the law and economics approach:
o This theory looks to maximize utility for all when property decisions are made. The common statement for the utilitarian property theory is that in making a property the decision should do the greatest good for the greatest amount of people
o The problem with this theory is that there are many different definitions and ways to measure utility
o The Law and Economics approach is an off-shoot of the utilitarian theory and it requires looking at utility from an economic perspective and determining something to be of higher utility if it generates a larger amount of wealth
(iv) Personhood theory:
o This theory states that objects are closely bound up with personhood because they are part of the way we constitute ourselves as continuing personal entities in the world. They may be as different as people are different, but some common examples might be a wedding ring, a portrait, an heirloom, or a house
2. LAND AND PROPERTY RIGHTS IN KENYA
· Land law in Kenya is not a direct development of customary law to statute law – it is intertwined with European settlement in Kenya from the end of the 19th century, Arab settlement at the coast from early historical times and elements from the Zenj empire at its earliest
· Unfortunately, this has resulted in a complex structure of detailed land legislation, and the efforts to date are to have a comprehensive code of land law which can be easily understood
· Land in Kenya has historically been divided into three geographical categories: the scheduled areas, the coast and the trust lands
o Land in the scheduled areas was vested in the Government, and this land has generally been alienated by creation of leasehold titles and in very few instances, by creation of freehold
o Land in the scheduled areas was mostly reserved by the Colonial Government for Europeans, hence the common
term the ‘White Highlands’
o The coast was formerly the protectorate of Kenya and before independence it was leased by the British government from the sultan of Zanzibar
· Since independence, the policy of the Government has been to encourage granting of individual titles to land as a prerequisite to effective development of land à To do this, it has been necessary to set up machinery to adjudicate individual claims to land and to give to those whose claims are successful a free alienable title
3. THE NOTION OF PROPERTY
· Land is different from a chattel; while land is immovable property, a chattel is movable property; this is also why interests in land have immovable characteristics à Land under common law is generally referred to as real property while chattels (and other movable property) is referred to as personal property
· The difference between real property rights and personal property rights largely stems from the fact that real property rights are enforceable by taking possession, whereas personal property rights are generally enforceable by an action for damages à previously under the common law, land was the only object over which restitution could be employed
4.
INTRODUCTION
TO CONVEYANCING
· Conveyancing is defined as the ‘process by which legal title to property is transferred’. The Council of Licensed Conveyancers in England and Wales defines it as ‘the legal process of transferring a house or flat, commercial property or piece of land from one owner to another’
· Conveyancing may also involve a simple modification of title or involuntary transfer of interest, e.g. sale by a mortgagee
à the appropriate definition is thus: conveying/effecting the transfer of legal property, or modifying interest in relation to property, by means of a (written) document
·
· ‘Conveyance’ describes the document used to effect the conveyance, while ‘Conveyancer’ describes the qualified
professional or specialist lawyer retained by parties to a transaction to deal with the paper work and finances
· A Conveyancer must be qualified in line with the precedent set in National Bank of Kenya Ltd v Wilson Ndola Ayah [2009] eKLR (Court of Appeal): This case is precedent for the fact that an Advocate, practicing as such (including practice as a Conveyancer) must hold a valid practicing certificate, or else risk any documents drawn up at such a time when the Advocate was not holding the certificate null and void ab initio
o Qualifying as an Advocate (lawyer) is quite different to qualifying to practice as an Advocate (Section 9 and Section 34 of the Advocates Act)
o ‘It is public policy that courts should not aid in the perpetuation of illegalities. Invalidating documents drawn by such Advocates, we come to the conclusion that this will discourage excuses being given for justifying the illegality. A failure to invalidate the act by an unqualified Advocate is likely to provide an incentive to repeat the illegal act. For that reason alone, the charge and instrument of guarantee in this matter are invalid, and we so hold’.
5. HISTORY OF CONVEYANCING
· The history of conveyancing law in Kenya draws mainly from English law
· The earliest and most important form of conveyance was the feoffment
o This involved no formalities, save for a ceremony known as livery of seisin (‘delivery of possession’)
o The feoffment was an assurance note made by the feoffer (owner of land) that he had given his right over an estate to the feofee à the assurance note was accompanied by a formal public delivery of possession, usually in the presence feudal lords as witnesses
· The first relevant conveyancing statute enacted in Kenya was the Registration of Documents Act 1901 (RDA)
o Section 4 of the RDA requires (to date) that documents conferring a property interest be registered within the month of their making to ensure their availability in evidence
o Registration under the RDA does not act as a guarantee of title, but does act as evidence of the occurrence of a transaction and also to give efficacy to some conveyancing transactions
o Documents that can be registered include: Trust Deeds; Powers of Attorney; Building Plans, etc.
· Second came the Land Titles Act 1908 (LTA) which was enacted to deal with the haphazard deserted parcels of land at the coastal strip of the country (however, this also did not guarantee title)
· Next came the Government Land Act 1915 (GLA) which was enacted to deal with conveyancing and land titles in the interior hinterland
o It introduced a more systematic approach to registration by making it mandatory for all Deed Plans of parcels of land to be registered
o Title under the GLA could act as evidence of title – it was usually the last indenture of the conveyance (freeholds or the assignment (leaseholds)
· The fourth enactment was the Registration of Titles Act 1920 (RTA) which was based on the Australian torrens system (under which a state creates and maintains a register of land holdings, which serves as the conclusive evidence of title of the person recorded on the register as the proprietor, and of all other interests recorded on the register)
o It provided for registration of and guarantee of titles
o It attempted to make conveyancing simple by introducing a statutory conveyancing form (albeit not mandatory)
o Title documents under the RTA were: a Grant, a Certificate of Title or a Lease
· The Registered Land Act 1963 (RLA) was enacted to ‘modernize’ conveyancing
o Unlike the RTA, the RLA made statutory conveyancing forms mandatory (Section 108)
o Title documents under the RLA were: Title Deeds/Land Certificates (for absolute proprietorship); Certificate of Lease (for leaseholds) or a Certificate of Sectional Property (if it is a property under the Sectional Properties Act)
· Finally, the Land Registration Act 2012 (LRA) was enacted to repeal the LTA, GLA, RTA, ITPA and RLA
6. RELATIONSHIP BETWEEN CONVEYANCING AND OTHER BRANCHES OF LAW
· Land Law: land law gives us the principles that define rights and interests in land and has been referred to as ‘law at rest’. Conveyancing, on the other hand, deals with procedure or the practical legal mechanisms by which those rights and interests are transferred from one person to another and has been referred to as ‘law in motion’
· Law of contract: interests in land give rise to contractual obligations e.g. a lease, mortgage or charge
· Law of equity: equity is also relevant to conveyancing law and practice in so far as equitable rights and remedies are concerned
o The remedies include specific performance, injunctions, rectification and rescission
o If one has made an error in an instrument and that instrument has been registered, in order to rectify the error, rectification is needed to remedy the error; it becomes necessary to have the instrument of rectification
o Specific performance applies where there is a seller who has entered in agreement with a person to sell land to one person and then goes and signs another agreement with another purchaser for more money à If the first purchaser discovers this, he can go to court to seek an order for specific performance, asking the court to compel the seller to transfer the land to the first purchaser under the agreement for sale
· Law of succession: some understanding of the law of succession is also necessary in dealing with transactions involving personal representatives. The law operates to make it possible to transfer land (transmission) to the beneficiaries. Conveyancing tells us what documents we need to draft in order to vest the interests of the deceased to the beneficiaries
7. PROFESSIONALS IN A CONVEYANCING TRANSACTION AND THE ROLES THEY PLAY
(i) CONVEYANCERS (general): generally, the role of a Conveyancer is to represent the parties. Section 34(1) of the Advocates Act prohibits unqualified persons from either directly, or indirectly, participating in the transaction by taking instructions, drawing or preparing documents relating to the conveyance of a property, etc.
The general duties of conveyancers include:
1) Advising clients on the buying and selling process as well as the effect of transferring an interest in land
2) Investigating title
3) Drafting the various contracts, e.g. agreements for sale, leases, sub-leases, offer letters, transfer documents, etc.
4) Liaising with lenders, estate agents, advocates, etc.
5) Paying taxes when necessary (or ensuring the client has paid the necessary taxes), e.g. stamp duty, capital gains tax, land rates, land rents, etc.
6) Keeping records of all payments made for or on behalf of a client and preparing completion statements
7) Perfecting of the documentation, including proper execution, completion and registration
(ii) VENDORS ADVOCATE: this is the selling party’s advocate. The duties include:
o Obtaining information on:
a. Full names and addresses of the parties, the buyer’s/purchaser’s advocate and those of any estate
agents involved
b. Full particulars of the property concerned, including the address (where possible) and whether it is freehold or leasehold
c. The price of the property being sought by the vendor
d. Whether any preliminary deposit is required, and if so, whether the same has been paid (and to whom)
e. Details of any mortgage or charge on the property (if any), the lenders name and the outstanding balance
f. Whether the property is vacant, whether there are any chattels thereon, etc.
g. The expected date of completion and the fact as to whether the purchase monies are available
o Preparing the sale agreement
o Preparing the title documents
o Approving of the transfer or conveyance
o Procuring the execution of the transfer or conveyance
o Attesting the execution of the transfer or conveyance
o Receiving and accounting for the proceeds of the sale to the vendor
(iii) PURCHASERS ADVOCATE: this is the buying party’s advocate. The duties include:
o Obtaining information on:
a. Full names and addresses of the parties, the buyer’s/purchaser’s advocate and those of any estate agents involved
b. Full particulars of the property concerned, including the address (where possible) and whether it is freehold or leasehold
c. The price of the property being sought by the vendor
d. Whether any preliminary deposit is required, and if so, whether the same has been paid (and to whom)
e. Details of any mortgage or charge on the property (if any), the lenders name and the outstanding balance
f. Whether the property is vacant, whether there are any chattels thereon, etc.
g. The expected date of completion and the fact as to whether the purchase monies are available
o Carrying out the search
o Scrutinising the documents
o Approving the sale agreement and sending out requisitions for the same
o Preparing the transfer or conveyance and engrossing the same
o Attending to the execution of the conveyance or transfer where necessary
o Stamping and lodging the documents for registration
o Obtaining and paying the purchase monies to the vendor’s advocate
o The purchaser’s advocate must also advise their client on: finances, possible future liability for taxes, legal costs
and expenses of the conveyance, etc.
DUTIES COMMON TO BOTH PARTIES
1) Obtaining a Rates Clearance Certificate: this is required with respect to properties within municipalities. Once this certificate is obtained, the land may be charged or disposed off to another party (cannot effect or register a transfer or conveyance without the same). It is also important to note that rates must be paid whether the property is freehold or leasehold
2) Obtaining a land Rent Certificate: this is required where the land in question holds leasehold interest, and is not required where the land in question falls under the GLA
3) Obtaining a Discharge/Reconveyance: where the land in question is the subject of a charge, it must be discharged and a discharge obtained before the land can be re-conveyed. Where the land is mortgaged, a reconveyance must be procured
4) Obtaining consent of the Commissioner for Lands
5) Obtaining Land Control Board consent
6) Obtaining the Town Clerk’s consent
7) Obtaining consent of Trustees
8) Obtaining consent of a Public Corporation/Authority
9) Payment of Stamp Duty: it is charged pursuant to the Stamp Duty Act and is ordinarily 4% of the price declared in the transfer by the parties (for municipalities/urban councils) and 2% of the ad valorem for property situate in rural areas
WHEN ACTING FOR BOTH PARTIES
· This could give rise to ethical and professional responsibility issues
· The general principle is that an advocate is obliged to refrain from acting for both parties where there is a likelihood of conflict of interest or the possibility of a future conflict arising (King Woollen Mills Ltd v M/S Kaplan and Stratton Advocates)
OTHER INSTRUCTIONS TO BE TAKEN BY AN ADVOCATE
1) Name and address of client(s): if the client is an alias, this must be indicated. Where a person/client has different names, a statutory declaration must be sworn pursuant to the Oaths and Statutory Declarations Act
2) Details of the property being sold/bought, e.g. the Land Reference Number
3) When acting for a purchaser, it is good practice to obtain a deposit. This is not a legal requirement, but it shows commitment on behalf of the purchaser à Section 3 LSK Conditions dictate that 10% of the purchase price ought to have been paid before the agreement for sale is executed
4) Information pertaining to the completion date ought to be acquired when one is taking instructions. This date is important as it acts as a yardstick for establishing whether or not breach of contract has occurred. E.g. if one of the party’s defaults on or before the completion date, the other party acquires a right to rescind the contract
o Completion notice: this may be served by a party who is ready and willing to complete the transaction, and requires the receiving party to complete payment within 21 days of receipt of such notice. This notice may only be served after the contractual date of completion. If the receiving party does not complete within 21 days of receiving such notice, the party not in breach may rescind the contract
5) Information pertaining to the source of the purchase monies (especially where one is required to give a professional undertaking)
6) Information pertaining to the nature of the property ownership, e.g. is the property a subject of joint ownership/common proprietorship? Is the vendor a natural or juristic person?
(iv) ESTATE AGENTS: ordinarily, any contract of conveyance will have two parties: The Vendor and Purchaser, the Chargor and Chargee, the Lessor and Lessee. The third outsider is always the Conveyancer. However, most of the conveyancing transactions also have an outsider in form of an estate agent who brokers the conveyancing deal
o Brokers are recognised under the Estate Agents Act (Cap 533), and their role is to identify a party to the conveyance (i.e. purchaser, vendor or financier) at a commission
o The Act was enacted to ‘provide for inter alia the registration of persons who, by way of business, negotiate for or act in the selling or purchasing or letting of land or buildings erected thereon’
o Section 2(3) expressly exempts advocates from the provisions of the said Act
o For anyone to earn a commission as an Estate Agent, one must be registered under the said Estate Agents Act (Rajdip Housing Development Company Limited v J W Wambugu t/a Wambugu Company Advocates)
o In Mapis Investment (K) Limited v Kenya Railways Corporation it was held that it is a transgression of the law to practice as an estate agent when not registered under the Act, and doing so may result in the transaction being declared null, void and unenforceable ex turpicausa
o General duties of estate agents include:
a. Ensure land rates and rents have been paid
b. Source for suitable properties for their clients
c. Negotiate with sellers on behalf of the lawyers (when an agent for the buyer)
d. Bid at an auction when necessary (when an agent for the buyer)
e. Can appraise the property and advise on its value
f. Can market the property (when an agent for the seller)
g. Can offer advice on current market conditions (when an agent for the seller)
(v) LAND VALUER: they must be qualified under the Valuers Act (Cap 532). The duties include:
o Conducting valuations in respect of any type of movable property (Section 2 Valuers Act)
o Thus, they undertake valuations of all classes of property (commercial, residential, industrial, agricultural, etc.) to decipher the market value of these properties
o Determining the market value is important for purchases, sake, insurance purposes, payment of stamp duty, payment of capital gains tax, etc.
o Note: if the value of the property as declared on the transfer instrument is higher than the property’s actual value, then the higher value will be used to calculate stamp duty as opposed to the value as ascertained by the government valuer
(vi) PHYSICAL PLANNERS: they must be registered under the Physical Planners Registration Act (No. 3 of 1996). They are generally tasked with optimising the effectiveness of land in a community. The duties include:
o Involved in shaping towns, cities and rural areas
o Preparing long term plans, proposals for new development and examining those of other developments
o Can assist in changing the use of a parcel of land, e.g. from single dwelling to multiple dwelling
o Facilitating control of developments and liaising subdivision of properties within local authorities
(vii) ARCHITECTS AND QUANTITY SURVEYORS: both must be qualified under the Architects and Quantity Surveyors Act (Cap 525). Their role is to create the architecture of the development and estimate the quantities and cost of the materials, labour and time of development
(viii) LAND SURVEYORS: they must be qualified under the Survey Act (Cap 299). The duties include:
o Examine the condition of the land and the buildings thereon
o Examine the boundary lines and establish correct measurements of the land
o Re-establish the start of the construction work for any project
(ix) ENVIRONMENTAL IMPACT ASSESSMENT EXPERTS:
o Before any major developments to land are initiated, an assessment on the environmental impact the project would have on its surroundings must be conducted
o This assessment should identify both the positive impacts (and how to maximise on these) and the negative impacts (together with mitigation measures)
o NEMA issues a license once it is satisfied that the project has met the set criteria
o Thus, NEMA conducts an environmental impact assessment, after which it issues a certificate of compliance if satisfied with the project. Therefore, a purchaser would require the certificate to form part of the completion documents where necessary
8. SKILLS, KNOWLEDGE, DUTIES AND RESPONSIBILITIES OF AN ADVOCATE IN A CONVEYANCING TRANSACTION
· Skills:
(i) Proper understanding/grounding on laws applicable to a conveyancing transaction à land law, contract law, law of equity, etc. (e.g. familiarity with the LSK Conditions of Sale)
(ii) Basic IT skills as applications for registration of land transactions are now online, and drafting of instruments has also become a computerised process
(iii) Ability to detect fraud/ability to act diligently (so as to avoid negligent oversights)
· Duties and Responsibilities:
(iv) Follow conveyancing protocols to the letter
(v) Properly take instructions and follow up for confirmation of instructions (advisable for this to be in writing)
(vi) Keep attendance notes, record telephone conversations with the client, etc.
(vii) Make diary entries of important dates, e.g. completion dates
(viii) Create a good working relationship with your client (e.g. make the effort to see them in person and demonstrate your ability to handle the transaction at hand)
(ix) Create time for your client
(x) Advise your client to confirm the existence of the property (e.g. through physical examination and delineation)
(xi) Advise the client on the conveyancing procedure in a manner understood by a layman
(xii) Advise the client on any encumbrances which may hinder vacant possession
(xiii) Advise the client that it is her/her duty to discover any visible defects (‘caveat emptor’ rule)
(xiv) Answer client calls, correspondences, etc. (no matter the status of the transaction)
(xv) Brief the client regularly on the progress of the transaction
CHAPTER 2: DISPOSITIONS OVER LAND [CONTRACTS FOR SALE OF LAND]
1. NATURE OF CONTRACTS FOR SALE OF LAND
· A contract to sell or make any other disposition in land is made in the same way as any other contract – it is: an agreement for valuable consideration between the parties on essential terms
· Section 3(3)(a) + 3(3)(b) Law of Contract Act and Section 38(1)(a) + 38(1)(b) Land Act: a disposition of interest in land:
a) Must be in writing;
b) Must be signed by all parties; and
c) The signature of the signing parties is to be attested by a witness present when the contract is signed by such parties.
· However, the aforesaid provisions do not apply to:
a) A contract made at a public auction;
b) Creation or operation of a resulting, implied or constructive trust;
c) A verbal contract to be reduced into writing within two hears from the date of the enactment of the Act
· Section 44(1) LRA states that every instrument effecting any disposition under the Act shall be executed by each of the parties consenting to it, in accordance with the provisions of this section. And this is by way of appending a person’s signature on the document or affixing the thumbprint (or other personal mark) as evidence of personal acceptance of that instrument
· Note: to operationalise this section, however, the Cabinet Secretary has to put a notice of this requirement to reduce contracts in to writing in a newspaper of nationwide circulation
1.1 WHY CONTRACT?
· It deals fully with the matters that must be dealt with between the date of the contract and the date of completion – this also helps to crystallise the position of both the parties and reduce (or resolve) any disputes that may arise
· A contract binds the parties to the sale and prevents last minute withdrawals (which may have damaging financial consequences) as well as facilitates completion
· Parties may use the contract to confer special advantages on themselves
· Contracts may be used to transfer the legal interest on chattels to as to reduce the duty payable at the completion stage
· Contracts provide for remedies for breach of contract
· The contractual stage in general gives a purchaser time to investigate the title
· Contracts make the transaction enforceable and secure (Section 3(3) Law of Contract Act)
1.2 PURPOSE OF FORMALITY OF WRITING
· It is important to note that although a valid contract relating to land may be made orally, the same will be unenforceable by way of an action
· Kenya Institute of Management v Kenya Reinsurance Corporation [2008] eKLR: defendant advertised its property in the newspaper, to which the plaintiff made an offer, entered into negotiations and agreed on a price. The plaintiff sought financing, but by such time the defendant had sought to withdraw from the transaction. Though the court found that no agreement within the meaning of S. 3(3) existed, it granted the injunction on the basis of the high handedness of the defendant
· On the other hand: Mumias Sugar Company limited v Freight Forwarders (K) Limited Nairobi [2005] eKLR: it was held that no action could be brought since the S. 3(3) conditions were not satisfied, and the effect of non-compliance with the provision is not to make the contract void but merely make it unenforceable
· Generally, taking from the above, the functions of formality in writing may be summarised as:
(i) Forensic function: to avert and avoid fraudulent transactions in property (land) as well as provide simple and conclusive evidence that there was an agreement à Statute of Frauds 1677 expressly provided that the requirement of writing was intended to guard against fraud
(ii) Evidentiary function: the formality of writing encourages precision and recording the result for posterity. It helps to avoid disputes as to what interest has been or is being conveyed, as land has the ability to generate a multitude of interests from its original form in the freehold estate
(iii) Protective function: to protect persons in vulnerable situations who are not able to make informed decisions
(iv) Creation of obligations: enabling parties to re-think their decisions over land transactions without binding themselves
1.3 ESSENTIAL ELEMENTS OF A VALID CONTRACT
· Offer
· Acceptance
· Consideration
· Capacity
· Intention to create a legal relationship
· Certainty
1.4 TYPES OF CONTRACTS
(i) Oral contract: these are otherwise known as 'simple contracts’. They are ordinarily made orally, though they may be reduced to writing (but not under a seal). However, the requirement for consideration (which is explicitly agreed upon) is still applicable
(ii) Contracts evidenced in writing: terms of the contract have been reduced to writing, but it is not normally executed under seal
(iii) Formal contract: a written contract where parties have signed under seal
2. CONTENTS OF A CONTRACT
· It is open to parties to make a contract as they deem fit. In practice, however, certain standard forms of conditions (terms) have been settled on à Note: the terms must be certain
· The LSK Conditions of Sale 2015 outline various terms and conditions for the sale of property, and other terms may be found in Section 46 – 48 of the Sectional Properties Act (applicable to the sale of sectional properties)
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VENDOR IS BOUND |
PURCHASER IS BOUND |
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To disclose to the buyer material latent defects in the property |
To disclose to the seller information which may increase the value of the property |
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To produce, upon request, title documents |
To pay the purchase price upon completion |
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To answer all relevant questions from the buyer to the best of his information |
If the property is sold with encumbrances, the purchaser may retain part of the purchase price to cover such encumbrances |
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To execute a conveyance upon payment of the purchase price |
Once possession of the property is passed to the purchaser, he/she is bound to bear losses over the property not occasioned by the seller |
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To take care of the property and title documents between the date of contract for sale and delivery of possession of the property (Dharmshi v Abdul Reikham [1950] 204 eKLR) |
Once possession of the property is passed to the purchaser, he/she is bound to pay all public charges, rents, etc. |
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To hand over possession of the property upon completion |
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To pay all public charges and rent |
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2.1 CONTENTS OF A SALE AGREEMENT
(i) Parties: the parties to the contract must be properly identified and their addresses must be clearly noted. The address is crucial in the event that there will be need to issue a notice to either party
(ii) Particulars: this includes information such as:
a. The physical and legal description of the property;
b. Any encumbrances over the property (and an indication as to who will discharge the same);
c. Any fixtures and/or fittings on the property; and
d. The consideration (purchase price) for the property
(iii) Special conditions; these are sui generis/peculiar/specific terms, such as:
a. Capacity of the vendor;
b. Payment of the deposit;
c. Payment of balance and interest on unpaid purchase price;
d. Payment for chattels/fixtures/fittings;
e. Possession before execution or completion;
f. Time and schedule within which matters affecting the title must be dealt with;
g. Date of completion;
h. Remedies in the event of default;
i. Any exceptions and/or reservations;
j. The risk and liability for insurance pending completion;
k. The power of the vendor to rescind the contract;
l. The power of either party to serve a completion notice; and
m. Any situation where the sale has been made subject to a mortgage, consents, LSK Conditions for Sale, etc.
(iv) General conditions: these apply generally to the open contract and include implied terms developed over time (from common law, equity and conveyancing practice), Section 55 of the ITPA (repealed), LSK Conditions of Sale, etc. These general conditions cover issues on:
a. Rescission;
b. Preparation and content of transfer;
c. Possession and grant;
d. Deposit and forfeiture;
e. Notices and completion
(v) Execution: affixing of one’s mark on the document. This can be by way of signature, thumb print, duly appointed attorney,
common seal of a company, etc. The purpose is to state the capacity in which the parties are executing the document
2.2 EXECUTION/ATTESTATION
· Section 44 LRA states that:
a) An instrument effecting a disposition of interest in land must be executed by parties consenting to it;
b) Execution can be by way of appending a signature or affixing a thumb print (or any other mark) on the instrument by the person entitled to an interest on the conveyance;
c) Natural persons are allowed to sign by themselves or through their duly constituted Attorney(s);
d) For execution by a juristic person, the constitution, memorandum or charter must be produced to identify the person mandated to execute;
e) Execution by a company is through affixing of the seal and attestation is by two directors or a director and a company secretary;
f) For Government bodies, the establishing Act will provide who is mandated to execute documents; and
g) Limited Cooperative Societies will execute documents by affixing their seal thereto
· Attestation involves witnessing the signing of documents à the people capable of attesting instruments are listed under Section 6 Law of Contract, Section 44(3) LRA and Section 38(1)(b) Land Act
· Instruments executed outside of Kenya must be endorsed or accompanies by a certificate on a prescribed form, to be completed by a Notary Public, or any other person as the Cabinet Secretary may prescribe
· Cases: Shem Obondi v Sheemfod Holdings Limited [2005] eKLR; Lachand Fulchand Shah & Anther v Investments & Mortgages Bank Limited [2000] eKLR; Giro Commercial Bank Limited v Eccon Construction & Engineering Limited & Another [2014] eKLR
2.3 VERIFICATION
· Verification of signatures is governed by Section 45 LRA
· Instruments are generally to be executed in the presence of the Registrar, a Public Officer or a prescribed person, who should attest the signature and complete a certificate verifying the due execution of the instrument
· A person executing an instrument is to be accompanied by a credible witness to establish his or her identity, unless the person is known to the Registrar, Public Office or other prescribed person
· The Registrar, Public Office or other prescribed person shall identify the person and ascertain whether the person freely and voluntarily executed the instrument and shall complete the certificate to that effect
· The Registrar may dispense with verification where it cannot be obtained or it can only be obtained with difficulty. If he is satisfied that the documents have been executed properly, he shall record on the documents the reason for dispensing with the appearance of the parties
3. PRE-CONTRACT ENQUIRIES – THE INITIAL CLIENT INTERVIEW
· The first interview with the client serves as the foundation of the transaction – Good interviewing techniques are important to garner a full understanding of the facts of the transaction and also help to boost a relationship of mutual trust and confidence (Remember: the overall purpose is to gather facts and advise the client)
· A conveyancer’s overall duty is to advise the client, investigate the title and draft the conveyancing document(s) – success in these duties depends on the level of interaction with the client
· The purpose of the initial client interview is to gather all the relevant facts pertaining to the intended transaction and to afford crucial advice to the client on transactions generally and the particular transaction they are seeking to enter specifically
· The nature of the advice offered must be independent (BBK PLC v O’Brien [1994] 1 ALL ER):
o Explain the entire purpose of the transaction;
o Confirm that the client has understood the transaction and its related implications;
o Ensure you give the client choices;
o Discuss all possible conflicts of interest and weigh the interests of both parties (Mortgage Express Ltd v Bowerman and Partners [1996] ALL ER 836)
3.1
INTERVIEW ‘DON’TS’
· Rushing to a preliminary view of what is important and concentrating all efforts on a narrow view (legal peg holes);
· Do not forget to meet and greet (make small talk);
· Forget to clearly ascertain exactly what the client wants out of the transaction;
· Do not use legal jargon as this will confuse the client;
· Do not forget to check and confirm that the client agrees with the proposed plan of action;
· Do not cross examine a client as though they are in a witness box (let them talk and tell you what they want)
|
STAGE |
TASKS |
|
LISTENING |
Greet, sit and introduce; Elicit facts with open questions; Listen carefully to the basic outline of data. |
|
QUESTIONING |
Question on facts for gaps, depth, background, ambiguities and relevance; Sum up and recount your view of the facts – check for client agreement and amend approach where necessary. |
|
ADVISING |
State advice and/or plan of action and check for client agreement (advice should be independent – BBK PLC v O’Brien [1994] All ER; Royal Bank of Scotland v Etridge [2001] 4 All ER 449); Recount/follow up work to be done by the client; Recount/follow up work to be done by the lawyer; State next contact date, venue and time; Ask if ‘any other business’; Advise on fees and conclude the interview. |
3.2
IMPORTANT
DATA TO BE COLLECTED
(i) Details of parties – names, capacity, advise on co-ownership, etc. (Shah v Akiba Bank [2005] 2 KLR; BBK PLC v O’Brien [1994]
1 AC 180)
o At the initial client interview, ascertain the capacities of the parties to transact, e.g. if the client is a minor, you should advise your client to use a trustee. This is so because if property is transferred to a minor, that minor will not be able to transfer the property or deal with it in the manner that he/she please
o It is also advisable at this stage to distinguish between joint tenancies and tenancies in common à in joint tenancies the interests of the parties are bound, and if one joint tenant dies then the other gets the share of the deceased tenant. This is important to note because lawyers can be sued/held liable for advising unmarried couples to take up joint tenancies
o When advising a mortgagor, it is crucial to ask the wife to obtain independent legal advice
(ii) Details of property and proposed conveyance – e.g. the parcel number, any fixtures, the consideration, etc.
(iii) Authorisation to disclose details and information about other related transactions
o See: Mortgage Express Limited v Bowerman and Partners [1996] ALL ER 836)
o Client authorisation is needed to disclose information pertaining to the transaction to other members in the chain or to other parties (due to the duty of confidentiality). If the client denies this authorisation, be sure to remind the client that the transaction could take longer than expected if the said information is not shared with others
(iv) Details on pre-contract responsibilities such as consents, clearances, etc. (if acting for seller)
(v) Details of financing, deposit, stamp duty, undertakings, etc. (if acting for buyer)
(vi) Details on title documents (and ensure to obtain copies)
(vii) Discuss issued of conflict of interest if acting for both parties with their consent
o It is a general principle of professional conduct that an Advocate must not act for two or more clients where there is a conflict of interest between those clients
o While there is no specific bar to acting for both parties, the Advocate must refrain from being involved in negotiation of the sale price of the property and it is advisable to get written consent of both parties
o Acting for a lender and a borrower is generally permitted provided that the chargee is an institutional lender which provides charges on standard terms in the normal course of its business
(viii) Discussion on fees to be charged
o All relevant client care information, together with information on the fees to be charged, must be confirmed in writing at the start of the conveyancing transaction
o It is also important to inform the client on the right to increase the advocate’s charges should the transaction prove to be duly complicated or protracted (in this way, the advocate does not bind themselves to a fixed unalterable fee)
4.
INVESTIGATION OF TITLE/DEDUCING THE TITLE
· The objective of investigating the title are (Oliver v Hinton [1899] 2 Ch. D. 264):
o To find out whether the vendor/borrower holds good title;
o Due to the caveat emptor (buyer be aware) rule taken together with the fact that the seller is not under an obligation to disclose any patent defects (Note: the seller is, however, under an obligation to disclose latent defects he is aware of)
o To protect the interests of the bona fide purchaser for value without notice of defect in title
· It is the vendor’s duty to disclose any latent defects and deliver on a promise that he/she has a good title to the property which is capable of being passed to third parties. This includes information on all rights, privileges, latent easements or other liabilities known by the vendor to affect the property
· Title is investigated because the Conveyancer is obliged by practice to ensure that what is being disposed of and/or what is being acquired is a good marketable title, and this is for 3 basic reasons:
1) Caveat emptor (‘buyer beware’): this rule imposes an obligation on any person intending to acquire an interest in property to investigate the same. This is especially since a seller is under no obligation to disclose patent defects, and is only obliged to disclose latent defects that he may be aware of
2) Bona fide purchasers for value: it is a well settled principle of law that a bona fide purchaser for value without notice of defect in title acquires good title to the property and remains unaffected by matters of which he had no
notice. However, this rule also places an obligation on buyers to investigate titles before they can be afforded this protection (see: Oliver v Hinton [1899] 2 Ch D 264, Section 3 Conveyancing Act 1881, Section 199 LPA 1925)
3) Prudence and general practice: investigation of title is generally required of any prudent practitioner. A client wants to be certain that what they are obtaining is a good and marketable title, and failure to deliver on the same may result in a successful claim of negligence (in the event the client makes a loss). It may thus be said that investigation of the title (or property) is part of ‘defensive conveyancing’
· The vendor deduces the title by submitting an abstract of the title within 14 days of the date of the agreement (Condition 6.1, LSK Conditions of Sale à specifies that documents are to be delivered to the purchaser or purchaser’s advocate)
o This is a brief history of the property showing how the interest in the property moved from one person to another, any encumbrances affecting the property, etc.
o This is called the ‘epitome of title’ in many jurisdictions as it contains (or should contain) a full schedule of documents and other relevant information which together constitute the title
·
Investigation of title has 3 stages:
4.1 PRE-CONTRACT INQUIRIES
· These inquiries are a medium of investigating the property (or title), and are preliminary inquiries on:
a) The physical condition of and location of the subject property (ordinarily ascertained through a physical inspection); and
b) The proposed contractual document
· Pre-contract inquiries are intended to elicit information on matters not covered by official and personal searches
· The information sought at this stage includes:
a) Development prospects of the property – i.e. neighbourhood restrictions/policies, restrictive covenants, etc.;
b) Physical structures of the property (and any physical defects);
c) Existing disputes in court/tribunal touching on the property; and
d) People in occupation of the property and their status
· The personal/physical inspection at this stage is to ascertain:
a) The condition and/or state of the property (as there is ordinarily no warranty as to the state of the property) à
it is advisable to engage surveyors and valuers in inspecting the property;
b) The value of the property;
c) Any patent and latent defects + any fixtures and fittings;
d) Who is in actual occupation of the property (if anyone);
e) The boundaries of the property;
f) Any possible rights and/or easements affecting or benefitting the property (Gran Gelato Limited v Richcliff (Group) Limited [1992] 1 All ER 865; National Provincial Bank Limited v Hastings [1965] ac 1175)
· The physical inspection is important because the purchaser ordinarily buys the property as it is and the vendor is under no duty to disclose any physical defect s in the property. Thus, the conveyancer must inform the purchaser that in order to protect himself/herself, the property should be fully surveyed and inspected before the contract is signed
· When acting for the vendor is it important not to assume any answers to the pre-contract inquiries, but to consult with the vendor and answer as accurately as possible. If unequivocal answers are relied on, but later turn out to be untrue, this can lead to a suit in damages both against your client and against yourself as the Advocate for the vendor
o Liability especially arises where the advocate steps out of his role as an advocate and accepts direct responsibility towards the third party (Gran Gelato Limited v Richcliff (Group) Limited [1992] 1 All ER 865)
o ‘Persons dealing with unregistered land must obtain some information outside the register in the same manner and from the same sources as people dealing with unregistered land would obtain it’ (National Provincial Bank Limited v Hastings [1965] AC 1175)
4.2 SEARCHES
· To conduct an investigation of title after receiving the abstract from the Vendor, searches are conducted at: Land Registry; Company Registry; Probate Registry; Survey Department; through a physical inspection of the property; and, through a search of the court records
· Like registration, searches shield against fraud; they are usually conducted by the purchaser’s/chargee’s/lessee’s advocate so as to check ownership of the interest being acquired/secured, as well as ascertain any planning, environmental, financial or other incumbrances which affect ownership of the interest being transferred or acquired
· The result of searches will disclose information in relation to the vendor/mortgagor and/or the property. It is necessary to disclose such findings with your client as this may impact on their decision to purchase the property or take up the security. Good practice, however, demands that you engage the other party and require his/her Advocate to confirm the position as ascertained by the searches
4.2.1 WHY CONDUCT SEARCHES?
· The caveat emptor rule remains a cornerstone of conveyancing – it is prudent for the buyer to find out as much as possible about the subject property before executing a binding agreement
· Therefore, the buyer’s advocate must conduct all appropriate searches and inquiries before advising the buyer to sign any contracts to purchase property/before advising the chargee to extend finances to purchase the property
· Advocates must bear in mind that a failure to conduct every appropriate (and foreseeable) search may render them liable for negligent conveyancing practices for any loss suffered by the client by a failure to conduct the check
4.2.2 THE SIGNIFICANCE OF SEARCHES
· Searches are important as they may lead to the following information (among other) being discovered:
a) Discovering that documents lodged for registration cannot be registered because of restrictive entities such as caveats, cautions, prohibitions or restrictions on the title;
b) Discovering that the title is encumbered (e.g. by a charge); or
c) Discovering that the proposed vendor is not the registered proprietor of the subject property
d) Discovering that land rates and land rents have not been paid for a number of years
4.2.3
IMPORTANCE
OF PHYSICAL INSPECTIONS
(i) To check the state/condition of the property
o In general, the seller is under no obligation to reveal defects in the property, and there is normally no warranty given about the state of the property
o Consequently, all buyers should obtain their own survey report before contracting to purchase property
o Ordinarily, sale agreements will stipulate that buyers accept the property in its the physical state at the time contracts are exchanged. Therefore, a prudent buyer will engage professional advisers (such as surveyors or valuers) to assist in inspecting all the buildings
(ii) To check who is in actual occupation of the property
o This is critical, as the vendor may not be the person in actual occupation and there may be other individuals entitled to occupy the property, notwithstanding that they are not co-selling
o It is important to check that there are no undisclosed occupants who could claim rights of occupation, thereby defeating or delaying completion
(iii) To check boundaries and ensure they are the same as stipulated within the sale agreement
(iv) To decipher which rights and/or easements affect or benefit (from) the property
(v) To ensure that fixtures and fittings which are contracted for under the sale agreement are on the property just prior to the exchange of contracts
4.2.4 ADVICE ON CONDUCTING SURVEYS
· The advocate for a purchaser/mortgagee/chargee should always ensure that a survey is conducted prior to exchange of contracts, even if it leads to an increase in transactional costs
· A failure on the Advocate’s part to give this advice to his client could amount to professional negligence
· Other than the fact that a physically defective property could be unsafe to occupy/be uninhabitable, the same could also give rise to financial implications (e.g. a reduced purchase price), e.g. the market value of the property may be reduced if it is in poor condition
· Basic valuation by a registered valuer is the simplest and cheapest form of a survey. It constitutes a visit to and physical inspection of the property to establish its open market value and physical delineation
o A valuation report is necessary especially if the property is being charged to secure a loan
o A mortgagee’s surveyor/valuer owes a duty of care not only to the lender, but also to the borrower, who relies
on the report
· Special considerations when conducting a valuation include: neighbouring properties, drainage systems, infrastructure, location, zoning and development policies by municipal authorities of the property area, etc.
4.2.5 THE VARIOUS SEARCHES
(i) Search at the Land Registry
o There are three modes of search at the Land Registry: Official search, Postal search or Personal search
o This search establishes: The Land Reference number, the owner/proprietor of the property, the registration particulars, the presence of any encumbrances on the property, the presence of any burdens (e.g. covenants imposed on the land)
o OFFICIAL SEARCH: This is governed by Sections 34 – 36 LRA
§ This shall entitle the person conducting the search to receive particulars of the subsisting entries in the register, certified copies of any document, the cadastral map, plans filed at the registry, etc. (upon the payment of the requisite fee)
§ The certified copies of the documents, signed by the registrar, may be received as prima facie evidence in court
§ This search is undertaken by the officials at the Land Registry, and is more advantageous than a personal search because it enjoys a state guarantee and indemnity for those who act on the basis of the results
§ This search protects conveyancers from suits of professional negligence if the title is faulty but was nonetheless relied on, as the Certificate of Official Search acts as a government guarantee and indemnity for any loss resulting or sustained by reason of a defective official search
§ However, the disadvantage of such a search is that the Registry staff may not be able to discern and avail all the relevant information. Moreover, such failure to impart all relevant information may not qualify as a ‘defective search’ so as to qualify for indemnity
§ The procedure to be followed for this search is:
i. Pay the prescribed fee and apply in writing for an official search to the Land Registrar
ii. The Land Registrar will conduct the search and issue a Certificate of Official Search (if the title is under the LRA and RLA)
iii. If the title is under RTA, LTA and GLA, the Land Registrar will issue certified copies of the title in the deed file
o POSTAL SEARCH:
§ Same procedure as for an official search
§ The results of the search are mailed/posted to the applicant (in practice, the results are mostly picked from the lands office upon the application being processed)
§ This is not a prudent form of conducting a search because the status of the register may be altered by the time the results search the applicant through the post
o PERSONAL SEARCH:
§ A personal (unofficial) search is conducted by a member of the public by inspecting the relevant register, parcel or deed file availed by the Lands Registry staff
§ In our context, this search is generally conducted by the advocate or his clerk and the advocate must take personal responsibility for what he purports to find
§ The procedure entails paying the prescribed fees, after which a request for the parcel documents is lodged and the advocate or clerk may take notes of what is in the file
o HISTORICAL SEARCH:
§ This search is not provided for under the law, but it is advisable to conduct the same (see the recommendations in the Ndungu Report)
§ Perusal of the correspondence file will assist one to get to the ‘root of the title’ as this file contains details
on a given parcel of land from its date of allotment to the date of conducting the search
§ The correspondence file contains details about the origin of each parcel of land, from the initial allotment to any subdivisions. It is comprised of internal correspondence between the various sub-departments of the Lands Department, and may thus be ranked confidential. It is therefore important that an official request is made to the Commissioner of Lands before conducting this search
§ The Parcel File (for the RLA) or Deed File (for the GLA, LTA or RTA) are the respective registers containing details on the property in question
§ The availability of the correspondence file has helped in discerning good and marketable titles – see: Gitwany Investment Limited v Tajmall Limited and 2 Others [2006] 2 EA 76 and Skyview Properties Limited v Attorney General and 2 Others
§ However, there is also the contrary view that one should not investigate title beyond the register at the land’s registry (Pashito Holdings Limited & Another v Paul Nderitu Ndungu & Others [1997] eKLR) and that historical searches are an unwarranted and unnecessary affront to the principle and concept of registraion (Attorney General v Kenya Commercial Bank Limited, Afraha High School Limited & 2 Others [2004] eKLR)
(ii) Search at the Company Registry
o This establishes whether or not the registered proprietor of the property (if a company) is duly registered as a company at the Registry
o This unearths other registered interests against the assets of the company, e.g. debentures, mortgages and charges
o This enables the party conducting the search to find out if the company is insolvent or solvent
(iii) Search at the Local Authorities Registry: local authorities are responsible for planning and approval of building plans within their area of jurisdiction
(iv) Searches at the survey department
o In land adjudication, registration starts at the survey department, which is where the property is assigned a Land Reference Number/Title Number
o This search avails index maps/deed plans/cadastral maps, etc. which all determine whether the property is actually registered
4.3 REQUISITIONS
· Requisitions are such objections or queries arising after perusal and deduction of title documents
· This includes questions directed at the vendor’s advocate relating to the tenure of the property, identity and description of the property, execution of title documents, identity of encumbrances (if detected on the face of the title documents), etc.
· The purpose of requisitions – besides aiding the process of investigation of title – is to help give the purchaser title in accordance with the contract for sale
· The requisitions relate to matters which arise not on the basis of the search or physical inspection of the property, but through inspection of the title document or the abstract availed
· Condition 6.2, LSK Conditions of Sale provide for the requisitions or objections to be made after the contract has been executed and, in any event, not later than fourteen (14) days after delivery of the abstract, title deed, or a copy thereof
5. COMPLETION AND TRANSFER
· Completion is the process in a conveyancing transaction where necessary documents of title are handed over in exchange for the balance of the purchase price (it is the final stage) à this is the stage of the transaction where interest actually passes
· Completion occurs after investigation of title and execution of the sale agreement, and is essentially: the process whereby the vendor hands over possession/transfers the interest while the purchaser pays the balance of the consideration
· Remember: the sale agreement is merely executory and it gives no interest. An interest is only conferred when the purchaser is able to complete (by handing over the balance of the purchase price) and the vendor is able to transfer the interest (Section 54 ITPA and Section 3 RLA recognise that the Sale Agreement is merely executory)
· In order to acquire the interest, the acquiring party needs to register the transfer after paying the requisite stamp duty
· Prior to completion, the purchaser’s advocate will prepare a transfer document (‘conveyance document’)
o The transfer is ordinarily drawn by the purchaser’s advocate and forwarded to the vendor’s advocate for approval
o The transfer document is what causes the disposition to take effect once it is registered
o The form taken by the transfer document depends on the statute under which the property is registered & the interest which is being conveyed or transferred
|
STATUTE |
DOCUMENT OF TITLE |
TRANSFER DOCUMENT |
|
GLA |
Title Deed |
Conveyance; Re-conveyance (upon redemption of a mortgage); Assent (for transfer upon death of the proprietor); or Assignment/Reassignment (for leases).
There are no prescribed forms. The practice has been to use the documents prescribed under the Real Property Act 1845 and the Conveyancing Act 1881 (both applicable in Kenya as statutes of general application before 1897). |
|
LTA |
Grant or Certificate of Title |
Transfer |
|
RTA |
Grant or Certificate of Title |
Transfer in the prescribed form. (One may amend without substantive departure from the prescribed form) |
|
RLA |
Land Certificate or Certificate of Lease or Title Deed |
Transfer of Lease/Land or Transmission in the prescribed form or Consent of the Registrar. |
· The vendor completes by giving the purchaser all registrable documents, in addition to possession of the property, whilst the purchaser completes by giving the vendor the balance of the purchase price
· Needless to say, the purchaser should re-assure himself/herself that the answers to the requisitions and searched have not expired at the point of completion, which can be done by conducting a pre-completion search
· However, title will only best upon registration à this is a bilateral and consensual act, and both parties have their respective duties to discharge
· The key aspects of completion are: the date of completion; the venue of completion; the deliverables (i.e. completion documents); and, the obligations of either parties upon completion.
5.1 DATE OF COMPLETION
· The date of completion may be expressly agreed upon by the parties and inserted into the contract (this is advisable)
· However, where it is an open contract (i.e. one which only states the parties, price and property being conveyed), or the date is not stated in the agreement for any other reason, completion ought to take place within a reasonable period of time
· The LSK Conditions of Sale, Condition 8.1.1, specifies that if there is no completion date indicated then this is to be 90 days after the date of the agreement
· The period before the date of completion is vital as both parties satisfy, or begin to satisfy, their contractual obligations under the sale agreement during this period. E.g. –
o The purchaser assembles the balance of the purchase price
o The vendor obtains the relevant consents, clears all encumbrances picked up during requisitions and investigations, compiles the necessary completion documents, etc.
· It is important for Advocates to ensure that they estimate a reasonable/attainable time frame for completion before agreeing on a completion date, or else they will be held to the date and repercussions for non-adherence may even lead to rescission of the contract
· Any extension of the completion date must be mutually extended/mutually agreed upon by both parties
5.1.1 ‘Time is of the essence’
· However, where parties provide that ‘time is of the essence’, then the completion date must be strictly adhered to
· In these situations, a failure to complete by the stipulated date will be deemed a fundamental breach of contract both at law and in equity
· The party at fault will likely not enforce the contract specifically, but the other party is free to pursue his remedies for breach of contract (including specific performance) – he may elect to rescind the contract immediately
· Ordinarily, time is of the essence only if the same is an express term in the contract
· However, courts in England have sometimes made time of the essence by necessary implication à Barclays v Messenger [1989] 3 All ER 492: a contract provided that if the Purchaser should fail to pay the balance of the purchase price on a given date, the agreement would become null and void. Sir George Jesse M. held that time was of the offence, stating in obiter that he did ‘not know how making time of the essence could have been more strongly expressed’
· In the Kenyan case of Sagoo v Dourago [1983] KLR 365, however, the Court of Appeal held that time will not be considered of the essence in any contract unless:
(i) Parties expressly stipulate that conditions as to time must be strictly complied with
(ii) The nature of the subject matter shows that time should be of the essence
(iii) A party subjected to unreasonable delay gives notice to the other, making time of the essence
· Where time is not of the essence, a failure to complete on the agreed completion date does not entitle the aggrieved party to decline to proceed with the contract à Although, the current line of authorities in Kenyan jurisprudence seem to suggest that even in the absence of undue or unreasonable delay, one would still be entitled to specific performance (even if he is the guilty party)
5.1.2 Completion Notice
· In instances of undue or unreasonable delay, the aggrieved party has the option of issuing a Completion Notice, which must be proper and explicit
· LSK Conditions of Sale, Condition 13.4 provides for rescission of a contract for failure to abide by a Completion Notice
· A proper Completion Notice will constitute the reason for the alleged breach and demand that it be made good within the notice period, and further that in default, the Agreement will be rescinded upon expiry of the notice
· To be effective, the Notice should be limited to a reasonable time for performance and must not be capable of being construed in a manner indicative of the fact that the server of the notice may still be willing to perform the contract if there is a failure to complete in the designated period
· Note: to be effective, the Server himself must be ready, able and willing to complete – in which case time is of the essence
5.2 REMEDIES FOR FAILURE TO COMPLETE
· Remedies available where the offended party is the vendor:
a) Specific performance à in which case the vendor is precluded from forfeiting the deposit
b) Action for damages à usually calculated as the difference between the market price and contract price
c) Rescission of contract
d) Forfeiture of deposit
e) Treating the contract as repudiated
f) Resale of the property to recover expenses from loss of sale
· Remedies available where the offended party is the purchaser:
a) Specific performance
b) Rescission of the contract + suit for recovery of deposit
c) Damages for non-performance à usually calculated as difference between the market price and contract price
d) Costs (including legal costs and expenses of searches, etc,) + interest
5.3 DELIVERABLES – COMPLETION DOCUMENTS
(i) Original Title documents;
(ii) Transfer duly signed and executed;
(iii) Land Rent Clearance Certificate + Original Land Rent payment receipts (for leasehold titles only);
(iv) Land Rates Clearance Certificate + Original Land Rate payment receipts (for municipal/urban properties of both a leasehold and freehold nature, provided a local government authority has levied land rates on the property)
(v) Copy of Capital Gains Tax (‘CGT’) Payment confirmation + CGT Slip;
(vi) Relevant consents applicable to the transfer, including:
a. Consent of the Commissioner of Lands over leasehold interests;
b. Consent of the Land Control Board for agricultural land obtained in pursuance of the Land Control Act;
c. Consent of any chargee or mortgagee having an interest in or over the property;
d. Consent of any statutory authority necessary (e.g. KPC, KAA, KCAA, etc.);
(vii) Notice of withdrawal of a caveat or caution (if there were any third parties with an interest in the property)
(viii) Copy of the ID’s, PIN Certificates and Certificate of Incorporation (if a company) of both the parties;
(ix) Copies of 3 coloured photographs of the parties (or the Directors of the company, where applicable)
5.3.1 Land Rates and Rent Clearance Certificates
· It is the duty of the registered proprietor of a parcel of land to ensure that Land Rates and Land Rents are paid, and to obtain the necessary certificates, unless agreed otherwise
· Land Rates: are levies payable to the Government through the local authorities, under the Rating Act (Cap 267)
o It is a form of taxation and conveyancing transactions help towards its completion
o Upon full payment of land rates due on any parcel of land, the local authority’s clerk issues the owner of the parcel with a Rates Clearance Certificate, which acts as prima facie evidence that the rates due and any interest accrued thereon have been fully paid
o Section 38 LRA requires that prior to the Registrar accepting any document intended to transfer or vest interest in land for registration, there must also be produced a valid Certificate or Statement showing that the rates have been cleared or paid up
o Land rates are levied on all parcels of land, whether freehold or leasehold
· Land Rents: this is a source of income for the Government (in its capacity as a ‘landlord’)
o Land rent is only levied on leasehold parcels of land, where the annual rent has been reserved at the time of the Grant being issued
o Section 39 LRA assists in the collection of land rent by requiring parties to produce to the Land Registrar a valid Land Rent Clearance Certificate before any transaction on a leasehold property can be registered
5.3.2 Consents
· All necessary consents are required to complete any given transaction; in the absence of obtaining the necessary consents, the conveyance (be it a lease, mortgage, transfer, etc.) will not be registered
· LSK Conditions of Sale, Condition 16 provides that for purposes of completion, all necessary consents must be obtained by the vendor/lessor (i.e. he who is parting with the interest). However, in practice, the person obtaining the interest is duty bound to assist in obtaining the necessary consents (especially in situations where the presence of both parties is required)
· If the necessary consent is not availed or obtained, this may amount to a breach of contract. Unfortunately, the person who is aggrieved has remedies in damages only. There is no room for specific performance owing to the fact that the agreement automatically lapses if the consent is not obtained in a certain period of time
(i) Land Control Board Consent:
o This consent is applicable to all land designated as ‘agricultural land’ under Section 2 of the Land Control Act (Cap 302) and is required for transactions touching on/concerning such land
o Transactions touching on/concerning agricultural land will be exempt from the Land Control Board consent if the President so directs, if it a transmission, or if the Government is a party to the transaction
o Section 6, Land Control Act outlines the transactions requiring this consent
o The procedure to apply for LCB Consent is as follows:
a) Fill out the prescribed form in triplicate
b) Payment of prescribed fee (Kshs. 1,000/=) at the County Land’s office + collect receipt
c) Gather supporting documentation: details of seller and buyer (ID and PIN Certificate); if either party is a company then the Certificate of Incorporation, Resolution of Directors, CR12 Form and PIN Certificate are needed; original land search document (at least 3 months current); copy of the Title Deed; and, spousal consent (where applicable)
d) Attend the LCB Board Meeting à required in the meeting are the vendor and purchaser, or their appointed agents
Remember: the application to the Board must be made within 6 months from the date of the transaction, otherwise the transaction is null and void
o The LCB mainly checks to ensure that the transfer meets the stipulated conditions. It enjoys a wide range of discretion and can decline the consent, or give the same after hearing representations (including objections)
o Under Section 9(1), Land Control Act, the LCB is obliged to refuse consent in any case in which land is to be disposed of to a person who is not a citizen of Kenya, or a private company all of whose members are citizens of Kenya. This, in effect, prohibits persons who are not Kenyan citizens from directly acquiring an interest in agricultural land
o Section 22, Land Control Act renders transactions involving agricultural land null, void and of no consequence if the LCB Consent was not obtained prior to conducting the transaction à the buyer may be ordered to vacate such property, however, any sums that may have exchanged hands are recoverable as a debt by way of a civil suit and an order may issue for a refund
o In Mucheriu v Mucheru [2002] 2 EA 456: the respondent filed suit seeking an order to bury her deceased husband on the property in control of the appellant, who was the widow of the registered proprietor. The respondent claimed that her deceased husband was entitled to a portion of that property under Kikuyu customary law. The respondent proved trust under the customary law and that the administrator of the estate was to obtain LCB consent. The Court of Appeal held:
i. If the LCB consent is not obtained, the transaction becomes void even if the duty to obtain the consent was not exercised
ii. The establishment of a trust is a disposition of property within the requirements of Section 6, Land Control Act, and so LCB consent was necessary. Having not been obtained within the required time (i.e. 6 months), the whole disposition is void
o In Nelson Githinji et al v Munene Irangi, Civil Appeal No. 133 of 1987 the Court of Appeal categorially stated that the effect of Section 6(1) of the Land Control Act was to render null and void any transaction, sale, transfer, or other disposition dealing with agricultural land that is situate in a Land Control area without LCB consent
o In Jacob Minjire v Agriculture Finance Corporation: AFC, exercising a chargee’s power of sale, sold land to the appellant at a public auction. The buyer paid the purchase price, but AFC failed to transfer the land and, in the meanwhile, the original owner of the land (the charge) redeemed the land. Consent of the LCB had not been obtained in respect of the auction sale. It was held:
i. Consent of the Land Control Board is a requirement of statute and as such is made a term of the contract, thus non-compliance of the same vitiates the contract;
ii. Where a controlled transaction becomes void for lack of LCB consent, the Land Control Act gives the innocent party a special cause of action, which cause of action gives him a remedy independent of the void transaction
iii. Consent has to be applied for within three months from the date of the agreement
iv. Neither special nor general damages are recoverable in respect of a transaction that is void for want of consent
(ii) County Land Management Board Consent:
o Section 39(2) LRA: The Land Registrar shall not register an instrument effecting a transaction unless satisfied that any consent required to be obtained in respect of the transaction has been given by the relevant County Land Management Board on the use of the land, or that no consent is required
o This consent is applicable only to leasehold properties, and may even include paying all outstanding land rents
(iii) Kenya Railways Corporation Consent
o For any land adjacent to, or adjoining, the Railway land, consent of the Railways Corporation must be obtained prior to any dealings in that land
o This requirement is not provided for in the Kenya Railways Corporation Act (Cap. 397)
o The Deed Plan to most properties reveal a Railway line running through the parcel of land
o This consent would be applicable in addition to LCB consent in some situations
(iv) Kenya Airports Authority Consent
o This consent is issued by airport owners for all properties which may be adjoining flight paths
o The purpose of this consent is for the authority to ascertain and approve of what a property owner intends to do what the property (and the same is subject to consultations)
(v) Landlord/Lessor Consent
o This consent is applicable to individuals who have obtained a leasehold title from the Government (as the head lessor) and now wish to sub-lease the property
o This is aimed at ensuring that agreements in the lease are honoured as well ensuring rent is paid
(vi) Consent of Trustees of National Parks
o In Kenya, the trustees of National parks are the Kenya Wildlife Service
o Properties adjoining or within such parks thus require KWS consent before being the subject of any conveyancing transaction, so as to ensure there is no derogation of title
5.4 INTERIM PERIOD
· The interim period is the period between the execution of the contract and completion. This period is important for two reasons:
a) The performance of various contractual obligations in preparation for completion happens during this period; and
b) The risk of the property
5.4.1 Performance of contractual obligations
· The contract will have various obligations imposed on both the parties
· The purchaser is ordinarily obliged with: payment of the deposit (ordinarily 10% of the purchase price), visiting and inspecting the property, etc.
· On the other hand, the vendor must obtain the requisite consents, discharge any encumbrances affecting the land (unless it has been agreed that the same be discharged on completion), etc.
5.4.2 Risk of the property
· In a Court of Equity, once there is a valid Contract of Sale, the vendor becomes a trustee for the purchaser of the estate sold and the vendor himself becomes the owner of the purchase money
· As a vendor qua trustee, the vendor therefore has a personal and substantial interest in the property which he/she is duty bound to actively protect
· The vendors interests include obtaining the purchase money, however, this can only be done upon delivery of the property
‘held in trust’
o Thus, the vendor is under an obligation to ensure that the property’s condition does not deteriorate nor is the
same wasted
o The vendor must treat the property as a prudent owner would and not wilfully damage it
o The vendor has to use reasonable care to maintain the property but is not obliged to improve it
· The purchaser’s interest is, however, only in the property and not in any income being derived therefrom
o The purchaser is entitled to lay claim in damages if he/she completes the contact even though the property has been wasted
o In a situation where the property has been completely wasted, the purchase is entitled to rescind the contract and claim back his deposit
o To avoid situations like the latter, the vendor is always advised to take insurance
· The vendor is entitled to a lien on the property as security for the purchase price (which is why the vendor always retains possession until completion)
5.5 ACTUAL COMPLETION
· Once the parties are ready to complete the conveyance (i.e. the vendor is ready to execute the Transfer Deed and deliver possession of the completion documents as well as the property, and the purchaser is ready to transfer the balance of the purchase price), then completion can be effected
· As a general rule, completion takes place at the vendor’s office or the vendor’s advocates offices (but parties are free to agree otherwise)
· Completion will take place on the date agreed at 2:00 p.m. (LSK Conditions of Sale)
· The vendor will deliver the keys to the property (possession) and the purchase deed, duly and properly executed, as well as the other completion documents
· The Purchase will deliver the cheque for the balance of the purchase price and apportioned outgoings, as well as the authority to release the deposit
6. ROLE OF ADVOCATES
6.1 Role of the Vendor’s Advocate
(i) Take instructions from the vendor
(ii) Conduct due diligence
(iii) Draft the Agreement for Sale (‘Agreement’)
(iv) Incorporate amendments to Agreement (as have been added by Purchaser’s Advocate)
(v) Engross the final copy of the Agreement
(vi) Send the Purchaser’s Advocate the final engrossed copy of the Agreement
(vii) Procure execution of the Agreement by the Vendor and attest to the Vendor’s signature
(viii) Hold the deposit on behalf of the Vendor
(ix) Set up a meeting for the Purchaser to pay the balance of the purchase price (completion date)
(x) Release funds to the Vendor, minus transaction fee
6.2 Role of the Purchaser’s Advocate
(i) Take instructions from the Purchaser
(ii) Conduct due diligence
(iii) Request for a draft copy of the Agreement + review the same & make any necessary amendments
(iv) Procure execution of the Agreement by the Purchaser and attest to the Purchaser’s signature
(v) Forward signed copies of the Agreement back to the Vendor’s Advocates together with the deposit
(vi) Attending meeting to procure payment of the balance of the purchase price and ensure all necessary completion documents are received
7. REMEDIES AVAILABLE FOR BREACH OF CONTRACT FOR SALE OF LAND
· Remedies are applicable in conveyancing transactions when the transaction – for whatever reason – is not completed, or when it is completed but one party still feels aggrieved
· The various remedies available are as follows:
(i) Specific performance: (this is a remedy peculiar to land transactions)
o The Plaintiff (who could be the purchaser or vendor) seeks a decree from the court ordering the other party to perform the contract specifically
o There is no need for breach of the contract itself in order to be titled to specific performance (Hasham v Zenab [1960] AC 316)
o The remedy is, however, discretionary and the principles of equity will be applicable. E.g. ‘Equity is equality’ and so the remedy is available to both the vendor and purchaser. Alternatively, ‘equity does not act in vain’, and so if the property has already been disposed off by the vendor, then the remedy of specific performance will not lie
(ii) Damages:
o The whole purpose of damages is to ensure that the aggrieved party is compensated, and thus restituted, as if the contract or transaction had actually been properly performed and completed
o In this situation, the injured party seeks compensation for the loss occasioned by the breach, which may lead to noncompletion or completion (but with a loss tendered)
o In the case of non-completion on the part of the vendor, the purchaser shall be entitled to damages for loss of bargain. A claim for substantial damage may also be brought by a purchaser where there has been delay in completion or the vendor has failed to give vacant possession à to succeed, however, the purchaser must establish his own ability to perform the contract
(iii) Rescission:
o Rescission is essentially the undoing of a contract by the court or aggrieved party. There are two forms of rescission: ‘rescission ab initio’ and ‘rescission for breach’
o Rescission ab initio: describes the effect of the relief ordinarily available when the formation of a contract is affected by a vitiating factor, such as fraud. In this case, the contract is annulled and parties are restored to the position they occupied before the contract was made
o Rescission for breach: this connotes the consequence of an innocent party’s acceptance of the repudiation of the contract by the other party’s breach of an essential term. The acceptance, however, does not result in rescission ab initio and the innocent party’s entitlement to damages for breach remains intact
o Rescission for breach arises in situations such as: misdescription or misrepresentation by one party; presentation of a defective title; or, failure to complete on the completion date and/or after a notice to complete has been issued
(iv) Forfeiture: (ordinarily where the Purchaser is in breach)
o If the purchaser is in breach of the contract and as such is unable to complete the transaction, the deposit it forfeited to the vendor (even if held by an intermediary stakeholder) and the vendor is charged from the contract
o However, where the vendor opts for specific performance, the deposit will still count as part of the purchase price however the vendor may reserve the price to ask for damages
o Forfeiture does not ordinarily apply where the purchase price is paid by way of instalments and there is no deposit (e.g. in estate conveyancing), however, you may contractually provide for part-forfeiture
(v) Lien:
o Deposits are not only part of the purchase price, but are also earnests or guarantees on the part of the purchaser to complete the transaction
o Therefore, they entitle the purchase to a lien over on the property as security for the purchase price
(vi) Vendor’s right to regain possession
CHAPTER 3: COMPARING SALE AGREEMENTS
[COMPARING CONVENTIONAL SALE AGREEMENTS TO ONES CATERING FOR OTHER SCENARIOS]
1. CONVENTIONAL SALE AGREEMENT
· A conventional sale agreement is one that involves sale of a property/parcel of land and it is open for parties to make the contract as they deem fit
· Parties can opt for either a simple agreement or a complex one – however, in the case of short and simple agreements,
parties open themselves up to implied provisions and the court’s mercy
· All agreements for sale, however, must comply with any statutory requirements (e.g. Law of Contract Act, Section 3)
o The contract must abide by the principles of: offer and acceptance; intention to be bound; consideration exchanging hands; certainty, etc.
o The agreement must be enforceable in writing (and this is applicable to all dispositions of interest in land)
o The agreement must not only be signed by both parties, but the execution must be attested/witnessed in the presence of the person attesting
o The terms of the agreement ought to be in one document (although S. 3 allows for incorporation by reference)
· The crux of all agreements for sale is that they must be certain, as a contract may be voided on grounds that it is not certain even if it complies with statutory provisions
· Muchira v Gesima Power Mills Limited [2004] 2 EA 168: The Court of Appeal held that any agreement that contains uncertain clauses is void and specific performance or reliance on it for any remedy will not be allowed. An agreement that is uncertain will not be enforceable even if all statutory requirements are met, e.g. there was no consensus ad idem and no clear provision as to when the balance of the purchase price would be paid or possession would be given
1.1 DRAFTING OF A SALE AGREEMENT
· Factors to take into account when drafting the Agreement for Sale include:
(i) Accuracy – it should embody your client’s instructions;
(ii) Completeness – it should deal with all reasonably foreseeable eventualities (force majeure);
(iii) Preciseness – it should be clear and avoid ambiguities;
(iv) Clear – it should be readily comprehensible;
(v) Contemporary – avoid legalese, Latin, old English phrases, etc.; and
(vi) Short and simple – it should be kept as brief and concise as possible to avoid confusion.
· When interpreting any (sale) agreement, the following rules should be borne in mind:
(i) Inclusio unius est exclusion alterius: a provision expressed in specific or detailed terms will be taken to indicate an intention to exclude anything not falling within the specific words or detailed list;
(ii) Ejusdem generis: where general words follow specific words, the general words are restricted to the same category as the specific words;
(iii) Contra preferentum: an ambiguous provision in the contract will be interpreted against the party that it seeking to impose its inclusion in the contract; and
(iv) Parole evidence: oral evidence of the drafter as to what they meant in drafting the clause is inadmissible
· When drafting the contract, however, the single most important consideration is what the client wants to achieve. It is important for the Conveyancer to understand the transaction and figure out the most appropriate structure to achieve the client’s objectives. Other matters to take account of include:
(i) The authority needed by the parties to act;
(ii) Any tax implications of the transaction (e.g. Capital Gains Tax or Stamp Duty
(iii) );
(iv) Whether any other professional advisers need to be engaged;
(v) What the proposed timetable of the transaction is and whether the same is feasible;
(vi) How all eventualities (i.e. where things go wrong) will be dealt with, etc.
1.2 CONTENTS OF A SALE AGREEMENT
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CLAUSE |
CONTENT |
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PARTIES |
The parties to the contract and their addresses must be properly stated in the contract. The address is crucial in the event that there is need to issue a notice to either party. |
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PARTICULARS (RECITALS) |
This entails a description (both physical and legal) of the subject property. Encumbrances, if any, also constitute part of the definition of property. Fixtures and fittings will also occasionally form part of the ‘property definition’. Where the property is sold with am encumbrance(s), the particulars must clearly state which of the two parties is charged with discharging the encumbrance. Finally, the consideration (purchase price) will also form part of the particulars. |
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SPECIAL CONDITIONS |
These are terms which are peculiar/specific to the contract in question (i.e. they apply sui generis to each individual sale agreement). Special conditions include terms such as: vacant possession, deposit, whether the purchase price includes the price of fixtures and fittings (if sold separately), remedies in the event of default, contract being subjected to a mortgage facility, variation of general terms, etc. |
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GENERAL CONDITIONS |
These are terms which – in the absence of any specific terms – apply generally to the open contract. They come from implied terms of contract, which have been compiled together from common law, equity as well as conveyancing practice generally (such terms can be found in Section 55 ITPA or LSK Conditions of Sale). These general conditions apply also to fill up gaps in a contract and cover a variety of matters, e.g. regulating the right to rescind, preparation of the transfer document and is content, possession ad grant, deposit and forfeiture, notices and completion, etc.
· Fixtures and fittings: in determining whether a structure or item has become part of the land itself depends on the degree of annexation as well as the object and purpose of such annexation (this is an objective test). Land is no longer looked at from the perspective of the Latin maxim of ‘quic quid planataur solo solo cedit’ (‘whatever is fixed to the soil belongs to the soil’).. It may be critical to ensure that one adequately provides for fixtures and fittings in any agreement for sale as they may also affect the Stamp Duty Payable. (Melluish v BMI (No. 3) Ltd [1996] AC 456; Ellitestone v Morris [1997] 1 WLR 687’ Leigh v Taylor [1902] AC 157; Wake v Hall [1882] 8 App Cases 195) · Deposits: deposits are not only part of the purchase price but are also earnests or guarantees on the part of the purchaser to complete the transaction. They entitle the purchaser to a lien over the land once paid. (LSK Condition 3) · Notice to Complete: this must be explicit and leave no doubt that the giver will rescind the agreement if the notice is not honoured. The giver of the notice must be ready and willing to complete. (LSK Condition 28) · Completion time: at this time, both the vendor and purchaser have different obligations. The duties of the vendor include: delivering vacant possession of the property (i.e. free from any physical impediment or form of occupation) + delivering the completion documents. The duties of the purchaser are to inspect the completion documents + authorise the release of the deposit and deliver the balance of the purchase price |
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OPERATIVE CLAUSES (“Now this deed witnesseth as follows…”) |
1) Definitions and interpretation 2) Agreement to purchase 3) Purchase price (deposit and balance) 4) Subject to LSK Conditions of Sale 5) Completion date 6) Representations and warranties 7) Conditions precedent |
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8) Encumbrances 9) Possession 10) Completion 11) Interest on late payment 12) Failure to complete 13) Time is of the essence 14) Tax, Land Rates and Rent apportionments 15) Condition of the property 16) Beacons 17) Costs 18) Notice 19) Survival 20) Waiver 21) Arbitration 22) Entire agreement |
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EXECUTION |
The Sale Agreement is to be executed and witnessed in accordance with the Law of Contract Act. |
1.3 MODEL SALE AGREEMENT
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CLAUSE |
CONTENT |
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1. |
PARTIES |
Where the party is an individual (i.e. natural person), the description of the parties should also state personal representatives of the individual (if any). Where the party is a company, the description of the company should also state the successors and assigns of the company. Where the party is a society, the name should be registered under the Societies Act. The agreement should clearly state: “THIS AGREEMENT FOR THE SALE OF [INSERT PROPERTY] MADE THIS [INSERT DAY] DAY OF 2019, BETWEEN [INSERT PURCHASER NAME] AND [INSERT BUYER NAME]”. |
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2. |
DEFINITIONS AND INTERPRETATIONS |
A flawed definition can be far reaching and expose your client to unintended results. E.g. where you want the word ‘house’ to mean one thing in one clause but not the same thing in another clause, make use of phrases such as “EXCEPT WHERE THE CONTEXT OTHERWISE REQUIRES” as such phrases allow for a more liberal interpretation. |
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3. |
INCORPORATION OF LSK CONDITIONS FOR SALE |
It is not mandatory to incorporate the conditions. It is also permissible to exclude some, allow some, or include all/exclude all. Further, you may vary the LSK Conditions, e.g. by adding more detail. It is important, if choosing to incorporate the Conditions, to indicate which ones you are seeking to incorporate – i.e. 1972, 1982 or 1989. (There is a need to amend the conditions especially in light of new developments) |
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4. |
AGREEMENT FOR SALE AND INTEREST SOLD |
This is essentially an incorporation of the offer and acceptance, i.e. the fact that the vendor agrees to sell and purchaser agrees to buy. “VENDORS HAVE AGREED TO SELL AND PURCHASERS HAVE AGREED TO PURCHASE…” “THE INTEREST TO BE SOLD IN THE PROPERTY IS LEASEHOLD…” “RISK OF DAMAGE OR DESTRUCTION TO THE PROPERTY SHALL PASS TO THE PURCHASERS ON THE COMPLETION DATE…” |
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5. |
SPECIAL CONDITIONS |
I.e. sui generis clauses or clauses which act as a variation of the general conditions. |
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6. |
CAPACITY TO SELL |
This details the legal competence for a person to sell/dispose of an interest, e.g. is the person selling as an attorney, an administrator, an agent, a beneficial owner? |
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7. |
PURCHASE PRICE AND DEPOSIT |
This is the consideration that supports the contract and must be stated explicitly. The acknowledgement of receipt of the consideration must also be stated. If the property is passing by way of gift, the same should be detailed. The deposit is ordinarily 10% of the purchase price and ought to be paid before, or on, execution of the contract. “THE PURCHASE PRICE OF THE PROPERTY SHALL BE JENYAN SHILLINGS SIXTEEN MILLION (16,000,000) PAYABLE AS FOLLOWS:
a) A DEPOSIT OF KENYA SHILLINGS ONE MILLION, SIX HUNDRED THOUSAND (1, 600,000), BEING TEN PER CENT OF THE PURCHASE PRICE, SHALL BE PAID UPON EXECUTION OF THIS SALE AGREEMENT TO THE VENDOR’S ADVOCATE. b) THE BALANCE OF KENYA SHILLINGS FOURTEEN MILLION, FOUR HUNDRED THOUSAND (14, 400,000) SHALL BE PAID TO THE VENDOR’S ADVOCATE ON THE COMPLETION DATE.” |
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8. |
COMPLETION DOCUMENTS |
At the point of completion, the purchase is to deliver the balance of the purchase price and the vendor is to deliver possession of the completion documents. The date of completion must be stated, including whether or not time is of the essence. The contract must provide for a place of completion – ordinarily at the vendor’s advocates office. Where the sale is being financed by a financier, e.g. a Bank, a Professional Undertaking is given instead of money/a cheque (i.e. a Professional Undertaking in place of the balance of the purchase price). Some completion documents include: the original Title Deed to the property; a duly executed (but undated) transfer form – in triplicate – in favour of the purchaser/nominee; copies of the IDs, PIN certificates and passport coloured photos of the parties; valid Rent Clearance and Rate Clearance certificates; consent to transfer from the relevant authorities; a duly executed discharge of charge (in triplicate), stamp duty valuation forms, etc. |
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9. |
VACANT POSSESSION |
Unless any encumbrances are expressly pointed out in the agreement for sale, it is presumed that the vendor is selling the property free from the same. The sale is with vacant possession of the parts of the property not held, subject to the leases still subsisting at the time of actual completion. The purchaser is not entitled to possession until full payment of the purchase price. |
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10. |
REPRESENTATIONS, WARRANTIES AND DISCLAIMER |
This is used by parties to provide information known to them. It ordinarily contains information that the other party relied on to make a decision to enter in to the contract. “[A] WARRANTS THAT IT HAS AUTHORITY TO ENTER INTO THIS AGREEMENT…” “[A] WARRANTS THAT HE HAS GOOD TITLE TO THE PROPERTY BEING SOLD…” “[B] ADMITS THAT HE HAS INSPECTED THE PROPERTY AND PURCHASES IT WITH FULL KNOWLEDGE OF ITS ACTUAL STATE AND CONDITION, AND SHALL TAKE THE PROPERTY AS IT STANDS…” “[B] ADMITS BUYING THIS PROPERTY ON THE BASIS OF THIS AGREEMENT AND NOT ANY ADVERTISEMENT, STATEMENT (WHETHER ORALLY MADE OR WRITTEN BY OR ON BEHALF OF THE VENDOR…” |
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11. |
CONDITIONS PRECEDENT |
If there are any conditions precedent present, then these must be satisfied completely before the contract becomes effective. “THE VENDOR SHALL ENSURE THAT SHE HAS A REGISTRABLE TITLE BEFORE EXECUTION OF THE TRANSFER…” |
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12. |
TIME OF THE ESSENCE |
The general rule is that time is not of the essence unless the contract expressly provides for the same. If the contract contains such a clause, then failure to act within the required time constitutes a breach of the contract. |
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13. |
ASSIGNMENT |
This is the transfer of the whole interest in the property, and is also referred to as the ‘conveyance clause’ in a sale agreement. Assignment may of the transfer or of the obligations and rights of the parties. |
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14. |
DEFAULT |
This clause states what happens where a party omits or fails to perform a legal or statutory duty under the contract, i.e. detailing what happens in the event of breach. |
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15. |
NON-MERGER |
These clauses should be read as separate and distinct, such that one being deemed null and void renders it severed without necessarily affecting the others. |
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16. |
STAMP DUTY AND OTHER RELATED COSTS |
Stamp Duty is based on the value of the property in question. Registration charges, however, are paid at the Lands Registry and are not pegged on the value of the property. The advocates fees must also be catered for and each party bears the cost of their own advocates (in situations where the purchaser is obtaining advances from a financial institution, the costs are borne by the purchaser). “EACH PARTY SHALL PAY THE LEGAL CHARGES OF THEIR OWN ADVOCATES FOR AND INCIDENTAL TO THE PRERATION AND COMPLETION OF THIS AGREEMENT…” |
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17. |
DISCLAIMER |
LSK Conditions for Sale, Condition 14.5: this embodies the ‘caveat emptor’ doctrine. It is the equivalent of an exclusion clause, stating that the vendor shall not be called upon to point out irregularities in the property. |
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18. |
GENERAL |
Any ‘general obligations’ are introduced in this clause. This may include: a savings clause, a clause indicating how and when payment is to be made, a clause stating whether the amount is net or gross, a clause stating whether the agreement must be varied in writing or through another method, etc. |
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19. |
INTENTION TO BE BOUND |
This is a conclusion to the agreement, which indicates that parties are of one mind. This clause comes right before the execution clause and acts as the parties’ affirmation to the contract and its terms. |
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20. |
MISCELLANEOUS CLAUSES |
If a party has not exercised their right or power to a remedy, such delay in exercising their right does not mean that they have waived the right nor does partial exercise of the right or remedy mean that the party is not entitled to further exercise of the right in the future. All the remedies are cumulate and not exclusive of any remedies provided under the law. If any term or condition in the agreement shall be found to be invalid or unenforceable, that does not invalidate the remainder of the agreement. The rest of the terms and conditions of the agreement shall be valid and enforceable to the fullest extent permitted by the law. |
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21. |
EXECUTION |
This is affixation of one’s mark to the document and can be by way of signature, thumb print, or duly appointed attorney of a company or by a common seal. The parties have to authenticate the document, and must state the capacity in which they are acting when they do so. |
1.4 STEPS COMMONLY TAKEN BY ADVOCATES DURING THE CONVEYANCING TRANSACTIONS
1.4.1 SELLER’S [VENDOR’S] ADVOCATE
(i) Take instructions from the vendor
o These instructions include details of: the proposed sale; the necessary authorisation to disclose details in the chain transaction; the replies to all pre-contract inquiries, etc.
o At this stage, the advocate should check whether there is a conflict of interest issue
o Discuss fees, disbursements, taxation matters
o Confirm that the proceeds from the sale will clear any encumbrances affecting the land
o Be sure to confirm your instructions
(ii) Draft initial letters (to the agents, your client, the purchaser/purchaser’s advocate)
(iii) Obtain a copy of the Title Deed from the seller
o (As well as any other documents necessary for purposes of the sale, which are available immediately)
o If the property is a leasehold, address the following issues: is a consent required, if so, from who? What are the outstanding outgoings? Will the freehold or leasehold be deduced?
(iv) Draft answers to the pre-contract inquiries and confirm the responses with the vendor
(v) Draft the Agreement for Sale and dispatch the same to the purchaser’s lawyer for approval
o A copy of the draft agreement should also be sent to the vendor
o Other documents to forward to the purchaser’s advocate are: a copy or abstract of the title; responses to the pre- contract inquiries; copies of relevant planning consents, easements, covenants, licences, insurance certificates, etc.
(vi) Engross the agreement on receipt from the purchaser à If there have been amendments proposed by the purchaser’s
advocates, then consult the vendor on the same before engrossing
(vii) Return the agreement (contract) to the buyer for execution
(viii) Receive any deposit payable and deposit the same into the client account
(ix) Confirm that the deposit cheque has been honoured and procure execution of the contract by the Vendor
(x) Return a counterpart copy of the agreement to the purchaser’s advocate
(xi) Advise the vendor of their continuing duty of care towards the property à the vendor is to take reasonable care to ensure that the property remains in the same condition as it was on the date of the contract
(xii) Respond to any specific requisitions on title à attend to specific queries or objections raised by the purchaser
(xiii) Peruse and approve the draft conveyance and return the approved or revised conveyance to the purchaser’s advocate
(xiv) Prepare for the redemption of any mortgage(s) à contact the Mortgagee and send a discharge of charge together with a Professional Undertaking
(xv) Prepare a Completion Statement (comprising the purchase price less the deposit paid and add the apportionments)
(xvi) Arrange for execution of the Conveyance
(xvii) Arrange for and host the completion meeting
(xviii) Report on status of the completion to the purchaser (and Estate Agent, where necessary)
(xix) Authorise of release of the keys to the Buyer
(xx) Redeem the mortgage(s) + Comply with the Undertakings issued + Obtain release from the Undertakings
(xxi) Account to the vendor for proceeds of the sale à Full purchase price less mortgage redemption less commission to the Estate Agent add apportionment add interest less advocates fees – Pay net value to the vendor
1.4.2 BUYER’S [PURCHASER’S] ADVOCATE
(i) Take instructions from the purchaser
(ii) Consider any potential conflicts of interest
(iii) Discuss and agree on advocate – client fees
(iv) Receive the deposit from the purchaser and deposit the same into the client account
(v) Liaise with the vendor or vendor’s advocates as to the financial arrangements, and send a letter to the purchaser on the
desirability of having a survey and/or physical inspection of the property
(vi) Determine an appropriate completion period
(vii) Advise the purchaser on taxation matters, i.e. land rent, land rates, stamp duty implications on transactions, etc.
(viii) Consider the surveyor and/or valuer’s reports
(ix) Deal with planning (permission) matters
(x) Conduct (or procure the conduct of) pre-contract searches and enquiries
(xi) Consider the draft Agreement for Sale forwarded by the vendor’s advocate and raise pre-contract inquiries of the vendor
(xii) Investigate the Title and raise requisitions
(xiii) Consider the vendor’s responses to the pre contract inquiries and requisitions à consult the purchaser on the responses to the same
(xiv) Amend the draft Agreement for Sale as necessary and return it to the vendor’s advocate
(xv) Make preparations for the mortgage facility and advise the purchaser on the terms of the mortgage
(xvi) Engross Agreement for Sale
(xvii) Procure execution of the contract by the purchaser
(xviii) Return engrossed and executed copy of the Agreement, together with the deposit cheque, to the vendor’s advocate
(xix) Receive the counterpart copy of the Agreement as signed by the vendor
(xx) Draft conveyance and send the same to the vendor’s advocate for approval, and upon its return engross the same
(xxi) Conduct pre-completion searches
(xxii) Make further preparations for grant of mortgage and ensure this is in place
(xxiii) Arrange for execution by the purchaser of: the mortgage and the conveyance (+ attestation of both)
(xxiv) Receive all monies from the purchaser (i.e. disbursements, fees, balance of the purchase price and apportionments)
(xxv) Attend completion and report back to the purchaser
(xxvi) Stamp the conveyance and mortgage à Ensure to get the conveyance endorsed with the assessed value
(xxvii) Give notice to tenants, and simultaneously lodge the conveyance for registration
(xxviii) Conduct post-completion searches
(xxix) Account to the purchaser and release title documents to the purchaser
(xxx) Dispose of any other documents as instructed
1.4.3 SALE AND PURCHASE OF LAND à CHECKLIST: ACTING FOR PURCHASER (Boxes of: obtained, pending, or comment)
(i) Full name and address
(ii) PIN Number
(iii) Telephone number
(iv) Is time to be of the essence?
(v) Does the purchaser want the vendor to point out the beacons?
(vi) Does the property have access?
(vii) Are there any shares in a water or management company to be transferred?
(viii) Obtain copy of Title Deed(s)
(ix) Conduct a search on the Title
(x) Is Land Control Board Consent required?
(xi) Is Commissioner of Lands Consent required?
(xii) Is any other form of Consent required?
(xiii) Does the client have the necessary deposit ready?
(xiv) Is vacant possession going to be granted on completion? If earlier, on what conditions?
(xv) Are there any tenancies?
(xvi) Is the transfer document prepared?
(xvii) Are the current owners’ joint tenants or tenants in common?
(xviii) Have (we) collected Stamp Duty and fees from the client?
(xix) Have all completion documents been received?
(xx) Has Stamp Duty been paid?
(xxi) Has a valuation been conducted by the Government Valuer?
(xxii) Has the document been endorsed by the Collector?
(xxiii) Are there any new encumbrances on the title? (Recommended to conduct a further search)
(xxiv) Is registration complete?
(xxv) Has the purchaser’s title been entered on the register?
(xxvi) Has the completion statement and fee note been prepared?
1.4.4 SALE AND PURCHASE OF LAND à CHECKLIST: ACTING FOR VENDOR (Boxes of: obtained, pending, or comment)
(i) Obtain Title Deeds
(ii) Investigate the Title
(iii) Is vacant possession going to be granted on completion?
(iv) Are there any tenancies?
(v) Has the purchaser paid the deposit?
(vi) Prepare the (draft) Agreement for Sale
(vii) Is Land Control Board Consent required?
(viii) Is Commissioner of Lands Consent required?
(ix) Is any other form of Consent required?
(x) Does a Notice to Vacate need to be served on the current occupants of the property?
(xi) Has a Rates Clearance Certificate been obtained?
(xii) Has the Stamp Duty valuation form been prepared?
(xiii) Has the draft Transfer been received?
(xiv) Are there any Professional Undertakings required?
(xv) Has Registration been completed?
(xvi) Has the vendor received a duly registered counterpart copy of the transfer?
(xvii) Have the completion statement and fee note been prepared?
2. SALE AND PURCHASE THROUGH AUCTION
· An auction is a sale in public to the highest bidder at the fall of the hammer – it is considered a ‘hostile purchase’
· Auctions could be public or private in nature à at a private auction, only a limited group of people are invited to buy the property, whereas public auctions are open to everyone and are generally advertised in the newspaper
· Auctions are ordinarily the result of:
o Execution of a court order (i.e. a decree for sale by auction); or
o Through exercise of a statutory power of sale (Section 96, Land Act)
· Section 3, Law of Contract Act does not apply to sales by way of auction since the contract is formed at the fall of the hammer. However, the bid is merely an offer. It can be withdrawn or rescinded at any time and until acceptance, the bid is susceptible to challenge (especially where the bidder does not meet the reserve price) à the reserve price is the value of the property as at the time of the auction
· In auction sales, the seller is under a duty to act in utmost good faith. If he/she sells the property at a value other than the mortgage debt, he/she must account to the mortgagor
· The auctioneer is also at liberty to reject a bid that does not meet the reserve price, and in situations where no bids meet the reserve price, the entire auction is withdrawn
· The terms of the auction sale are – in most cases – pre-set:
o For instance, the auctioneers would have already determined they amount they want to raise and there are no negotiations around the same
o In situations where the property is being sold pursuant to a court decree, the court will set the terms, e.g. provision of the reserve terms
· People able to bid at auctions include: the chargee and their agents, the owners of the property, and any other person desirous of owning the property à Sections 11 and 12, Restrictive Trade Practices and Monopolies Act prohibits bid rigging
· Under the Auctioneers Act (Cap. 526):
o Auctioneers must be licensed by the Auctioneers Board to conduct an auction sale;
o The auctioneer must hold a valid practicing certificate;
o The place, date and time of the auction must be advertised in the local newspaper (for public auctions, auctions of immovable property, etc.)
o The sale must take place as advertised, unless the same is cancelled by notice
o The presence of a reserve price, if any, must be indicated in the advert
2.1 PROCEDURE FOR AUCTION (LAND ACT, 2012)
1) Issuance of a demand under Section 56, LRA
o The demand is for a duration of 3 months (cannot proceed without this period lapsing)
o The demand is issued only when the repayment date has not been specified in the Charge instrument OR demand has not been made on the repayment date à if you have done either of these 2 things, you are permitted to skip the first step of issuing a demand
o See: Bamboo Tree Holdings v NBK [2019] eKLR
2) Issuance of Statutory Notice under Section 90, Land Act
o This is a 90-day notice for situations where there is breach of a monetary obligation by the Chargor/Borrower
o However, this becomes a 60-day notice for situations where there is breach of a non-monetary obligation by the Chargor/Borrower (e.g. failing to perform covenants under the contract)
o The notice is to explain: the nature and extent of the breach, how to remedy the breach, by when the breach should be remedied (i.e. either 60 or 90 days)
o The notice should also contain information on:
i. The Chargor’s right to seek relief from court as against the Chargee/Borrower
ii. The consequences of failing to remedy the breach (i.e. right to exercise statutory power of sale)
3) Issuance of Notice of Intention to Sell under Section 96, Land Act
o While the notice under Section 90 calls for the repayment of the outstanding amount only, the notice under Section 96 calls for the entire loan unpaid, i.e. the principal amount + interest accrued thereon + bank charges
o This is a 40-day notice containing the same details as the Section 90 notice
o Remember: the notices should always inform the Chargor of their right to seek relief from the court as against the Chargee/Borrower
o See: Albert Mario Cordiero v Vishram Shamji [2015] eKLR
4) Issuance of an Auctioneers Notice under Rule 15, Auctioneers Rules 1997
o Upon expiry of the 45-day notice, the auctioneer should advertise the intended auction
o The 45-day notice is applicable only to immovable property; a 7-day notice is applicable to movable property that is not perishable; and, a 72-hour notice is applicable to movable property and livestock
2.1.1 CONTENTS OF AN AUCTION ADVERTISEMENT
· Rule 16, Auctioneers Rules 1997 dictate that an advertisement by an auctioneer shall, in addition to any other matter required by the court, contain:
i. The date, time and place of the proposed sale;
ii. The conditions of sale or where they may be obtained;
iii. The time for viewing the property to be sold;
iv. In respect of movable property other than perishable goods and livestock: an accurate description of the goods to be sold and a statement as to whether or not they are to be sold subject to a reserve price;
v. In respect of goods of a perishable nature or livestock: an accurate description of the goods to be sold and of their condition and a statement as to whether or not they are to be sold subject to a reserve price;
vi. In case of immovable property: all the information required to be contained in the court warrant or letter of instruction, except the amount to be recovered and the exact amount of any reserve price
· Advertisements by auctioneers shall be by way of advertisement in a newspaper. However, in the case of perishable goods and livestock, this requirement may be dispensed with if adequate notice to all prospective bidders can be reached through another means of communication (e.g. radio or television)
2.2 DIFFERENCE BETWEEN AUCTION SALES AND OTHER LAND SALES
(i) Potential buyers are required to pay a deposit of more than 10% before the auction
(ii) Interested buyers are given 15 days to pay the auction price of the property after the fall of the hammer à if they fail, the property is offered to the next highest bidder
(iii) The minimum price offered at an auction is the forced sale value or the reserve price
2.3 DUTIES OF ADVOCATES IN AN AUCTION SALE
2.3.1 DUTIES OF ADVOCATE FOR PROSPECTIVE PURCHASER
· Conduct a search (‘caveat emptor’) – Most auctioneers are quite secretive and so the advocate is tasked with raising the relevant requisitions and inquisitions discovered from the search
· Conduct enquiries on whether there are any pending matters in court involving the property to be bought
· Engage a surveyor to advise you on the property (and advise the client on the need for this)
· Advise the client on the requirement to pay 30% - 40% of the purchase price at the fall of the hammer, and that the balance is to be paid within 60 – 90 days (this is important as the risk of forfeiture of deposit is higher than 10%)
· Engage a valuer to decipher to proper/real value of the property
2.3.2 DUTIES OF ADVOCATE FOR PROSPECTIVE VENDOR
· Act in good faith by ensuring that the property fetches the best price
· Ensure proper procedures are followed once the bid is accepted
· After receiving 30% - 40% of the purchase price, ensure the appropriate documents are put in order
2.4 ADVANTAGES AND DISADVANTAGES OF AUCTIONS
· The property is acquired with all its defects
· Time is short, making it difficult to conduct extensive due diligence
· The property might end up locked in court due to disputes between the Chargor and Chargee
· Bad root of the title can be disposed off
· There are too many interested parties involved since the sale is publicised
· Auctioning properties is costly (auctioneers fee, advertising costs, taxes, bank charges, etc.)
· The price the property is sold at does not indicate its true market value
· The procedure is embarrassing to the individual whose property is being auctioned
3. SALE OF A PROPERTY OFF-PLAN (DEVELOPMENTAL CONVEYANCING)
· This is a purchase with no actual structure to buy à it is essentially basing a purchase on a plan for the structure
· The types of properties that can be the subject of such a sale include: houses, flats, apartments, duplexes, etc.
· The vendor normally gives the purchaser a letter of offer (prepared by the vendor’s advocate) and requires the purchaser
to pay a non-refundable commitment fee (Note: the commitment fee is not the deposit)
· The sale is usually by way of a lease, i.e. an Agreement for Lease, with the head lessor being the Management Company (in which the purchaser is a shareholder, and so also enters into a Share Purchase Agreement)
· The interest sold, as indicated above, is ordinarily a leasehold interest and the reversionary interest reverts back to the Management Company at the end of the lease period. It is the Management Company that is tasked with applying for an extension of the head lease when the same expires
· It is important to ensure that there is compliance by all parties with the completion date and other contractual obligations
à ordinarily, the vendor may even be using the deposits to fund (part of the) construction costs
· The ‘defects liability’ period is ordinarily 6 months after completion, during which time the vendor will bear the costs of any defects/damages/short-comings in the property that need to be remedied
· A Certificate of Occupation must be issued before the property can be inhabited. This is ordinarily issued by the local authority, confirming compliance with local developmental standards à in most situations, the completion date will be pegged to the Certificate of Occupation, e.g. “Completion date means 30 days after issuance of a Certificate of Occupation”
· The purchaser must ensure that there are well-drafted warranties and indemnities clauses to rely on
· The advantages of an off-plan development include the fact that it is ordinarily a lower purchase price for the buyer, and the seller is able to use the deposits to fund the construction work
3.1 PROCEDURE WITH MANAGEMENT COMPANY
(i) Take the parcel of land + construct a block of flats (i.e. the 'estate') on the same à Sale of these flats will be based off the architectural plans and floor plans of the building
(ii) Incorporate a Management Company for the entire estate
(iii) Each individual purchaser seeking to buy one unit in the estate, will also purchase one share in the Management Company (therefore it is necessary to execute SPAs and ensure that each purchaser has a Share Certificate)
(iv) Transfer the reversionary interest to the Management Company, so that this Company may apply for an extension of the head lease when the same expires
o Remember: the interest sold in a block of flats is a sub-lease with the lessee being the Management Company and the head lessor being the Government (in leasehold properties)
o Where the leasehold interest is more than 25 years in duration, the Government issues the purchaser with a Certificate of Lease
3.2 AGREEMENT FOR LEASE
· The sale agreement in this situation differs from an ordinary Agreement for Sale à in a block of apartments, the purchaser normally enters into an Agreement for Lease (or sub-lease)
· It is important that this Agreement contains an easy exit clause for the purchaser in situations where the structure is not aligned with what was promised in the plans
· The Agreement must also contain a defect-liability clause to cover situations where the purchaser finds a defect in the property (during a defined period of time, e.g. the first 6 months) – such a clause places the financial obligation of repairing the defect on the vendor
· The Agreement must have a defined completion date which is ordinarily triggered once the Certificate of Occupation is issued
· The Agreement must also state clearly the date on which the reversionary interest is to be transferred
3.3 DUTIES OF ADVOCATES IN OFF PLAN SALE
3.3.1 DUTIES OF PURCHASER’S ADVOCATE
· Conduct an investigation of Title
· Obtain the site plan so as to ascertain/identify the sub-divisions and check to see whether this differs with the Registry <ap where the legal sub-divisions are marked
3.3.2 DUTIES OF VENDOR’S ADVOCATE
· Obtain planning permission and ensure compliance with the building codes
· Obtain a Certificate of Practical Completion
· Follow up on issuance of the Certificate of Occupation so as to close in on completion date
4. SALE OF A PROPERTY THROUGH SURVEY AND SUBDIVISION (SECTION 22, 42 LRA)
· Sale of a property through a sub-division (or an amalgamation) is similar to a conventional sale agreement, however, it is in addition also governed by Section 42 and 22 LRA
o Section 22 LRA: subject to authentication of the cadastral map, the Registrar may:
§ If contiguous parcels are owned by the same proprietor and are subject in all respects to the same rights and obligations, combine these parcels by closing the registers relating to them and opening a new register or registers in respect of the parcel or parcels resulting from the combination, OR
§ Authorise the division of one parcel into two or more parcels, by closing the register relating to the parcel and opening new registers in respect of the new parcels resulting from the division, and recording in the new register all subsisting entries appearing in the closed register
o Section 42 LRA: no part of any land shall be transferred unless the registered proprietor has first subdivided (or amalgamated) the land and registered each new subdivision (or amalgamation)
· Therefore, in the case of a subdivision, the old register for the portion of land is closed and two new ones opened. A new map is also drawn to show the two new parcels formed
· The Agreement for Sale for a sale by way of subdivision will differ from an ordinary Agreement for Sale in the following respects:
i. There will be a sketch map annexed to the agreement to show the specific portion being sold;
ii. The cover page will read “Sale of a portion of Land Reference No. 1234/56”
iii. The agreement will state who bears the costs for and associated with the subdivision of the property
iv. Completion date will not be the ordinary ’90 days’ as the time taken to effect the subdivision will need to be
accounted for. E.g. completion may be “30 days after finalisation of the subdivision”
·
Example of a subdivision:
5. SALE AND PURCHASE THROUGH A CO-OPERATIVE SOCIETY OR LAND BUYING COMPANY
· Example of situation covered: Company X owns 50 acres of land. This company sells shares in 1-acre plots, i.e. 1 acre = Kshs. 50,000/= = 1 share in Company X. In the event you want to sell your interest, you sell your shares in the Company and do not sell the land. In the event that Company X is wound up, all the property of the Company will be sold – including the 50
acres of land. The creditors of the Company will be paid first, after which the shareholders can split what is left. However, being a shareholder, your right to the 1 acre extinguishes as soon as the company goes insolvent/is wound up
· This shows that purchase of property through a Co-operative Society is an investment (you will not be given Title to the land), and even though you are allowed to use the land for a duration of time, you cannot offer the same as security (e.g. when taking a loan)
· In these situations, an acquisition agreement for the shares is required and a share certificate is issued entitling one to own a property (in addition to the ordinary completion documents), and so a Share Transfer Form should be executed
· It is prudent for the purchaser’s advocate to conduct a search/thorough investigation of the Co-operative Society’s affairs, including its actual and contingent liabilities
6. PURCHASE OF COMMERCIAL PROPERTY FOR DEVELOPMENT
· In these situations, acquisition of Change of User should be a condition (precedent) in the agreement
· The purchaser’s advocate must scrutinize local development plans and ensure that their client‘s development plan has
been approved
· When purchasing commercial premises, it is important to look out for things such as protected tenants (and to get vacant possession where and when possible)
· Areas in Nairobi are normally allocated uses: Residential (Karen); Industrial use (Industrial area); Commercial use (CBD, Upper Hill); Agricultural use (Kiambu), etc.
6.1 CHANGE OF USER
· The power to control land use and development in Kenya is vested in the County Governments
· Therefore, the owner/legal entity wishing to develop his/her land for any purpose other than that earmarked on the approved Master Plan/Title Deed, will make an application – along with the relevant documents – to the respective County Government’s Department of Physical Planning for consideration through a registered physical planner
· E.g. where the Title Deed says that the property has been allocated a use of ‘single dwelling house, with one guest house’, yet the property has been purchased with the intention of demolishing the existing structure and putting up a commercial property, a change of user is required (and is normally a condition precedent, to be obtained by the vendor)
6.1.1 PROCEDURE TO APPLY FOR CHANGE OF USER
(i) Placing an advertisement in the local newspaper to obtain recommendations from members if the public and line ministries (which are obtained by the County Government)
(ii) The investor, through a registered Physical Planner, will make an application for change of user by filling out a PPA1 Form (which must be duly signed by the Physical Planner). The application is often combined with an application for a construction permit
(iii) The Physical Planner and the investor will then publish public notices regarding the proposed change of user in two daily newspapers, inviting objections from the public within a period of not less than fourteen (14) days. A site notice will also be placed on the site indicating the intention to change its use within the same duration
(iv) A planning brief/planning report is then prepared by the Physical Planner
o The process of preparing and implementing a planning brief/planning report provides a framework for collecting information about a site, as well as investigating and evaluating different interests in it
o The planning brief will explain why the Change of User is in line with local policies and why it will not have any negative impact on the land or neighbouring properties
(v) The requisite fee will be paid to the respective County Government and the receipt will be annexed to the planning brief prepared by the Physical Planner
(vi) The brief will then be submitted to the County Government’s Department of Physical Planning for approval
(vii) The County Government then receives submissions from the general public on any oppositions to the Change of User –
this process could take up to 14 working days
(viii) The County Government will then review the Change of User proposal/brief with the public objections received (if any) and will pass a resolution, recording reasons, regarding its consideration or non-consideration for the change. This process takes a minimum of 20 days and could be extended, depending on the requirements the County Government places
(ix) The Department of Physical Planning shall, if it finds that the changes sought are relevant to planning principles and are in the public interest/not in contravention of any statute, give permission for the same by issuing a PPA2 Form
In summary, the requirements for a Change of User application are:
i. Two duly filed PPA1 Forms in triplicate, submitted and signed by a Registered Physical Planner;
ii. Planning brief, prepared and signed, by a Registered Physical Planner;
iii. Ownership documents, i.e. the Title Deed;
iv. Comprehensive location plans;
v. Advertisement of the proposal in two local daily newspapers and on site;
vi. Application fee and the receipt of the same; and
vii. The latest rates payments receipts.
7. SALE AND PURCHASE OF A LEASED BUILDING (E.G. TENANT OFFICE BLOCK)
· When acting for the purchaser in this situation, ensure the following:
o To conduct all pre-contract investigations in order to ascertain the existence of any covenants and conditions in the lease
o That the assignment of lease has been consented to by the Lessor (this should be made a condition (precedent) in the agreement due to its importance)
o If a Change of User is required, the same should be obtained by the Lessor
o Ensure the requisite planning permissions are obtained
· When acting for the vendor, ensure that there is a guarantee that the tenants will comply with the conditions of the lease
8. FRACTIONAL SALE AND TIME SHARES
· FRACTIONAL OWNERSHIP: Fractional ownership is a method in which several unrelated parties can share in, and mitigate the risk of, ownership of a high-value tangible asset, usually a jet, yacht or piece of resort real estate
o It can be done for strictly monetary reasons, but typically there is some amount of personal access involved
o One of the main motivators for a fractional purchase is the ability to share the costs of maintaining an asset that will not be used full-time by one owner
· TIME SHARE: A timeshare (sometimes called vacation ownership) is a property with a divided form of ownership or use rights
o These properties are typically resort condominium units, in which multiple parties hold rights to use the property, and each owner of the same accommodation is allotted their period of time
o The minimum purchase is a one-week ownership, and the high-season weeks demand higher prices
o Units may be sold as a partial ownership, lease, or "right to use", in which case the latter holds no claim to ownership of the property à The ownership of timeshare programs is varied, and has been changing over the decades
· These methods of sale apply to luxurious (holiday) homes, and Kenyan companies have started offering this method of ownership in recent years, i.e. where a number of people (not known to one another) come to buy one very expensive (holiday) home for use at different times of the year, and the amount they pay depends on what time of the year they are allowed to use/access to the property
|
TIME SHARE |
FRACTIONAL OWNERSHIP |
|
No document of ownership provided |
A lease is provided |
|
Ownership of time |
Ownership of the property |
|
Time expires, and with it the interest in the property |
Time does not expiry and the property remains yours |
9. PROTECTED TENANCIES/CONTROLLED TENANCY
· This is a lease agreement governed by the Landlord and Tenants (Shops, Hotels and Catering Establishments) Act and is ordinarily for hotels or shops with a lease term of less than 5 years
· Such agreements cannot be entered into between a local authority and any other body
· When seeking to increase the rent for controlled tenants, the landlord must show an increase in the market value of the property in the area
· Section 4(2) of the Act governs the procedure for terminating or altering a controlled tenancy:
(i) A notice is to be given to the tenant, in that regard, of not less than 2 months. Such notice should be in the prescribed form and should be stamped by the Tribunal;
(ii) The tenant may agree to the termination/variation or may not agree;
(iii) If the agreement prescribes a notice period of higher than 2 months, then that notice period in the agreement takes precedence and must be adhered to;
(iv) The notice must state the grounds for termination/alteration/reassessment;
(v) The notice may be served on the tenant, an adult member of the tenant’s family, or any other servant employer
in the premises concerned
9.1 GROUNDS FOR EVICTION IN CONTROLLED TENANCY
· These grounds are contained under Section 7 of the Landlord and Tenants Act and are as follows:
(i) Where the tenant has failed to comply with their obligations in respect of repair and maintenance of the premises;
(ii) Where the tenant has defaulted in rent payments for two months or consistently delays rent payments;
(iii) Where the tenant has committed other substantial breaches of his obligations under the tenancy
(iv) Where the landlord has offered and is willing to provide/secure the provision of alternative accommodation for the tenant, which terms are reasonable having regard to the terms of the tenancy and all other relevant circumstances;
(v) Where the landlord intends to demolish or reconstruct the premises comprised in the tenancy or a substantial part thereof, or to carry out substantial work of construction on such premises or part thereof, and cannot do so without obtaining possession of such premises; or
(vi) Where the landlord, on the termination of the tenancy, himself intends to occupy – for a period of not less than one year – the premises comprised in the tenancy for the purposes of a business to be carried on by him.
CHAPTER 4: POWER OF ATTORNEY
1. INTRODUCTION
· A power of attorney is ‘an instrument by which a person appoints another to act for him in any matters, including the dispositions of interests in land’
· Section 48, LRA: a power of attorney is ‘an instrument by which a person appoints another to act on his behalf in any matter, including disposition of interest in land’
· The person appointing a power of attorney is known as the principal or donor, while the person appointed as a power of attorney is called the donee
· The power of attorney conferring power to the holder thereof to transfer property must be: executed, attested & verified and registered
· A power of attorney presupposes that the person donating it has capacity
o A person of unsound mind has no capacity to donate a power of attorney
o Grace Wanjiru Munyinyi & Another v Gedion Waweru & 5 Others, Civil Case no. 116 of 2002: where a person purports that he has a power of attorney donated to him by a person of unsound mind, the power is null in law
· Pursuant to Section 48 LRA, an instrument dealing with an interest in land shall not be accepted for registration where it is signed by an agent without a power of attorney
o The original power of attorney must be filed
o Where one wishes to file a copy, then this must be with the consent of and duly certified by the Land Registrar
· However, instruments may still be registered if signed by an agent without a power of attorney in some circumstances:
i. Section 114(3) RLA: a guardian or person appointed in law to represent a minor or person of unsound mind, or disabled person, is entitled to generally represent that person for purposes of the Act, without necessarily obtaining a power of attorney
ii. Mental Treatment Act (Cap. 248): one may apply to manage the property of an insane person, and such person need not have a power of attorney
· There are three types of power of attorney:
i. General Power of Attorney (Form LRA5)
ii. Specific Power of Attorney (Form LRA6)
iii. Irrevocable Power of Attorney (Form LRA7) – ordinarily where there is some interest conveyed or granted to the donee
· Since the Lan Registration Act makes no form for a power of attorney, the Registered Land Act prescribes a mandatory form to be used in donating the authority, which form must be executed and verified
2. REGISTER OF POWER OF ATTORNEYS
· Section 116(1) RLA: The Registrar is required to keep a register of the power of attorneys, in which he/she must file the original copy of the power of attorney
· A copy of the power of attorney may be filed subject to the consent and certification of the Registrar
· A power of attorney must be in the prescribed form as detailed in Section 116(2) RLA
· The above requirements are couched in mandatory terms, such that a failure to satisfy them renders the power unenforceable à Mayfair Holdings Limited v Ahmed [1990] KLR 667: a power of attorney prepared in accordance with the United Kingdom Power of Attorney Act 1971 was unenforceable for lack of certification and certification prescribed under section 110(4), as read with section 116 RLA
3. CONTRUCTION OF A POWER OF ATTORNEY
· EXECUTION OF POWER OF ATTORNEY – SECTION 109 LRA: Every instrument evidencing a disposition shall be executed by all persons shown in the register to be proprietors of the interest affected and by all other parties to the instrument, provided that the Registrar may dispense with execution by any particular party (save for the transferor or transferee) where he considers the execution unnecessary
· VERIFICARION OF POWER OF ATTORNEY – SECTION 110 LRA: A person executing an instrument shall appear before the Registrar or such public officer or other person as is prescribed and, unless he is known to the Registrar or the public officer or other person, shall be accompanied by a credible witness for the purpose of establishing his identity. The Registrar or public officer shall satisfy himself as to the identity of the person appearing before him and ascertain whether he freely
and voluntarily executed the instrument and shall complete thereon a certificate to that effect. Note that no instrument executed out of Kenya shall be registered unless it has endorsed thereon or attached thereto a certificate in the prescribed form
4. REVOCATION OF POWER OF ATTORNEY
· Section 116(3) RLA: a power of attorney may be revoked by the donor at any time, and this is done by the donor issuing a notice in the prescribed form to the Registrar, indicating his intention to revoke the power of attorney
· Such a revocation must be entered in the register of powers of attorney, noted upon the power, and the notice should be filed in the file of powers of attorney
· Section 116(4) RLA: an interested party may give notice in writing to the Registrar that a power of attorney which was registered has been revoked by death, bankruptcy or disability of the donor, or the death or disability of the donee
o Such a notice must be accompanied by such evidence as the Registrar may require
o Here too, the revocation must be entered in the register of powers of attorney, noted upon the power, and the notice should be filed in the file of powers of attorney
· Section 116(5) RLA: a power of attorney given for valuable consideration is irrevocable during any time which the terms thereof state that it is irrevocable
· Section 116(6) RLA: where, owing to the length of time since the execution of a power of attorney or for any other reason, the Registrar considers it desirable, he may require evidence that the power has not been revoked and may refuse to register any disposition by the donee of the power of attorney until satisfactory evidence is adduced
· Section 117(1) RLA: a duly registered power of attorney, where no notice of revocation has been registered, is deemed to be subsisting as regards any person acquiring any interest in the land affected by the exercise of that power, for valuable consideration and without notice of revocation and in good faith (bona fide purchaser for value)
4.1 SITUATIONS OF REVOCATION OF POWERS
· By the donor executing a revocation in the prescribed form (Form LRA8)
· By the performance of the act that the power of attorney was created to perform
· By the expiry of time
· By the operation of the law, e.g. in the case of bankruptcy
· When the donor of the power dies
5. POWER OF ATTORNEY UNDER THE REGISTERED TITLES ACT
· Section 50 RTA allows any proprietor of land, provided he is not a lunatic, a minor or a person of unsound mind, to donate a power of attorney for purposes of dealing with his land
o The appointment must be in prescribed form, which form must be executed
o A duplicate or attested copy of the power must be deposited with the Registrar, wo is under a duty to enter in the register a memorandum of the particulars therein contained and of the date & hour of its deposit with him
· However, under the RTA, a power of attorney executed in due and customary form and giving sufficient powers (in the opinion of the Registrar) may be registered as though executed in the prescribed form
· Like under the RLA, a power of attorney conferred under the RTA may be revoked by an instrument of revocation in the prescribed form and after the registration of such revocation, the Registrar is not permitted to give effect to any transfer or other instrument signed pursuant to that power
6. GENERAL POWER OF ATTORNEY & SPECIFIC POWER OF ATTORNEY
· A general power of attorney gives broad authorisations to the agent. The agent may be able to make medical decisions, legal choices, or financial or business decisions
· A special power of attorney, on the other hand, narrows what choices the agent can make. It is even possible to have numerous different powers of attorneys, with different agents for each (and each covering a different subject matter)
6.1 GENERAL POWER OF ATTORNEY SAMPLE:
GENERAL POWER OF ATTORNEY
POWER OF ATTORNEY
-TO-
[MUM NAME]
I, RADHIKA ARORA of Post Office Box Number 12345 - 00100, Nairobi, HEREBY APPOINT my mother [MUM NAME] ARORA of Post Office Box Number 12345 - 00100, Nairobi, AS MY TRUE AND LAWFUL ATTORNEY for and in my name to manage, transact and generally conduct all lawful business, act or activity on my behalf and in my name without any reference to me AND without prejudice to the generality of the foregoing to sign, attend and otherwise participate on my behalf and in my name (in so far as my signature attendance or participation would be requisite) all documents, correspondence, meetings and other activities relating to:
a) ordinary correspondence, checks and other bills of exchange;
b) hiring, leasing, transferring and mortgaging of any of my property;
c) taking of leases and mortgages by myself;
d) opening and maintenance of any type of account with any bank or financial institution;
e) recovery of any and all moneys, debts or property due and owed to myself;
f) taking delivery of letters, telegraphic messages, drafts, packages and securities of any kind, from the Post Offices or from Railway, Airline, Express or Steamship companies against the necessary receipt and discharge signature;
g) attending, taking part in or voting at any and all meetings of creditors, shareholders, directors or officers of any corporation or association in which I have an interest or to give proxy therefore;
h) arbitration, suits, actions and other legal or equitable proceedings in which my interests are concerned;
i) employment, retention, suspension or dismissal of any and all employees in my employ;
j) execution signing sealing and delivery of all deeds contracts receipts acknowledgement notices instruments documents and letters necessary and proper for effectively doing or causing to be done any or all of the acts and things which the Attorney is by these presents empowered to do on my behalf; and
k) generally, to do or cause to be done for and on my behalf, all acts and things whatsoever whether expressly mentioned herein or not which may seem to the Attorney to be requisite or expedient to be done or caused to be done on my behalf.
IN WITNESS WHEREOF I have hereunto set my hand and fixed my seal this ……………………………. day of..................................................................................................................... 2019.
SIGNED and SEALED by me the said: ) RADHIKA ARORA )
In the presence of – )
Advocate. )
DRAWN AND FILED BY
Arora & Company Advocates,Letter A Building, School Lane, Westlands,
6.2 SPECIAL POWER OF ATTORNEY SAMPLE:
SPECIAL POWER OF ATTORNEY
POWER OF ATTORNEY
-TO-
KENYA COMMERCIAL BANK LIMITED
I, RADHIKA ARORA, of Post Office Box Number 12345 - 00100, Nairobi, in the Republic of Kenya do hereby appoint KENYA COMMERCIAL BANK LIMITED of Post Office Box Number 98765 – 00100, Nairobi, in the Republic of Kenya (hereinafter called ‘the Attorney’) to be my attorney with authority to do all or any of the acts and things hereunder specified on my behalf in relation to my property known as L R No. 209/34 (hereinafter called ‘the Property’)
AUTHORITY
The Attorney has authority in my name and on my behalf and on such terms and conditions as seen to him expedient to:
1. to sell to any person all or any of my interest in the Property;
2. to charge or mortgage all or any of my interest in the property for any sum at any rate of interest;
3. to lease all or any portion of the property for any term of years at any rent;
4. to demand collect receive and take all necessary steps to recover all rents and other sums owing to me in relation to the property;
5. to obtain or accept the surrender of any lease in which I am or may be interested in relation to the Property;
6. to exercise and execute all powers which are now or shall hereafter be vested in or conferred on me as a lessee or chargee under any Act of Parliament in relation to the Property;
7. to represent me and to appear in my name and stead and on my behalf, before any Land Registry in Kenya and before any other official government or municipal officer or competent local council or any other administrative officers or before any other authority in all matters pertaining to or connected with the Property and to sign and execute all certificates documents contracts and declarations before such authorities or offices and to perform all actions and matters which may be required by law in connection with this power of attorney;
8. to enter and permit others to enter the Property;
9. to take any action to abate any nuisance;
10. to do all other things incidental to the above powers or which it thinks necessary or expedient in relation to the Property as fully and effectually as I could do them myself.
REVOCATION
I shall not revoke this Power of Attorney as long as I remain indebted in any manner to the Attorney.
IN WITNESS WHEREOF I have hereunto set my hand and fixed my seal this ……………………………. day of..................................................................................................................... 2019.
SIGNED and SEALED by me the said: ) RADHIKA ARORA )
In the presence of – )
Advocate. )
DRAWN AND FILED BY
Arora & Company Advocates,Letter A Building, School Lane, Westlands,
CHAPTER 5: LEASES
1. DEFINITION AND CHARACTERISTICS
· Section 2, Land Act defines a lease as ‘the grant, with or without consideration, by the proprietor of land of the right to exclusive possession of his or her land, and includes the right so granted and the instrument granting it and also includes a sub-lease, but does not include an agreement to lease’
· Therefore, the ‘grantor’ = the ‘lessor’ while the ‘grantee’ = the ‘lessee’
· A lease was defined in Prudential Assurance Company Ltd v London Residuary Body [1992] AC 286 as “a contract for the exclusive possession and profit of land for some determinate time”
· It (i.e. a lease) was also elaborated upon in Street v Mountford 2 All ER 289 as existing “when an occupier is granted exclusive possession of a property for a fixed term or periodic terms in consideration for premiums or periodic payments”
· Under the Landlord and Tenants (Shops, Hotels and Catering Establishments) Act (Cap. 301), a tenancy is created by ‘a lease or underlease, by an agreement for a lease or underlease, by a tenancy agreement, or by operation of law, and includes a sub-tenancy but does not include any relationship between mortgagor and mortgagee as such’
· Section 55, Land Act provides that unless otherwise provided in a lease instrument, the provisions of Part VI of the Act shall apply to all leases (other than leases governed by legislation relating to community land)
2. LEASES v OTHER INTERESTS
2.1 LEASE AND ASSIGNMENT
· Under a lease, only a term of years is granted to the lessee, and the lessor has a right of reversion after the expiration of the term granted
· Under an assignment, the entire leasehold interest is conveyed or assigned to the purchaser and the vendor has no right of reversion. The vendor can only assign the unexpired residue of his term
2.2 LEASE AND UNDERLEASE
· A lease is a direct relationship between the lessor and the lessee
· An underlease anticipates the existence of a head lessor. The under lessor is, indirectly, a tenant of the head lessor
2.3 LEASE AND LICENSE
· Section 2, Land Act defines a license as permission given by the commission (for public land) and proprietor (for private land), allowing the licensee to do some act in relation to the land which would otherwise be a trespass, but does not include an easement or profit
· A license is a relationship whereby the licensee is granted a right to enter into or use the premises without becoming entitled to exclusive possession
· A licensee has no interest in the premises but he can exclude the whole world from the premises, except the licensor
· Desai v Cooper [1950] 214 KLR 32: the defendants did not have keys to the front door of a shop and could only access it from the back. They could not enter from the front as and when they pleased, but rather, to access their portion they had to go through the plaintiff’s portion. The plaintiff sought to recover the portion occupied by the defendants. The court held that – even though the defendants had exclusive use of a portion of the premises, they did not have exclusive possession, and so were licensees and not tenants
· Hecht v Morgan [1957] EA 741: the Court of Appeal held that there must be clear intention to create a lease
· London Northwestern Railway Company v Buckmaster [1874] 10 LR: exclusive possession (which is the central and indispensable feature of a lease) precludes interference from the landlord
· Halsbury’s Laws of England, Volume 20, Page 9, 2nd Edition: ‘a grant under which the grantee takes only the right to use the premises without exclusive possession operates as a license, regard must be had to the substance of the agreement. If the effect of the instrument is to give the holder the exclusive right of occupation of land, though subject to certain reservations and a restriction of the purposes for which it may be used, it is a lease. If the contract is merely for the use of the property in a certain way and on certain terms while it remains in the possession and control of the owner, it is a license. To give exclusive possession, there need not be express words to that effect, it is sufficient if the nature of acts to be done by the grantee require that he should have exclusive possession’
|
LEASE |
LICENSE |
|
Lord Templeman in Street v Mountford: ‘whenever exclusive possession is granted for a term of a rent, then prima facie a lease will be created’ |
Permission to use premises |
|
Can assign/transfer a lease |
Cannot assign/transfer a license |
|
Confers more rights – quiet possession, non-derogation from grant, repairs, fit for habitation, etc. |
Rights are limited |
|
Not easily revoked |
Can be revoked upon reasonable notice |
|
Protection granted by other statutes, e.g. Cap 301 and Cap 296 |
No protection by statute |
3. REQUIREMENTS OF A VALID LEASE
(i) Exclusive possession:
o The lessee must have an interest that entitles him to exclude all other persons, including the lessor, from the premises
(ii) Defined areas and parties:
o The land, or part thereof, as well as the parties must be clearly defined/identified
o Section 56, Land Act gives power to lease whole or part of the land. If part of the land is being leased, it shall be accompanied by a plan or other description which the Registrar deems adequate to identify the property
o Ratwani v Deganela [1956] 17 EACA 37: for a lease to exist, the land must be defined (in this case the lessee was to share a shop with someone else and his portion was not clearly defined)
o Antoniodes v Millers [1988] 3 Weekly Law Reports 1205: the landlord and tenant shared a one bedroom flat and they were both paying rent equally (like a sub-tenancy). It was held that the plaintiff was not a landlord in the strict sense of the word as both of them has exclusive possession (concurrently)
(iii) Certainty of duration:
o If the lessee has a fixed term, he can underlet or sublet the whole or a portion of his leased term
o Section 56, Land Act says that the owner of land may lease the land or part of it to any person for a definite term, or for the life of the lessor or the lessee, or for a period which though indefinite may be determined by the lessor or lessee
o However, it is advisable not to create leases that have clauses for perpetual renewal
o Section 61, Land Act says that a lease can be made to commence at a future date – not being later than 21 years after the date it is executed. If the term of a future lease is for more than 5 years, it must be registered
o A term made to come into effect at a past date is called a lease in possession, while a lease to commence at a future date is called a reversionary lease (‘future lease’)
o A reversionary lease that commences in more than 21 years from the date of execution is void
o Lace v Chantler: an agreement to let premises for ‘the duration of the war’ was held to be void due to uncertainty
of the period of the intended lease
4. TYPES OF LEASES
4.1 PERIODIC LEASES
· These are governed by Section 57, Land Act
· The term of the lease is not specified and no provision is made for giving notice to terminate the tenancy – it is deemed to be for the period by reference to which rent is payable
· There is ordinarily no agreement in writing but there is occupation and payment of rent
· The term is from week to week, month to month, year to year, or any other periodic basis for rent payment. In relation to agricultural land, the period shall be for 6 months
· The lessee remains in possession with the consent of the lessor after the expiry of the term of the lease unless there is an express or implied term agreed (i.e. the terms and conditions of the expired lease will continue to apply)
· The lease may be terminated by giving notice whose length is not less than its period and shall expire on the day when the rent is payable
· This may be construed as being contradictory to the 2-month notice under the Landlord and Tenants (Shops, Hotels and Catering Establishments) Act (Cap. 301), however, it is to be borne in mind that the 2-month notice period for protected tenancies will always stand and will supersede the above requirements under the Land Act
4.2 SHORT TERM LEASES
· These are governed by Section 58, Land Act, which provides for leases for a term of 2 years or less without an option for renewal or for periodic leases where there is no agreement in writing but there is occupation and payment of rent
· Such a lease may be made orally or in writing
· However, a short-term lease is not a registrable interest in land (only needs to be registered if the term of the lease is for 5 years or more)
5. REGISTRATION OF LEASES AND EFFECT OF NON-REGISTRATION
· The provisions governing registration of leases are:
o Section 58 Land Act: All leases of more than 2 years should be registered
o Section 30 LRA: No Certificate of Lease shall be issued unless the lease if for a certain period exceeding 25 years
o Section 54 LRA: After registration of a lease which required consent of the Lessor before registration, no further dealings will be registered without the same consent of the Lessor
o Section 32 LRA: The Registrar shall note the disposition on the original and duplicate lease or charge
o Section 7 Land Act: Title to land may also be acquired through a long-term lease exceeding 21 years
· In the event of non-registration of a lease, the effect is as follows:
o Section 43(2) LRA: No instrument effecting any disposition of private land under the LRA shall operate to transfer any lease until the same has been registered in accordance with the laws relating to registration of instruments
o Section 36(2) LRA: Therefore, unregistered lease instruments shall be construed as mere contracts and not as an interest having passed
o Section 4, Registration of Documents Act: Requires registration of leases and licenses of over 1 year
· James Michiki Mwangi & Another v Esther Wanjiru Kabugu & Another [2006] eKLR: lease for 5 years and 1 month was not registered. The court quoted Walsh v Londsdale [1882] to say that where a tenant holds under an agreement for a lease, equity regards him as holding a lease. The tenant had continued in occupation after expiry of the term and the landlord had continued to accept the rent à Section 52 RLA provided that acceptance of rent by the lessor was evidence of consent to continue occupation
· Bachelor’s Bakery Limited v Westlands Securities Limited, Civil Appeal No. 2 of 1978: the lease over the shop was for a period of 6 years and it was unregistered. Upon its expiry, the landlord sought possession. It was held that this was not a protected tenancy as there was an unexecuted lease for more than 5 years which created a tenancy, and did not require to be registered under the ITPA, Section 107
6. COVENANTS, CONDITIONS AND RIGHTS
6.1 LESSOR’S IMPLIED COVENANTS – Section 65 Land Act
(i) Quiet enjoyment: the lessee shall peaceably and quietly possess and enjoy the land leased during the term of the lease, without any interruption from the lessor or any person instituting a claim through the lessor (provided that the lessee is paying rent)
(ii) Non-derogation from grant: this ordinarily occurs in situations where the landlord occupies the property adjacent to the one that the lessee has leased, and uses this property in a manner which interferes with use that the lessee intended to put the leased property to, thereby rendering it unfit for the purpose it was leased
(iii) Duty to repair: this is limited to structural repairs, e.g. sewage blocks or leaks (i.e. repairs that are not occasioned by the tenant). Internal repairs are to be handled by the tenants themselves
(iv) Fitness for habitation: the lessor must ensure that the property is fit for human habitation and must continue to maintain it (to the best of his ability) so that this remains the status quo
(v) Suspension of rent: where the leased property has been destroyed by Acts of God, e.g. natural disasters, there is normally a suspension of rent for a period of 6 months (or until the repairs are completed). After these 6 months have lapsed, if the repairs are incomplete, the lessee can terminate the lease by giving 1 months’ notice
(vi) Fitness for purpose: this governs situations where it is an express or implied term of the lease that the property has been so leased for a particular purpose, and the land or building can no longer be used for that purpose. In such situations, the lessee may terminate by giving 1 months’ notice
(vii) Pay all rates, taxes due and outgoings: pay all those that are due in respect of the leased land, except to the extent otherwise specified in the lease
6.2 LESSEE’S IMPLIED CONDITIONS – Section 66 Land Act
(i) Pay rent on time and in the manner specified (as stipulated in the contract)
(ii) Use land in a sustainable manner and in accordance with the conditions in the lease, e.g. not to cut down any trees unless this is necessary to enable use of the land
(iii) Yield up the land and buildings in the same condition as they were when the term of the lease began, except for deterioration caused by:
a. Reasonable wear and tear
b. Fire, floor, explosion, civil commotion, lightning, storm, earthquake, volcanic activity, other natural disasters
(iv) Keep all boundary markers in repair
(v) Keep all buildings comprised in the lease in a reasonable state of repair
6.3 RIGHTS OF THE LESSOR – Section 65(2) Land Registration Act
(i) Either personally, or through his/her agents, enter the leased land or buildings at a reasonable time to inspect the condition of the premises and determine whether it needs any repairs
(ii) Terminate the lease by serving a Notice of Intention to Terminate in the following situations:
a. If any rent is unpaid for one month after its due date, whether or not it has been demanded in writing; or
b. Where there is a breach of the lessor’s covenants by the lessee for one month
7. EXPRESS COVENANTS
· These are the covenants expressed in the lease document (and usually include implied covenants)
· These may differ depending on the usage of the leased property, and they serve the purpose of covering aspects which may not be covered by the implied covenants
· Examples of express covenants are:
(i) Users covenant
(ii) Insurance covenant: this is inserted to protect against loss of rent or property. Both the landlord and the tenant have insurable interests, and so either or both can insure the property by looking at the nature of the premises, existing obligations, payment of service charges, risk in the use of property, etc.
(iii) Covenant to repair
(iv) Covenant against assignment, transfer or otherwise parting with possession
(v) Covenant for renewal
(vi) Covenant against alteration
(vii) Covenant to deliver possession at the end of the term
(viii) Option to renew the reversion: one of the express covenants is that at the end of the lease term, the landlord is willing to extend the lease for another period as may be agreed by the parties. The contents of this clause are:
§ Time within which the tenant must indicate his desire to renew the lease, e.g. 3 months to expiry;
§ Manner in which the lease extension will be exercised, e.g. in writing;
§ Conditions to be fulfilled before the extension, e.g. repairs, compliance with covenants of lease, etc.; and
§ Terms on which new lease will be granted
8. CONSENT BY THE LESSOR
· A covenant by the lessee not to do anything without the consent of the lessor shall be construed to mean that the lessor shall not unreasonable withhold consent if the lessee applies for the consent
· Unreasonable denial by the Lessor includes situations of:
a. Imposition of an unreasonable condition as prerequisite to consent
b. Increase in grant, premium or payment of a fine
c. Objection to transfer/sub-lease on grounds of gender or nationality
· Unreasonable withholding of consent allows the lessee to seek damages and recover money lost
· Chanty v Ward [1913] 29 TLQ: the court held that the Landlord must show a solid and substantial cause for withholding the consent
9. REMEDIES AND RELIEF
9.1 REMEDIES AVAILABLE TO THE LESSOR UNDER THE LEASE
(i) Forfeiture:
o The lessor has a right to forfeit the lease in situations where the lessee:
i. Commits any breach of the agreement or a condition therein;
ii. Is adjudged to be bankrupt; or
iii. Is a company going into liquidation
o Section 73 Land Act: the right to forfeiture of the lease can be exercised in two primacy ways:
i. If the lessee or any person claiming through him is not in occupation, by entering and remaining in possession of the land/property; or
ii. Through court action
o Section 74 Land Act: forfeiture has the effect of determining every sublease and other interest appearing on the register that is relating to the lease, unless the court sets it aside on grounds that it was procured by fraud or grants relief under Section 76 of the Land Act
o The lessor must give one months’ notice of the forfeiture under Section 75 Land Act, and the notice must:
§ Specify the breach;
§ Whether the breach is capable of remedy, and if so, require the lessee to remedy the breach within a reasonable period specified in the notice; and
§ In any case other than default in rent payment, require the payment of compensation in money for the breach
o Section 76 Land Act allows the lessee to make an application to the court for relief against forfeiture
§ This is a discretionary remedy – the court may either grant or refuse to grant the said relief
§ The court may even make an order vesting the property on the sub-lessee or sub-chargee, so long as they are not involved in the breach (and this section applied whether the lease is registered or not)
(ii) Distress for rent:
o This is a right given under Section 3, Distress for Rent Act (Cap. 293)
o This is the act of seizing or causing goods to be seized from a tenant who owes ren and who is in arrests of one month, with a view to selling them to recover those arrears of rent
o This remedy must be carried out within 6 months after the expiry of the lease
o Gusii Mwalimu Investment Company Limited & Others v Mwalimu Hotel Limited, Civil Appeal No. 160 of 1995: the court held that distrained goods must remain in situ for at least 10 days
(iii) Action for recovery of rent arrears:
o However, this is subject to the limitation period of 6 years under the Limitation of Actions Act (Cap. 22)
o The landlord may only sue if after distraining the goods already sold it is discovered that the proceeds are inadequate to meet the rent arrears
(iv) Action for damages: to put the landlord in the position he would have been had the breach not occurred (restitution)
(v) Injunction: to restrain the committing of a breach
9.2 REMEDIES AVAILABLE TO THE LESSEE UNDER THE LEASE
(i) Institute proceedings for injunction or damages
(ii) To repudiate the agreement altogether
(iii) To be relieved from paying rent where unlawfully evicted (Section 77 Land Act)
10. THE LANDLORD AND TENANT (SHOPS, HOTELS AND CATERING ESTABLISHMENT) ACT, CAP 301
· This Act applies to:
o ‘Catering establishments’ – any premises on which is carried out the business of supplying food or drink for consumption on such premises, by persons other than those who reside and are boarded on such premises
o ‘Hotel’ – any premises in which accommodation or accommodation and meals are supplied or available to five or more adult persons in exchange for money or other valuable consideration
o ‘Shop’ – premises occupied wholly or mainly for the purposes of a retail or wholesale trade or business, or for the purpose of rendering services for money or money’s worth
· Section 2(1) of the Act defines a ‘controlled tenancy’ as a tenancy of a shop, hotel or catering establishment –
a) Which has not been reduced into writing; or
b) Which has been reduced into writing and which –
i. Is for a period not exceeding 5 years; or
ii. Contains provision for termination, otherwise than for breach of covenant, within 5 years from the commencement thereof; or
iii. Relates to premises of specified nature by the Minister as controlled tenancies
· Provided that no tenancy to which the Government, the Community or a Local Authority is a party, whether as a landlord or tenant, shall be a controlled tenancy
11. THE RENT RESTRICTION ACT, CAP 296
· The purpose of this Act is to restrict the increase of rent, right to possession and creation of premiums and for fixing of standard rents in relation to dwelling houses
· The Act applies to dwelling houses which have rent of Kshs. 2,500/= and below
· Increase in rent shall only be after a rent assessment à the Act controls the management of tenancies for the houses within its ambit
12. DUTIES OF ADVOCATES
12.1 DUTIES OF THE LESSOR’S ADVOCATE
(i) Obtain precise instructions from your client on the following, inter alia:
a. Description of the property (obtain copy of the Title)
b. Portion to be released (if not whole)
c. Rent to be paid
d. Proposed use of the property by the lessee
e. Covenants
(ii) Draw the lease to reflect the wishes of your client, ensuring all the essentials of a lease are included and the covenants
protect your client’s interests
(iii) Obtain all requisite consents, e.g. consent to lease, consent to charge, etc.
(iv) Obtain stamp duty confirmation from the Lessee
(v) Register the lease
12.2 DUTIES OF THE LESSEE’S ADVOCATE
(i) Investigate the landlord’s title
(ii) Approve the draft lease
(iii) Advise your client on the contents of the draft lease
o Sykes v Midland Bank & Trustee [1970] All ER 471: there was a prohibition on any other use of the premises unless permission was granted by the lessor and the head lessor. The former gave consent while the latter did not. It was held that the Solicitor ought to have explained the consequence of this clause to the Lessee
(iv) Collect disbursements from your client, e.g. stamp duty, registration fee, etc.
(v) Avoid conflicts of interest (applicable to advocates for both the lessor and lessee)
o Francis Mugo & 22 Others v James Muthee & 3 Others [2005] eKLR: application for Andrew Musangi to cease acting for the plaintiff because he drew and witnessed a lease between the defendant and other parties relevant to the suit, and would be a witness in the suit. Rule 9, Advocates Practice Rules were quoted to say that no advocate may appear in any matter in which he may be called as a witness to give evidence à the Advocate was ordered to disqualify himself
13. ASSIGNMENT AND TRANSFER
· The effect of both an assignment and a transfer is more or less the same
· The subject of the transfer or assignment is the interest held in the lease and the reversion (Section 69, 70 & 71, Land Act)
· The assignor/transferor is discharged from their rights and obligations under the lease from the date of the transfer/assignment, unless he/she remains in possession – Section 71 LA
· If the lessee vacates the land before the termination of the lease, he shall remain liable to perform all obligations includi ng payment of rent for the next 1 year, unless the lease provides for a shorter period or the lessor leases the property to another person before the end of the year
· Under common law, the lessee would be liable for breaches committed after assignment or transfer, but the liability (under the Land Act) only falls on the lessee before the assignment or transfer
14. DETERMINATION OF LEASES
(i) Forfeiture: under Section 73, Land Act – forfeiture is available where the lessee commits a breach of covenants, is adjudged bankrupt, or goes into liquidation
(ii) Surrender: the lessee voluntarily yields up the premises to the lessor. It can be express or implied. Under Section 64, Land Act, surrender of a lease for renewal shall not affect a sublease if the latter will expire on or before the new head lease expires or if the sublease is periodic, which means notice can be given for its termination
(iii) Expiry: the lease lapses because of effluxion of the term. Periodic tenancies and tenancies at will are an exception since they do not have an agreed term
(iv) Merger: this occurs where there is a vesting of the reversion and the leasehold interest in the same person at the same time, e.g. the lessee acquires the reversion
(v) Disclaimer: by a trustee in bankruptcy. Section 58, Bankruptcy Act (Cap. 53) states that this takes place where the property is burdened by unnecessary covenants, making it unsellable
(vi) Notice: this is required for fixed-term leases, if the lease agreement provides as such. Under periodic tenancies, Section 57(4) Land Act requires notice equivalent to the period of the tenancy
(vii) Frustration: Section 65(e) Land Act states that destruction of property through fire, earthquakes, civil commotion, etc. entitles a lessee to terminate the tenancy if, after 6 months the same have not been repaired. This is done by giving 1 months’ notice to the lessee
CHAPTER 6: CHARGES & MORTGAGES
1. INTRODUCTION
· Charges are generally defined as follows:
o Section 2 Land Act, LRA: a charge is ‘an interest in land securing the payment of money or money’s worth or the fulfilment of any condition, and includes a sub-charge and the instrument creating a charge’
o Simply put, a charge is security for a loan with an undertaking for repayment. As such, it confers certain rights to the Chargee from the Chargor
o It is important to remember that a charge operates only as security, and does not transfer any interests or rights in land (Section 65 & 84 RLA, Section 80(1) Land Act)
· Mortgages, on the other hand, are defined as follows:
o ITPA defines a mortgage as ‘the transfer of an interest in specific immovable property for the purpose of securing the repayment of money advanced or to be advanced by way of a loan, an existing or future debt, or the performance of an engagement which may give rise to a pecuniary liability’
o A mortgage is essentially a conveyance or transfer of interest in land or other properties à this could be a legal or equitable interest, depending on the mode of creating the mortgage or the nature of the interest that the mortgagor has in the property
o Consideration is paid from the mortgagee to the mortgagor in terms of the loan
|
CHARGE |
MORTGAGE |
|
A charge confers rights on the Chargee to enable him to recover the money plus the interest accrued thereon |
This is a conveyance or assignment of land with provision for reconveyance or reassignment upon discharge of obligations under the mortgage |
|
As per Section 3 RLA and Section 2 LA, there is no transfer of title but the security still exists (as an encumbrance on the title). S. 65(4) RLA specifies that a charge shall not operate as a transfer of interest but shall have the effect of security only. |
Charges are regarded as a species of mortgages. |
|
“Give me the money, and if I fail to pay you then you may take my land” |
“Take my land and hold it until I pay you back” |
2. CHARGES
2.1 TYPES OF CHARGES
· The Land Act 2012 recognizes two general forms of charges:
(i) Formal charge: (Section 79(5) Land Act) – this is a prescribed instrument in the Land Register
(ii) Informal charge: (Section 79(6) Land Act) – this can come in two forms:
§ A written and witnessed Professional Undertaking from the Chargor, accepted by the Chargee, with the intention to charge; or
§ Deposit of Certificate of Title or Lease document (or any other evidence of ownership or undertaking observed by custom) with the Chargee in exchange for a sum of money à this is because under Section 26 LRA, a Certificate of Title is conclusive evidence of proprietorship
· However, there are also two other forms of charges that must be accounted for:
(i) Further charge – which is an additional facility by the same lender (Chargee) to the same borrower (Chargor) on the security of the same property
(ii) Second charge – this is a separate charge over the same property, but to a different lender (Section 57, LRA)
· The rules on priorities organize interests in ranking, so that each party can ascertain which interests are prior and which are subordinated to his or hers. The general rule is that the charge which is made first should be discharged first. This priority is conferred by registration, in that the first registered charge has priority over all others (Section 81, Land Act)
· Section 2 Land Act defines a charge to include a sub-charge, i.e. ‘a chargee may charge the rights it has under the charge, therefore create a charge out of a charge in order to raise money as an alternative to assigning the debt. The subchargee has the double security of the original chargor and the original chargee’
2.2 BASIC REQUIREMENTS OF A CHARGE
· The basic details that must be included in any charge instrument include:
(i) There must be a Chargor
(ii) Name and description of the lender
(iii) Description of the property
(iv) Amount advanced
(v) Acknowledgement of receipt of loan
(vi) Covenant to repay principal and interest
(vii) Special conditions (if any)
(viii) A charging clause
· Under Section 80(3) Land Act, every charge instrument must contain:
o The terms and conditions of sale;
o An explanation of the consequences of default; and
o The reliefs that the Chargee is entitled to, including the right of sale
2.3 INSTITUTIONS INVOLVED
· Central Bank – licenses Banks and acts as the regulator of all Banks. Regulation is under the Central Bank Act (Cap. 491)
· Banks, financial institutions and mortgage institutions
· National Housing Corporations, e.g. the Tenant Purchase Scheme
· Employees housing schemes
2.4 DUTIES OF ADVOCATES
· It is important to remember that the process of securitization starts with an application by the borrower to the lender for a loan
· The lender will then ensure that due diligence is conducted before progressing – i.e. a credit assessment of the borrower, an evaluation of the property, etc. à this is an internal process, and if an advocate is approached, they should advise the bank to seek the help of other professionals, such as land valuers
· The bank will ordinarily involve its advocates once it has prepared and secured the execution of the offer letter by both parties. The following details are contained in the offer letter:
o Details of the parties (borrower, lender and guarantor) – full names and addresses;
o Amount to be lent/borrowed and amount to be secured by the charge;
o The proposed repayment period and mode, e.g. is it monthly, quarterly;
o Particulars of the property to be charged – Title number or Land Reference number; and
o Details of the intended security – is it going to be a formal or informal charge?
2.4.1 DUTIES OF THE CHARGEE’S ADVOCATES
(i) Advise the Bank on the appropriate form of security
(ii) Conduct a proper and thorough investigation of Title
(iii) Confirm the capacity of the Chargor to enter into the transaction
o If the Chargor is a company – confirm if its Memorandum and Articles of Association allow for borrowing and charging of company property;
o If the Chargor are Trustees – confirm if the Trust Deed allows for borrowing and charging;
o If the Chargor is a spouse – confirm if the other spouse has obtained independent legal advice, etc.
(ii) Draft the Charge and transmit the same to the borrower’s advocates for approval (ordinarily a ‘take it or leave it’ situation)
(iii) Confirm execution and attestation of the Charge is the Advocate qualified? – Ndolo Ayah case)
(iv) Engross the charge and send it for execution and attestation
(v) Ensure execution and attestation is done in accordance with the law
(vi) Dispatch the document to the lender for execution and attestation
(vii) Procure statement of Stamp Duty (the same is obtained from the borrower)
(viii) Lodge the Charge document for registration at the Land’s Registry and Companies Registry (e.g. if it i s a company, the Charge document must be registered within 30 days as per Sections 884 and 884, Companies Act 2015)
o Particulars to be registered under Section 884, Companies Act 2015 are:
§ If it is a charge created by a company – the ate of its creation;
§ If it is a charge which was existing on property acquired by the company – the date of the acquisition;
§ The amount to be secured by the charge;
§ Short particulars of the property charged; and
§ The persons entitled to the charge
(ix) Forward the perfected documents to your client with a report on the title confirming the registration
(x) Confirm disbursement of loan proceeds from the Chargee to the Chargor
(xi) Follow up on payment of fee
2.4.2 DUTIES OF THE CHARGOR’S ADVOCATES
(i) Discuss offer letter with the borrower and advise on the effect of the security
(ii) Obtain all requisite consents and clearances from the seller
(iii) Obtain a professional undertaking from the Chargee for payment upon registration of the charge (for the seller)
(iv) Obtain original Title from the seller (usually upon a professional undertaking for payment upon registration)
(v) Obtain a professional undertaking from the lender’s advocates that they will not use the title document for any purpose
other than for the transaction
(vi) Approve the charge
(vii) Explain the contents of the charge to your client and their effect
(viii) Obtain adequate funds for payment of stamp duty
2.5 CONFLICT OF INTEREST
· The general rule of thumb is to avoid working for both the chargor and the chargee as this may give rise to ethical and professional responsibility issues (King Woollen Mills Limited & Another v M/S Kaplan & Stratton [1993]; Uhuru Highway Development Limited & Others v Central Bank of Kenya & Others (2) [2002])
· In the case of Mortgage Express Limited v Bowerman & Partners [1996] 2 All ER 836, it was held that when you act for both the borrower and the lender, the highest duty is to the lender
· Where third parties are involved, e.g. spouses, ensure that they have obtained independent legal advice. A failure to follow this step may open the transaction up to challenge (BBK PLC v O’Brien [1994])
2.6 TACKING
· This is the right of a secured lender to add further monies to the security so that further monies are also secured
· The further advances are also tacked into the original charge and have the same priority over subsequent lenders, only with their consent (Section 82, Land Act)
2.7 CASE LAW
· Angwenyi & Another v NIC Bank Limited [2004] eKLR: the charge was created but the loan was not disbursed. The Bank sought to sell the property in satisfaction of a Hire Purchase agreement which was secured by vehicles that were purchased. It was held that since there was no loan that was disbursed, there was no consideration that would validate the contract and entitle the bank to sell the property
· Labelle International Limited & Another v Fidelity Commercial Bank & Another [2003] 2 EA 541: the Advocate who signed the attestation certificate is not the one who witnessed the Chargor’s signatures. However, this was an RTA charge that did not need to be attested, and so an injunction to stop the sale of the security was dismissed
· Anthony Anthanus Ngotho t/a Ngotho Architects v NIC Bank Limited, HCCC No. 319 of 2003: the Mortgage was prepared by the Mortgagee’s advocates exclusively and the Mortgagor had no counsel representation. The Letter of offer was dated several months later than the mortgage. It was held that the mortgage was validly executed, and the apparent defect on the mortgage (i.e. the fact that it was created before the offer was accepted) is evidence of a prima facie case
2.8 IMPLIED TERMS
(i) To pay principal money on day appointed in the charge and interest at rates agreed upon
(ii) Pay all rates, charges, rents, taxes and other outgoings
(iii) Repair and keep in repair all buildings and other improvements
(iv) Insurance
(v) Use land in a sustainable manner
(vi) Not to lease or sublease the land for more than a year without consent of the chargee
(vii) Not to transfer, assign or lease without written consent of the chargee
(viii) If it is a lease to pay rent and observe all covenants in the lease
(ix) If it is a second or subsequent charge, to pay interest on each prior charge when they fall sue
(in 2, 3, 4, 5 and 8, the chargee may pay on behalf of the chargor and include the amount so paid in the principal amount).
2.9 FORM AND CONTENT OF A FORMAL CHARGE
(i) The commencement date
(ii) The parties
(iii) The principal amount
(iv) The recitals (i.e. the following facts are recited):
a. The borrower’s title;
b. The agreement to lend/borrow; and
c. The agreement to create a legal charge
(v) The testatum (“Now this charge witnesses…”)
a. Covenant to pay
i. Contains agreement by the borrower to pay the bank
ii. Clarifies when the bank’s powers under the security are exercisable
iii. Enables the bank to sue the borrower for repayment of the sum due and owing, even in cases where security held is unenforceable
b. Interest on principal
c. Secured obligations – aggregate principal amount, all interest from time due, all costs/taxes/liabilities/charges and expenses incurred by the bank from time to time in relation to the charge
d. Charging clause – i.e. charge the premises as continuing security for the payment and discharge in full of the secured obligations
e. Chargor’s covenants
f. Events of default
g. Bank’s/lenders remedies – service notice as per Section 90 Land Act and if the chargor does not comply:
i. Sue the chargor for any money due under the charge;
ii. Appoint a receiver of income of the premises;
iii. Lease or sublease the premises;
iv. Enter into possession of the premises;
v. Sell the charged land.
h. Further advances – to rank in priority to any subsequent charges (Section 82 Land Act)
i. This is a provision in the charge instrument to give further advances or credit to the chargor on a continuing or current account
ii. Can only rank in priority to any subsequent charge if provision for further advances is noted in the register in which the charge is registered, or the subsequent chargee has consented in writing to the priority of the further advance
i. Right of consolidation – right to consolidate charges is to be set out in the charge instrument and recorded in the register/registers, against all the charges so consolidated that are registered (Section 83 Land Act)
j. Application of monies (to satisfy the debt)
k. Indemnity – i.e. the chargor is to indemnify the chargee/receiver
l. Power of attorney
i. The chargor appoints the chargee to be attorney of the chargor
ii. This enables the bank to create title to assets over which it only has an equitable charge, e.g. assets acquired subsequent to the creation of a debenture
iii. It also enables the bank to appoint a receiver and order a power of sale
m. Discharge – upon payment of the final balance
n. Matters to be noted in the register – for the bank’s right of tacking and consolidation
o. Governing law
2.10 ATTESTATION AND EXECUTION
· Under Section 38 Land Act, a contract for the disposition of an interest in land must be: in writing, signed by all parties thereto, and attested by a witness who was present when it was signed à (should be read together with) Section 44(1) LRA which provides that every instrument affecting the disposition of land must be executed by each of the parties consenting to it
· Section 44(2) LRA states that execution should consist of the person executing the instrument appending his or her signature or affixing his or her thumbprint or other mark as evidence of personal acceptance
· Section S44(3) LRA: states that execution of the instrument by a corporate body, association, cooperative society or any other organization should be affected in accordance with the relevant applicable law or in the presence of an advocate, a magistrate, judge or a notary public
· Section 45(1) LRA: states that a person executing the instrument is required to appear before the registrar, public officer or any other person prescribed and be accompanied by a credible witness for purposes of establishing identity unless his identity is known to the Registrar or prescribed officer. The Registrar or public officer must identify the person executing the instrument and ascertain whether the person freely and voluntarily executed the instrument and shall complete a certificate to that effect (Section 45(2) LRA)
· Section 56(1) LRA: requires that for charges the chargor must acknowledge that he understands the effect of Section 90 Land Act which among other things provides for the remedies of the chargee
2.11 THE SECURITISATION PROCESS
(i) Borrower applies for a loan at a financial institution, e.g. the bank
(ii) The bank conducts due diligence – assessing the credit worthiness of the borrower and valuing the immovable property (in order to ascertain the mortgage value)
(iii) If the borrower is credit worthy, the bank prepares the letter of offer, setting out the terms and conditions under which the loan has been offered à the letter of offer contains: details of the parties; the loan amount, the mode of repayment; the repayment period; the rate of interest; the particulars of the property to be charged; the nature of the charge to be created, etc.
(iv) The borrower executes the letter of offer
(v) The lender’s advocate drafts the security documents (i.e. charge or mortgage)
· A sample of the attestation and execution is as follows:
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gor RGOR] f
……………… ure |
ID Number: …………………………………………… PIN Number:………………………………………….
……………………………………………………………. Chargor’s Signature |
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an Advocate of witnessed the TIFY that the d before me on 019 and being e the above s and state that ly executed this its contents. |
I, the above named Chargor, acknowledge that I understand the effect of Section 90 of the Land Act and the Chargee’s remedies under this charge, and I hereby agree that the Chargee’s rights under Sections 82 and 83 of the Land Act and restrictions under Section 87 of the Land Act and Section 59 of the Land Registration Act be noted against the above title.
……………………………………………………………. Chargor’s Signature |
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Signed by [INSERT NAME OF BANK’S ATTORNEY], the duly constituted Attorney of the Chargee, under and by virtue of a Power of Attorney registered at the Lands Titles Registry as Number [INSERT NUMBER OF POWER OF ATTORNEY] and at the Registry of Documents at Nairobi as Number [INSERT NUMBER ALLOCATED AT REGISTRY OF DOCUMENTS].
In the presence of:
……………………………………………. Advocate.
I CERTIFY that the above duly constituted Attorney of the Chargee, appearing before me on the............... day of............................. 2019 and being known to me, I acknowledge the above signature or mark to be his/hers and state that he/she has freely and voluntarily executed this instrument and understood its contents.
…………………………………………… Bank’s official signature. |
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· Retrospective effect: Part VII of the Land Act (Section 78(1)) dictates that the section has retrospective effect à i.e. it shall apply to all charges, including any charge made before the coming into effect of the Land Act
· Variation of charge: Section 84 Land Act states that where it is contractually agreed that the rate of interest is variable, the chargee must serve a written notice to the chargor:
o Giving the chargor 30-days’ notice of the reduction or increase in the rate of interest; and
o Stating clearly and in a manner likely to be understood, the new rate of interest
· Fraud, dishonesty and misinterpretation (of prior charge): Section 84(1) Land Act states that any misleading, false information by a prior chargee or chargor himself to a subsequent lender, leading to the creation of a subsequent charge, will result in the subsequent chargee having priority in the exercise of its rights over the property
2.12 SPOUSAL CONSENT
· Section 79(3) Land Act provides that a charge over a matrimonial home shall be valid only if any document or form used in applying for the charge or used to grant the charge is signed by the chargor and any spouse of the chargor liv ing in that matrimonial home, or there is evidence that it has been assented to be all such persons
· A ‘matrimonial home’ is defined under Section 2 to mean ‘any property that is owned or leased by one or both spouses and
occupied by the spouses as their family home’
· Section 93(3) LRA provides that, subject to any written law to the contrary, if a spouse obtains an interest in land during the subsistence of marriage for co-ownership, and use of both spouses or all spouses, such property shall be deemed to be matrimonial property and shall be dealt with under the Matrimonial Property Act (this section should be read with Section 28 LRA)
· Where a lender wishes to take a charge over property owned by an individual, the lender (bank) must make inquiries regarding the marital status of the potential chargor and also if the property is occupied as a matrimonial home
· The bank should also make inquiries through the valuer
· If the spouse misleads a lender as to whether his or her spouse has consented to the charge, the charge becomes voidable at the option of the spouse or spouses who have not consented to the disposition
2.12.1 SPOUSAL OVERRIDING INTEREST
· Spousal rights over matrimonial property have now been included as an overriding interest, subsisting over registered land whether or not those interests are noted on the register (Section 28 LRA)
· Though not defined, ‘matrimonial property’ encompasses more than the matrimonial home
· This is the doctrine of ‘spouse deemed ownership’
2.13 EQUITY OF REDEMPTION
· [This is ordinarily a remedy/recourse of the Chargor/Borrower]
· The equity of redemption is an equitable doctrine which states that there should be no fetter or clog on the chargor’s equity of redemption – i.e. any provision in the charge which purports to limit, postpone or exclude the chargor’s equity of redemption is prohibited
· Section 89 Land Act makes clear that the right to redeem is absolute
· Krelinger v New Patagonia Meat and Cold Storage Company [1914] AC 25: Lord Parker said ‘the equity which arises on the failure to exercise the contractual right cannot be fettered or clogged by any stipulation contained in the mortgage or entered into as part of the mortgage transaction’
· On or before the legal or CDR the chargor has the contractual right of redemption
· If the legal or CDR date passed without payment, the mortgagor obtained an equity of redemption à In Saleh v Eljofry [1950) 24 KLR, it was held that the mortgagor’s equity of redemption was a necessary incident of every mortgage and failure to repay on the CDR did not debar the mortgagor from his right of redemption
· In Industrial and Commercial Development Corporation v Kariuki & Anor [1977] KLR 52, the court stated that the right of redemption subsists until the transfer is registered.
· In Nookes v Rice [1902] AC 24, the mortgage had a stipulation that the mortgagor would only sell liquor provided by mortgagee. The mortgagor sought release from this clause on repayment and the court held that this was a clog to the equity of redemption
· In Fairclough v Swan Bakery Co. Ltd 1(1912) AC 565 it was held a clause to postpone the right to redeem for 20 years was invalid and the borrower had a right to redeem at an earlier date
· There have also been cases where the mortgage conferred on mortgagee option to buy the property. These clauses have been held to be against doctrine of equity of redemption (see: Samuel v Jarah Timber & Wood Paving Corporation Ltd [1904] AC 323, where a clause which allowed mortgagor a limited period of redemption was void)
2.14 NOTICE
· Under Section 56(2) LRA, where the date of payment of the money secured by a charge has not been specified or has
passed without demand being made, the money becomes payable 3 months after service of a written notice of demand by chargee to chargor
· Under Section 90(1) Land Act, where a default in payment has continued for more than a month, the chargee may issue a statutory notice à under Section 90(2) Land Act, the notice will run for 90 days
· Notice should inform the Chargor (as per Section 90(2))
o The nature and extent of default;
o If default is non-payment of money, the amount that must be paid to rectify the default and the time by which the payment in default must be completed (this should not be less than 3 months);
o If default consists of non-observance of covenants, what the chargor must do or not do to rectify the default –
and the time for rectification should not be less than 2 months;
o A statement that is the default is not rectified within the time specified, the chargee will exercise any of its remedies provided in the Act; and
o The right of the chargor to apply to court for relief against those remedies
2.15 REMEDIES AVAILABLE TO THE CHARGEE [BANK]
· Under Section 90(3) Land Act, if the Chargor does not comply within three months after service of the (above mentioned) notice, the Chargee has the following options:
a) Sue the Chargor for money due and owing under the charge;
b) Appoint a receiver of the income of the charged land;
c) Lease the charged land, or if the charge is of a lease, then sublease the charged land;
d) Enter into possession of the charged land; or
e) Sell the charged land
· Section 90(5) Land Act states that the form which the statutory notice is to take will be prescribed by the Cabinet Secretary in consultation with the National and Commission
(i) Action for money
· Under Section 91 Land Act: the Chargee can sue for money secured if:
a) Chargor is personally bound to repay;
b) The security is rendered insufficient (not by chargee or chargor’s fault) and chargee has given chargor opportunity
to provide additional security; or
c) The chargee is deprived of the whole or part of the security through a wrongful act or default of the chargor
(ii) Appointment of a Receiver
· Under Section 92 Land Act: if 30 days have lapsed since the notice was issued under Section 90(1) Land Act, the chargee may appoint a receiver over the income of the charged land
· The advantage of this remedy is that the Bank (i.e. chargee) does not have the administrative burden of realization of the security, and the Receiver’s costs will too be recouped from the assets of the chargor (Note: they are limited to not more than 5% of the money received, as per Section 92(7) Land Act)
(iii) Leasing
· Section 93 Land Act specifies that this remedy can only follow the appointment of a receiver:
o The lease can only be granted after 30 days upon expiry of the notice
o The lease must take effect not later than 6 months after its date
o The lease must reserve the best rent
o The lease must be not more than 15 years or the length of the term of the charge, whichever is shorter
o The lease must contain reasonable terms and conditions, having the interests of the chargor at the forefront
o The lease must contain a declaration of appointment of a receiver by the chargee
(iv) Possession
· Under Section 94 Land Act: upon expiry of the notice, the chargee can serve notice to enter and take possession at least one month after service of the notice
· The entry must be peaceful, and is ordinarily achieved by taking over the management of the property
· Banks usually avoid this remedy due to the administrative inconveniences involved and because they would be liable for any damages to the property and have to account for profits and rent
(v) Chargee’s Power of Sale
· This is governed by Section 96(1) Land Act
· Section 96(2) Land Act states that before exercising the power to sell, the chargee must serve a notice of at least 40 days on the chargor. This copy of the notice to sell is to be served on:
i. The Commission
ii. The holder of the land out of which the lease has been granted, if the charged land is a leasehold
iii. The spouse of the chargor
iv. The co-owner of the chargor
v. Any other chargee
vi. The guarantor
vii. Any other person with the right to enter on and use the land or natural resources on it
viii. Any other person to be prescribed by regulations in force at the time
· In summary, the following notices must be served:
o Section 56(2) Land Act: 3 months demand – only applicable if date of repayment is not provided, or demand was not made on the repayment date
o Section 90(1) Land Act: 90-day Statutory Notice – if default continues for 1 month
o Section 96(2) Land Act: 40-day Notice to Sell
o Auctioneers Act: 45-day Auctioneers Notice
· Section 98 Land Act imposes some conditions on the manner in which the sale may be conducted:
o It may cover the whole or part of the land;
o It may be subject to or free of any charge or encumbrance, having priority to the chargee’s charge;
o It may be by way of subdivision;
o It may be by way of private contract at market value;
o It may be by way of public auction – with reserve price;
o The purchase price may be payable in one lump sum or by instalments; and
o May be subject to any other conditions of the chargee
· There are certain duties of the chargee to be borne in mind when exercising its power of sale:
i. Duty of care owed to the chargor, guarantor, any chargee under a subsequent charge;
ii. Duty to chargor to obtain best price, and in any event not more than 25% below market value or the sale may be declared void; and
iii. Duty to value the property prior to the sale to determine its forced sale value, or else the chargor may apply to
the court to declare the sale void if it was sold at a value that doesn’t meet this threshold
· Section 99 Land Act confers protection to the purchaser if there has been irregularity in the same of the charged property,
i.e. the purchaser can claim damages against the person exercising the power of sale
· Section 79(9) Land Act states that a chargee shall not possess or sell land whose title document has been deposited with the chargor under an informal charge without an order of the court
2.16 RELIEF
· Under Sections 103 – 106 Land Act, a chargor, spouse, guarantor, lessee or a trustee in bankruptcy may apply to the court for relief against the exercise by the chargee of any of the above remedies
· The court has wide ranging powers, including widening the scope of orders by the court, e.g. to extend the time for the chargor to rectify default (Section 102 Land Act)
· E.g. the court has power to re-open charges secured on a matrimonial home:
o Under Section 105(1) Land Act, the court has the power to re-open charges secured on a matrimonial home in the interest of doing justice between the parties
o Section 106 Land Act specifies that charges can be re-opened in 3 instances, on application by:
a) Chargor or chargee to enforce a charge or commence an action under Section 90;
b) Chargor for relief against exercise of any remedy by the chargee; or
c) Registrar where there is evidence of unfair dealing by the chargee, or the chargee is a corporate body that
discriminates against certain classes of chargors, e.g. on the basis of gender
· When re-opening a charge, the court may:
o Direct that the charge shall have effect subject to certain modifications
o Require the chargee to repay the whole or part of the sum paid by the chargor
o Require the chargee to compensate the chargor
o Direct the chargee, which is a corporate body, to stop acting in a discriminatory manner
2.17 DISCHARGE OF CHARGE
· A discharge of charge means that the chargor has repaid the loan (plus interest and penalties) and the chargee has released the title to the property used as security back to the chargor
· Like the right of redemption, the right to discharge of charge should not be clogged or fettered
· The right to discharge occurs in two forms:
(i) Section 85(1), 102 Land Act: gives the right to discharge upon payment of all money secured by the charge and performance of all obligations under the charge before the land has been sold by the chargee or a receiver appointed. This right is in mandatory terms
(ii) Section 85(3) Land Act provides that a chargor who wishes to exercise their right of discharge before the expiry of the term of the charge shall give one month’s notice, shall pay not more than one month’s interest at the rate at which interest as payable, as well as pay all other monies secured by the charge
3. MORTGAGES
· Mortgages deal with the transfer of interest in land as security for a loan advanced
· The transferor of interest is the ‘mortgagor’ (borrower), the transferee of interest is the ‘mortgagee’ (lender), while the sum of money advanced is known as the ‘mortgage sum’
· Though the transaction is between two parties – mortgagor and mortgagee – a third party called a ‘guarantor’ may be involved, or even a ‘head lessor’ to give consent to assignment or sublease of a leasehold interest as security for a loan
3.1 NATURE OF MORTGAGES
· It is a conveyance or transfer of interest in land or other properties – this could be a legal or equitable interest, depending on the mode of creating the mortgage or the nature of the interest that the mortgagor has in the property
· Consideration is paid from the mortgagee to the mortgagor in terms of the loan that is advanced
· However, the conveyance of the interest is not absolute – i.e. it is subject to redemption upon payment of the loan
3.2 TYPES OF MORTGAGES
(i) Simple mortgage: no delivery of possession but the mortgagor binds himself to pay back the loan or else the property will be sold
(ii) Mortgage by conditional sale: the mortgagor sells the property to the mortgagee on the condition that the sale will become absolute upon default in repayment of loan facilities
(iii) Usufructuary mortgage: possession is delivered with authority to retain it until payment. The mortgagee also obtains the rights to secure rent and profits to repay
(iv) English (i.e. legal) mortgage: the mortgagor transfers the property to the mortgagee with a proviso that upon payment of the mortgage money, the latter will return it (the best and most popular form of a mortgage)
o This is based on pre-1926 English Mortgages
o Section 58(c) ITPA stated that the mortgagor bound himself to repay the mortgage money on a certain date and transfers the mortgaged property absolute, subject to the proviso that the mortgagee will transfer is back to him on the repayment of the mortgage money
(v) Equitable mortgage: this is a creature of equity, and traditionally there are 4 ways to create an equitable mortgage:
a) Where money has been advanced and the mortgagee agrees to execute a legal mortgage;
b) Through deposit of title with the mortgagee (recognized by: Equitable Mortgages Act (Cap. 291), Section 100(2)(g) ITPA, Section 66 RTA);
c) Where the estate or interest is equitable; or
d) Where there is a written memorandum identifying the property and indicating the intention to charge the property.
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LEGAL MORTGAGE |
EQUITABLE MORTGAGE |
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Transfers legal interest in land, whether leasehold or freehold, from the mortgagor to the mortgagee |
Transfers an equitable interest in land or other properties, and essentially is an agreement to enter into a mortgage agreement, created on the rules of equity |
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It must be created by way of deed or statutory form |
Can be created by a mere deposit of title deed in exchange for a loan – no need for a written agreement |
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Advantages include: it is easier to enforce; it takes priority over an equitable mortgage – i.e. a legal mortgage without prior notice of an equitable mortgage takes priority; and it is less prone to fraud than an equitable mortgage, where a borrower can obtain a provisional title and deal with the property |
Advantages include: can take loans for small amounts; it has shorter repayment periods; and it is useful in times of urgency |
CHAPTER 7: DEBENTURES
· Besides mortgages and charges, there are several other forms of securities for loan advances
· They include, for example: debentures, chattels transfer mortgages, guarantees, letter of hypothecation of goods and bills of lading
1. DEBENTURES
· A debenture is a document which creates or acknowledges a debt due from a company – such a document need not be, although it usually is – under a seal
· A debenture need not give, but it usually gives, a charge on the assets of the company (the borrower) by way of security
· Debentures are always for a specified sum which sum can only be transferred in its entirety
· Further, a debenture may be collaterally secured by way of a trust deed
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DEBENTURES |
SHARES |
|
The holder of a debenture is a creditor of the company |
A shareholder holds shares and as such is a member of the company |
|
A company may purchase its own debentures |
A company must not purchase its own shares, unless in accordance with the specified provisions relating to share buybacks under the Companies Act |
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Debentures may be issued at a discount |
Shares in general may not be issued at a discount |
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Interest at the specified rate on debentures may be paid out of the capital of the company |
Dividends on the shares of a company must be paid only out of the distributable profits of the company |
2. ISSUE OF DEBENTURES
· Debentures are generally issued pursuant to the provisions of the Articles of Association of the company (in particular, the provisions that deal with borrowing)
· There must be a resolution by the Board of Directors of the issuing company to that effect
· Generally, an agreement by the borrowing company to issue debentures in consideration of an actual advance of money has the effect of putting the lender in equity in the same position as if the debenture had been issued
· Accordingly, a contract to take up a debenture may be enforced by way of an action for specific performance
3. TYPES OF DEBENTURES
(i) Registered Debentures: these are payable either to the registered holder or the bearer of the debenture
(ii) Bearer Debentures: these debentures are almost similar to registered debentures, save for the fact that they are expressed to be payable to the bearer and coupons for the interest are attached
(iii) Redeemable Debentures: these are debentures which are issued on condition that the company is bound to redeem a certain number each year
(iv) Perpetual Debentures: these are debentures which are expressed to be redeemable at a future, though uncertain, date
4. CHARGES SECURING DEBENTURES
· A charge on the assets of a company given by a debenture, in order to secure the money borrowed by the company, may either by a fixed charge or a floating charge
· In practice, many debentures are secured by both a fixed and a floating charge
· Such charges are expressed to cover all moneys ‘due by the company to the holder, including future and contingent liabilities’
|
FIXED CHARGE |
FLOATING CHARGE |
|
When made, it immediately attaches to or fixed on the ascertained property |
While it creates an immediate security, it does not create an immediate encumbrance on the title |
|
The right and ability of the owner to deal with the property is immediately encumbered |
It is only upon the occurrence of certain events, such as appointment of a receiver due to default, that the charge then becomes fixed on the listed assets |
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A fixed charge is a mortgage of ascertained and definite property – it prevents the borrowing company from realising that property, i.e. disposing it free of the charge, or without the consent of the holders of the charge |
A floating charge is an equitable charge on all or some of the present and future property of a company, i.e. the company’s undertaking. It is effective as to future property only when that property is acquired by the company. Thus, a floating charge will be valid even if the assets covered do not yet exist |
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A floating charge has the following characteristics:
· It is a charge on a class of assets of a company, present and future; · It is contemplated by the charge that until the holders of the take steps to enforce it, the company may carry on business in the ordinary way as far as concerns the class of assets charged |
5. PRIOIRITY OF CHARGES
· A company which has created a floating charge cannot later create another floating charge over some of the assets ranking in priority to or in pari passu with the original charge
· However, this could be altered if the provisions of the charge allow it
6. REMEDIES OF DEBENTURE HOLDERS
· If a debenture confers no charge, a debenture holder is an ordinary unsecured creditor. Thus, if there is a default in the payment of the principal or interest, the debenture holder may:
(i) Sue for the principal or interest, and after obtaining judgement, levy execution against the company; or
(ii) Petition for winding up of the company by a court on the ground that the company is unable to pay its debt
· Where the debenture creates a charge and a default is made in payment of the principal or interest, a debenture holder or the trustee (in either case, a secured creditor) may:
(i) Sue for the principal or interest;
(ii) Present a petition for the winding up of the company; or
(iii) Exercise any powers conferred by the debenture or trust deed, e.g.: appointing a receiver; appointing an administrative receiver of the assets charged; taking possession of the assets charged and carrying on business; or, selling the assets charged
7. GENERAL PRINCIPLES OF THE LAW ON RECEIVERSHIP
· A receiver takes possession of the property of the company over which he is appointed and realises it for the benefit of the debenture holder(s)
· He is not a liquidator or an administrator
o The difference between a liquidator and receiver is that whereas a liquidator is appointed with the object of winding up the company and terminating its existence, a receiver may be aid out of the company continues business as before
o On the other hand, an administrator is appointed with the object of saving a company from winding up and acts
for the benefit of the company’s creditors and shareholders generally
o A receiver is usually appointed by a specific debenture holder to protect his security under a fixed or floating charge
· Generally, a receiver may take possession of only part of a company’s property, but if he takes possession of whole (or substantially the whole) of the company’s property and was appointed by the holders of a floating charge, he is known as an administrative receiver
7.1 APPOINTMENT BY COURT
· It is generally accepted that a court may appoint a receiver when: the principal or interest thereon is in arrears; the company is being wound up; or, the security is in jeopardy
· The security is in jeopardy is where there is a risk of it being seized to pay claims which are not prior to the debenture holder’s claims à Re London Pressed Hinge Company Limited [1905] Ch. 576: debenture holders with a floating charge on the undertaking and property of the company were entitled to appoint a receiver because their security was in jeopardy
· Thus, a receiver will be appointed by the court where:
o Execution has issued at the behest of a judgement creditor;
o Where a petition for winding up has been presented by a creditor and there is imminent danger of compulsory winding up; and
o Where the company’s works have been closed and the creditors are threatening action
· Ordinarily, appointments of receivers by courts are infrequent à note: a receiver appointed by the court is an officer of the court and not an agent of the company or debenture holders (he cannot therefore be sued without leave of the court)
· The effect of appointment by court is to cause floating charges to crystallise, which prevents the company from dealing with the assets of the company without his consent
7.2 APPOINTMENT OUT OF COURT
· A receiver is appointed out of court when the debenture holder causes a Deed of Appointment of a Receiver Manager to be handed to him or his agent, on his acceptance
· The effect of appointment out of court is three-fold:
(i) Floating charges crystallise and become fixed à this prevents the company from dealing with the charged assets
without the receiver’s consent
(ii) When a receiver of the undertaking of the company is appointed, the Directors’ powers of controlling the
company is suspended; and
(iii) With regard to the company’s employees, it would appear that since the Receiver Manager is an agent of the company his appointment does not necessarily terminate their employment. This distinction between receivers appointed in court and out of court vis-à-vis employees is brought about by the fact that in the former instance, there is a change in personality of the employer while in the latter there is not
CHAPTER 8: SERVITUDES [RIGHTS IN ALIENO SOLO]
1. INTRODUCTION
· Right in alieno solo are defined as rights enjoyed in/over the land of another person, other than the one entitled to enjoy these rights. These include: cautions/inhibitions/restrictions; easements; profits a pendre; restrictive agreements; and wayleaves
· Servitudes ordinarily involve the right to do something (and not the right to control something), e.g. can cross someone’s land; can lay a utility line across the lane; can use a parking lot on someone’s land; cannot paint the house purple – can only paint the house white; cannot block airflow and light; must not block the scenic view, etc.
2. RIGHTS IN ALIENO SOLO
2.1 CAUTIONS/INHIBITIONS/RESTRICTIONS
· A caution is a document sent to the Lands Registry by someone who may have a right over the land
· A caution ordinarily demands that no dealings in the land are registered until the person with the right has been informed
· Section 71 LRA states that a caution may be lodged by a person who:
(i) Claims a right to obtain an interest in the land/lease/charge, which is capable of creation by an instrument registrable under the Act;
(ii) Is entitled to a license; or
(iii) Has presented a bankruptcy petition against the proprietor of the registered land/lease/charge.
· The effect of lodging such a caution is to forbid registration of dispositions over that land/property and the making of entries affecting that land/lease/charge
2.1.1 PROCEDURE FOR LODGING A CAUTION
(i) To be lodged in the prescribed form (i.e. Form LRA 67) and the Registrar may require an affidavit to accompany it
(ii) Registrar to give written notice to the registered proprietor after having registered the caution
(iii) Withdrawal of the caution can be done by the cautioner themselves, or removal effected by the Court or Registrar
(iv) Any interested party may apply for the caution to be removed and the Registrar shall serve a written notice on the cautioner, notifying him or her of the time of expiry of their caution
a. If no objection is raised to the expiry of the caution by the cautioner, the same will be removed
b. If the cautioner wants to object, he shall notify the Registrar in writing within the time given in the notice
c. After hearing the parties, the Registrar will make such orders in relation to the caution as he deems fit and will provide for costs
(v) The Registrar may refuse a further caution from the same person in relation to the same matter as in a precious caution
(vi) The punishment for wrongful cautions is liability in an action for damages (Section 75 LRA)
(vii) The court may order an inhibition forbidding registration in land under Section 68 LRA
(viii) A restriction on the title is placed by the Registrar under Section 76 LRA to prevent fraud or improper dealings over the land
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INHIBITION |
CAUTION |
RESTRICTION |
|
Section 68 – Section 70 LRA |
Section 71 – Section 75 LRA |
Section 76 – Section 78 LRA |
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Order made by the Court and registered by the Registrar |
Lodged for registration by anyone with an interest capable of registration |
Registered by the registrar to prevent fraud or improper dealing over/in the land |
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No notice is required to be given to the proprietor before its registration |
No notice is required to be given to the proprietor before its registration |
Notice requires to be given and hearings held with both the parties before registration |
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May endure for a particular period or until the occurrence of a particular event or the making of a further order |
Unless removed, it forbids registration of dispositions in land/leases/charges and making of entries affecting such land/leases/charges |
May endure for a particular period, until the occurrence of an event or the making of a further order |
2.2 EASEMENTS
· An easement is a non-possessory interest in another’s land, allowing the holder of the right to:
o Use the land to a particular extent;
o Require the proprietor to take an act relating to the land; or
o Restrict the proprietor’s use to a particular extent
· There are 2 pieces of land involved in the creation of an easement:
(i) Dominant tenement: the land for the benefit of which any easement is created
(ii) Servient tenement: the land of the person over which an easement is created
· There are two types of generally recognised easements:
(i) Easement in gross: these are easements which are attributable to a particular person/individual. They involve access through an individual’s property for a particular time and for a particular purpose. When the property is sold, the easement is ordinarily re-negotiated with the new owners
(ii) Easement appurtenant: these are easements which are formally created and formally removed. They are attributable to the land, and it will not matter who owns the land as the owners will have to respect the right of way created for/by the easement
· In order to qualify as an easement, it must be the only way in which the dominant tenement may be accessed à it cannot simply be a short cut or a simpler route to access the dominant tenement, or else the owner can close it (cease access) without being answerable
· There are both positive easements and negative easements: (nature of easements – Section 138 Land Act)
o Positive easements are the right to do something over, under or upon the servient tenement, e.g. a right of way,
a right to run telephone lines on another’s land, a right to access a water source, etc.
o Negative easements connote something that should not be done over, under or upon the servient tenement, e.g.
not being allowed to constrict a building that will block a view/block someone else’s right to entry
2.1.1 RIGHTS OF WAY
· Section 139 Land Act – Entry order:
o This is where the owner of the dominant land may seek an entry order from court to enable him to enter the servient land for purposes of doing anything on the dominant land
o Under the Public Roads Access Act (Cap. 299), a land owner may apply to have a road of access over another
person’s property to a public road or railway line
· Section 140 Land Act – Access order: this is where the owner of landlocked land makes an application for an access order (carries analogous rights to an entry order)
2.1.2 CREATION OF EASEMENTS
a. Ƒchange
(ii) Creation by implication:
a. Prior use: if property that is owned by a single person is split by a grant of part of that property to someone else, or by grants of pieces of that property to different grantees, and it is apparently that an easement would be required for the continuing use of the property in the manner that it has been used until now, an easement may be implied
b. Necessity: where the owner of a parcel divided the parcel in a manner that deprives one of the resulting subdivisions of access to something that is absolutely necessary for the use and enjoyment of the property
(iii) Easement by prescription: equivalent to acquiring a parcel of land by adverse possession, i.e. an easement can be acquired if a person uses property that does not belong to him or her in a manner consistent with the existence of an easement for a period longer than the jurisdiction’s statute of limitations (20 years)
(iv) Easement by necessity: these types of easements are typically not registered
2.1.3 CANCELLATION OF EASEMENTS
· Governed by Section 99 LRA
· Cancellation can be effected by the owner of the dominant land or the servient land (if the Registrar is satisfied that the period of the easement has expired or it has served its purpose)
· Alternatively, an easement can be cancelled through a merging of the dominant and servient tenements (to be owned by the same person) thereby eradicating the need for an easement to be registered at all
2.3 WAYLEAVES
· A wayleave is a right of way over another’s land, usually for installation of sewer, drain, power lines or pipelines (examples
are contained at Section 28(i) LRA)
· Section 144 Land Act states that the application for a wayleave is ordinarily made by the relevant state department, county government, public authority or corporate body to the commission
· The Government gives notice of wayleave creations and compensates the owner of the land (the servient tenement)
· A wayleave (created on the servient land) is a terminable licence which does not automatically bind future owners of the property
· It grants you access to the way leave for purpose of development, restricting, etc.
· A way leave will normally contain provision for termination at the expiry of a notice period (commonly 6 or 12 months)
· In an easement we have two properties concerned, but with a wayleave you are concerned only with one property and with creation/enjoyment of certain rights that are created over that property
2.4 PROFITS A PENDRE
· Profits a pendre (French for ‘right of taking’) is a right to enter another’s land and take something, usually natural resources,
from that land
· The natural resources are capable of ownership, e.g. the right to catch fish, to graze, to hunt, to cut trees, to fetch clay, to extract petroleum/other minerals, etc. (Note: you cannot have a profit to take minerals and water)
2.5 RESTRICTIVE AGREEMENTS
· Section 2 LRA, Land Act define restrictive agreements as:
o A restrictive covenant; or
o An agreement by an owner of land, restricting the building on, use of, or other enjoyment of that land for the benefit of the owner or the neighbouring parcel
· Section 42(1) LRA states that no transfer shall contain a direction that the land shall be used or enjoyed by the transferee in a particular manner
· Section 69 LRA states that the burden and benefit of covenants run with the reversion, i.e.:
o There are no further provisions on restrictive covenants in new land laws
o Restrictive covenants confer a negative duty on neighbouring land, e.g. to maintain a certain standard of design
CHAPTER 9: TRANSFERS
1. TRANSFERS
· ‘Transfer’ means the passing of land, a lease or a charge from one party to another by an act of the parties and not by operation of law, and includes the instrument by which such passing is affected (Section 2 Land Act, Section 2 LRA)
· ‘Transfer’ includes a conveyance, an assignment, a transfer of land, a transfer of lease or other instrument used in the
disposition of an interest in land by way of a transfer (Section 43 Land Act)
· ‘Conveyance/Assignment’ are not defined by statute, however are generally accepted as being the Deed by which the
owner of a freehold/leasehold property whose title is subject to the Deeds Registry transfers ownership
· Transfers can be either inter vivos (i.e. between living people) or upon death
· Effecting a transfer involves: (see: Section 27, 37 LRA + Section 43 Land Act)
a) Consideration (with or without gifts);
b) An instrument in the prescribed form or form approved by the Registrar; and
c) Registration of the transferee as proprietor of the land, lease or charge.
· Section 44 Land Act: transfers take effect immediately upon registration, and not on the happening of a future event/fulfilment of any condition or at any other future time
· 
Interests capable
of being transferred are: freehold, leasehold, sub-leases, charges, profits
a pendre, etc.
 |
1.1 PRESCRIBED FORMS
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LRA FORM |
INTEREST TRANSFERRED |
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LRA 33 |
Transfer instrument – Freehold |
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LRA 63 |
Transfer instrument – Leasehold |
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LRA 57 |
Transfer of a charge à Chargor (borrower) to Chargee (bank), to transfer an interest or charge |
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LRA 35 |
Transfer of undivided share |
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LRA 36 |
Transfer of joint interest |
· The above prescribed forms are mandatory and have to be adopted (Section 37 LRA, Section 43(2) Land Act)
· Under Section 37 LRA, if an Advocate chooses to use a form other than those prescribed, he must have them approved by the Registrar first
· Legal Notices No. 143 – 146 stipulate that both parties to a conveyance must sign a transfer
1.2 REGISTRATION OF A TRANSFER
· A transfer does not operate as a transfer of an interest in land until the transferee is actually registered in the registry
· Registration does not merely record the instrument, but passes the rights of ownership to the purchaser
· Upon registration, the LRA prescribes that the purchaser will be issued with:
(i) A Certificate of Title (Section 26(1)) à in the case of freehold properties, the Title Deed uses the terminology of
an ‘Absolute Title’
(ii) For long term leasehold properties, one is issued with a Certificate of Lease (Section 54(5))
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APPLICABLE PROVISIONS OF THE LAND REGISTRATION ACT |
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PROVISION |
WHAT IT STATES |
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SECTION 43(2) |
A transfer is to be affected by an instrument in the prescribed form |
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SECTION 43(3) |
Completion of the transfer process is only after registration of interests at the Land’s Registry |
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SECTION 36(1) |
All dealings in land must be in accordance with the provisions of the Land Registration Act |
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SECTION 37 |
Transfer by an instrument in the prescribed form or form approved by the Registrar. Filing in the prescribed form and registration of the same completes the transfer |
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SECTION 40 |
Contingency or conditional transfers are prohibited |
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SECTION 43(2) |
Transfers are effective only upon registration |
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SECTION 44(4) |
There is a requirement for endorsement (in the prescribed manner) of signatures of persons outside the country at the time they signed the document |
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SECTION 44(5) |
Other required documents when effecting a transfer include: copy of ID/passport; copy of PIN certificate; 3 coloured passport size photographs; marriage certificate (where applicable); and a copy of Certificate of Incorporation + Board resolution (where applicable) |
1.3 PARTS OF A TRANSFER INSTRUMENT
(i) General parts:
a. Preliminary details include: date of agreement and parties to agreement
b. Instruments are to be stamped within 30 days of execution and lodged for registration within 3 months from the date of the instrument. Therefore, it is advisable to leave the instrument undated until the time when the parties are ready to perfect it (see: Section 6 Stamp Duty Act, Section 36 LRA)
c. Remember: no evidence will be received in a court of a sale unless the same is in writing and is registered. Registration will also determine the priority of interests (See: Section 36, 37, 40, 43, 44 LRA)
(ii) Operative parts/recitals:
a. Give the history and back ground of the transaction, e.g. how the vendor became the owner
b. Give details on the change of the existing state of affairs
(iii) Testatum:
a. Consideration (purchase price) and acknowledgement of receipt of the same
b. Transfer/grant (conveyance, assignment) of interest in land
c. Description of the property
d. Habendum – i.e. the quantity of the interest granted, e.g. term of the lease
e. Exceptions or reservations
(iv) Miscellaneous provisions: e.g. implied covenants under the Land Act
(v) Final part:
a. Execution – i.e. signing and sealing
b. Attestation – i.e. witnessing of the execution
c. The name and address of the advocate who prepared the instrument (Section 34 + 35 Advocates Act)
1.4 TRANSFER OF A LEASE
· Section 45 Land Act, Section 71 LRA
· When transferring a lease, there is an implied warranty that the rent, agreements and conditions in the Lease have been met by the transferor as at the transfer date, and that these obligations shall be met by the transferee from the said date
· Under Section 72 LRA, the transferee becomes the lessee after the transfer of lease has been registered
1.5 TRANSFER OF A CHARGE
· Section 86(1) Land Act
· The Chargor (or anyone with an interest in the land that is charged, any surety for the payment of an amount secured by a charge, any creditor of the chargor who has obtained a decree for sale with the consent of the chargor) may request the chargee to transfer the charge to a person named in the request
· The Chargor’s consent to transfer the charge is required if the charge instrument expressly or impliedly says so (Section 87 land Act)
1.6 FREEDOM (RIGHT) TO TRANSFER
· The freedom to transfer interests in land is enshrined under the Constitution 2010
o Article 40: subject to Article 65, every person has the right to acquire and own property of any description and in any part of Kenya
o Article 65: one can only transfer freehold property or leaseholds of over 99 years to Kenyan citizens. Any transfers of freehold properties or leaseholds of over 99 years to non-Kenyan citizens are deemed to be a leasehold of 99 years
1.7 CONSIDERATION IN TRANSFERS + GIFTS
· Ordinarily, the requirement of consideration is a requirement for a contract to be valid. However, there is an exception to this rule where the consideration is not valuable (i.e. no actual money has been paid)
· Under Section 27(2) LRA, a contract for a disposition of an interest in land that has no valuable consideration attached to it will have the same effect as a transfer with valuable consideration
· However, a transfer without consideration is only applicable for transfers to:
o To oneself – e.g. where there has been a change of name;
o To one’s spouse;
o To one’s beneficiaries; and
o When the transfer is a gift
· For transfer of land as a gift to be exempt from the requirement of consideration, the gift must be accepted by the donee (recipient) during the lifetime of the donor (diver)
· The transfer of land as a gift must be effected by a registered instrument and the donor must comply with all the statutory requirements relating to the transfer, e.g. obtaining of LCB Consent where necessary
· Registered Trustees of the Anglican Church, Mbeere Diocese v Reverend David Waweru [2007] eKLR, Civil Appeal No. 108 of 2002: The Respondent (Revered Waweru) had donated his land to the church. He obtained LCB Consent and executed the transfer, but it was not registered due to a court matter over the property. He later sought to reclaim is from the church through court action after he resigned from the church service. The superior court held in his favour, but the Court of Appeal held in favour of the church using the above principles – i.e. where the donor has fulfilled all legal obligations of a transferor, the property belongs to the donee
2. TRANSMISSION
· ‘Transmission’ is the passing of land, a lease or a charge from one person to another by operation of law on death, insolvency or otherwise (Section 2 Land Act, Section 2 LRA)
· These are also known as ‘involuntary transfers’/‘transfers by operation of the law’, and happen in the following situations:
a. Death;
b. Court attachment and sale;
c. Vesting orders;
d. Bankruptcy or insolvency;
e. Adverse possession; and
f. Compulsory acquisition
2.1 Transmission – COMPANY LIQUIDATION
· The Registrar is presented with a resolution or order appointing a liquidator, which he enters in the register
· Instruments lodged for registration shall be sealed with the company’s seal and attested to by the liquidator
· See: Section 53 Land Act, Section 64 LRA, Companies Act and Insolvency Act
2.2 Transmission – BANKRUPTCY
· The debtor commits an act of bankruptcy, at which point either the debtors or the creditors file a petition for the debtor to be adjudged bankrupt
· A court makes a receiving order, placing the property in the control of an official receiver appointed by the court
· An adjudication order is made and the property of the debtor who has been adjudged bankrupt then passes to the trustee in bankruptcy for distribution among creditors
· The transfer to the trustee in bankruptcy is effected through the registration of the adjudication order by the registrar
· See: Section 52 Land Act, Section 63 LRA and Insolvency Act
2.3 Transmission – VESTING ORDERS
· This is a court order that creates or transfers legal ownership of a property in place of a legal conveyance. This happens in:
a) Court ordered purchases/sales of mortgaged land
b) Specific performance of a contract where parties are trustees
c) Trustee has not exercised their duty in the disposition of interests of property
d) Interests in land are subject to a contingent right of an unborn person, and when born the court may make an order
e) Infant mortgagees
· See: Sections 45 – 46 Trustee Act (Cap. 167)
2.4 Transmission – DEATH
2.4.1 Sole Proprietor or Proprietor in Common
· The applicable sections of the law here are: Section 61(1) LRA, Section 50 Land Act
· The personal representative shall, on application for and production of a grant, be registered by transmission as the proprietor in place of the deceased à “As executor of the will of [insert deceased’s name]” or “As administrator of the estate of [insert deceased’s name]”
· The Registrar is to register by transmission, upon confirmation of a grant and on the production of the same thereof:
a) Any transfer by the personal representative; and
b) Any surrender of a lease or discharge of a charge by the personal representative
2.4.2 Joint Proprietors
· The applicable sections of the law here are: Section 49 Land Act, Section 60 LRA
· The property automatically passes to the surviving tenant under the doctrine of jus ascrendi
· When one of the joint tenants of any land, lease or charge dies, the Registrar shall, upon proof of the death, delete the name of the deceased tenant from the register by registering the death certificate
2.5 Transmission – ADVERSE POSSESSION
· Adverse possession is a situation where a person takes possession of land and asserts rights over it, and the person having title to it omits or neglects to take action against such person in assertion of his title for a certain period
· In Kenya, the relevant period for adverse possession to take effect is a period of 12 years
· Section 7 and 17, Limitation of Actions Act provides for a 12 -year limitation period for the recovery of land
· Section 37 and 38, Limitation of Actions Act states that if land is registered, then it is held in trust for the adverse possessor until he obtains a vesting order from the High Court
· The procedure for acquisition of title by the adverse possessor is under Order 37, Rule 7(1) Civil Procedure Rules:
1) “An application under section 38 of the Limitation of Actions Act shall be made by originating summons
2) The summons shall be supported by an affidavit to which a certified extract of the title to the land in question has been annexed
3) The court shall direct on whom and in what manner the summons shall be served”
2.5.1 THE ESSENTIAL ELEMENTS OF ADVERSE POSSESSION
· Possession of the property/land in question adverse possessor is neither by force, stealth or under the license of the registered owner of the land
· There must be adequate continuity, and publicity (i.e. to the extent which shows that the possession is adverse to the title of the registered owner)
· There must be:
o Open and notorious use;
o Intention to possess;
o Continuous use;
o Exclusive use – to the exclusion of the registered owner;
o Actual possession; and
o Non-permissive, hostile/adverse use – without owner’s permission and inconsistent with his rights
· This may be summarised by the Latin maxin – “nec vi nec claim nec precario” (neither by force, nor secretly, and without permission)
· The basis of adverse possession is that leaving land abandoned would be contrary to the policies enshrined under Article 60, Constitution 2010
2.6 Transmission – COMPULSORY ACQUISITION
· This is acquisition of land for public purpose or in the public interest
· Article 40(3) Constitution 2010 stipulates that the right to own property is limited for reasons in the public purpose/public interest, provided there is prompt payment in full of just compensation
· Section 132 Land Act stipulates that compulsory acquisition transactions are exempt from stamp duty
· There are 3 clear cut stages in compulsory acquisition: pre-inquiry, inquiry and pose-inquiry
|
COMPULSORY ACQUISITION |
|
|
STAGE |
ACTION |
|
PRE-INQUIRY |
The National Land Commission (NLC) receives a request for acquisition from the acquiring authority. The request is authored by either a Cabinet Secretary or a County Executive Member (Section 107(1) and 107(5) Land Act). See: Mohammed v Commissioner of Lands and Others [2006] eKLR (E&L) 217.
(i) Preliminary requirements · This Commission shall prescribe a criteria and guidelines to be adhered to by the acquiring authorities in the acquisition of the land – Section 107(2) Land Act · A list shall be prepared of the affected parcels of land and the owners, title search details, cadastral maps of the affected areas, a Resettlement Action Plan, and a list of persons affected by the project
(ii) Notice of Intention to Acquire · Section 107(5) and Section 110(1) Land Act · This is published in the Kenya Gazette after the Commission is satisfied and confirms in writing that the land is required for public purposes or in furtherance of the public interest · The Commission publishes notice of intent and delivers a copy of the notice to the Registrar and to every person who appears to have an interest in the land · If the public purpose or interest ceases to exist, the Commissioner may offer the original owner pre-emptive rights to reacquire the property (Section 110 Land Act)
(iii) Ascertainment of suitability of land · This is a survey – Section 107(8) and 108 Land Act · All land to be compulsorily acquired shall be authenticated by the authority responsible for survey, both at the national and county governments |
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INQUIRY |
(i) Notice of Inquiry · Section 112(1)(a) Land Act · The Commission appoints a date for inquiry which should be at least 30 days after publishing the notice of intention to acquire, and at least 15 days before the actual date of the inquiry · A copy of the notice is served on every person who appears to have an interest in the land
(ii) Receipt of Claims · Section 112(2) Land Act |
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· Written claims for compensation are delivered to the Commission not later than the date of inquiry, for determination of the persons interested in the land
(iii) NLC’s Powers for Purposes of Inquiry · To summon and examine witnesses, including persons with interest in the land · To administer oaths and affirmations · To compel production and delivery of title documents |
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POST-INQUIRY |
(i) Award of compensation · Section 113 and 114(1) Land Act · This is done upon conclusion of the inquiry · A separate award of compensation is drawn up for every person determined to be interested in the land · There is then service on each person of a notice of the award and offer of compensation · Courts have held that the compensation should be market value + 15% (Eunice Grace Njambi Kamau & Another v AG & Others [2013] eKLR)
(ii) Land in lieu of compensation · Section 114(2) Land Act · Land in lieu of monetary awards – this is possible where the value of the land is commensurate with the award · Such award shall be deemed to be all the compensation conclusively to which the person is entitled to in respect of the interest in that land
(iii) Payment of compensation · Sections 115, 118 and 119 Land Act · Payment is promptly settled upon the exercise of due diligence, which shall include a final survey and the determination of acreage, boundaries, ownership and value · If the award is not accepted or in the case of a dispute, the amount is paid into a special compensation account held by the Commission
(iv) Payment of interest · Section 117 Land Act · Interest is paid at the prevailing base lending rate set by Central Bank on any amount not paid promptly · It is calculated from the time of taking possession until the time of payment
(v) Taking of possession (Section 120, 121 Land Act) |
3. MATRIMONIAL PROPERTY
· Petit v Petit [1969] All ER 385: wife bought property in her name, and the husband only painted. The court held that he was not entitled to the property
· Gissing v Gissing [1970] 2 All ER 780: the wife was considered to have directly contributed to the property
· I v I [1971] EA 278: this established the applicability of the Married Women Property Act in Kenya
· Karanja v Karanja [1976] KLR 307: the couple were both salaried. It was held that the wife was entitled to the property and her part was held in trust for her by her husband
· Njuguna v Njuguna [1986] LLR 823: the court recognised non-direct financial contribution to the acquisition of matrimonial property
· Kivuitu v Kivuitu [1991] KLR 248: purchase price paid by the husband (deposited by the wife while he was abroad). It was registered in joint names. The wife sought to sell it and have her equal share. The court established that indirect contribution can lead to equal distribution of the property
CHAPTER 10: SECTIONAL PROPERTIES AND SUBLEASES
1. SECTIONAL PROPERTIES
· Sectional properties are governed by the Sectional Properties Act No. 21 of 1987 (‘SPA’) – this act was formulated to enable the acquisition of flats in high-rise buildings as a consequence of the diminishing stock of land in the country and the corresponding increase in the price of available land
· The SPA aims at providing 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. It also provides for the use and management of the units and common property and for connected purposes
· This process allows individuals wishing to purchase the units the ability to access financing for the same because such titles can be used as collateral
· The Act is primarily advantageous as it allows for individual ownership of a unit (Section 3(1) SPA)
· Leasehold conveyancing seems to be the preferred method of disposing of flats
o The reason for this stems from the principle ay common law that a positive covenant cannot run with freehold land à i.e. positive covenants, as opposed to negative covenants, cannot be enforced against future/subsequent owners of the land because a successor in title is not privy to the contract containing the covenant
o A lease, however, allows for the running of positive covenants in land because the covenants in a lease are entered into on behalf of the covenantor as well as his successor in title
1.1 APPLICATION OF THE SECTIONAL PROPERTIES ACT
· The SPA applies to any land registered under any Act of Parliament
· However, land registered under the GLA or the RTA is deemed to be registered under the Land Act as soon as a sectional plan is registered under those respective Acts
· Section 4 SPA states that ‘an existing or planned structure may be designated a building containing a unit or part of a unit or divided into two or more units by the registration of a sectional plan’ à therefore, a sectional plan is the instrument that brings any land or building under the provisions of the SPA
1.2 TRANSFER OF SECTIONAL PROPERTY
(i) Preparation and registration of a sectional plan à This sectional plan must:
a) Describe two or more units;
b) Be described in the heading of the plan as a ‘sectional plan’;
c) Delineate the external surface boundaries of the parcel and the location of the building in relation to them;
d) Bear a statement containing those particulars as may be necessary to identify the title to the parcel;
e) Include a drawing illustrating the units and distinguishing the units by numbers or other symbols;
f) Define the boundaries of each unit;
g) Show the approximate floor area of each unit;
h) Have enclosed on it a schedule specifying in whole numbers the unit factor for each unit in the parcel;
i) Be signed by the proprietor;
j) Have endorsed on it the address at which the documents may be served on the corporation concerned; and
k) Contain any other particulars prescribed by the regulations
(i) Presentation of sectional plan for registration, in quadruplicate à the sectional plan must be endorsed by the following (Section 11 SPA):
a) A Certificate of Survey à stating that the structure that is shown in the plan is within the external surface boundaries of the parcel which is the subject of the plan, and if guttering’s project beyond those external boundaries, that an appropriate easement has been granted
b) A Certificate of the Local Authority à stating that the proposed division of the structure as illustrated in the plan has been approved; and
c) Certificate of Surveyor à stating that units shown on the plan correlate with the existing structure
(ii) As soon as the sectional plan is registered, a Title to the unit comprised in the plan shall be deemed to be issued under the RLA (with effect from the date of registration of the sectional plan)
(iii) Delivery of registered copy of the plan to local authority of area in which parcel is located within 21 days (Section 9(3) SPA)
(iv) Register for parcel described in the sectional plan is closed and Registrar opens a separate register for each unit that has been described in the plan
a) Register for each unit includes the share in the common property apportioned to the owner of that unit
b) Common property includes: all rights of support, shelter and protection, passage and provision of water, etc.
c) SPA provides that common property shall be held by the owners of all the units as tenants in common in shares proportional to their respective unit
(v) Upon payment of prescribed fee, a Certificate of Sectional Property in respect of each unit is issued
a)
Using this certificate, each unit may be transferred, leased, charged or dealt with in the same manner as land held under the RLA
1.3 SALE OF INDIVIDUAL UNITS
· The SPA provides comprehensive details about how a developer is to sell a unit or a proposed unit to a purchaser
· Section 46(i) SPA provides that a developer shall not sell/agree to sell a unit or proposed unit unless he has delivered to the purchaser a copy of the:
a) Purchase agreement;
b) By-laws or proposed by-laws of the corporation;
c) Management agreement or proposed management agreement;
d) Recreational agreement or proposed recreational agreement;
e) Lease of the parcel – if the parcel on which the unit is located is held under a Lease and Certificate of Sectional Property in respect of the unit/proposed unit;
f) (Any) charge that affects or proposed charge that will affect the title to the unit or proposed unit, or, in respect of that charge or proposed charge, a notice prescribed under Section 46(2) SPA; and
g) The sectional plan or proposed sectional plan
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APPLICABLE PROVISIONS OF THE SECTIONAL PROPERTIES ACT |
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PROVISION |
WHAT IT STATES |
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SECTION 46(3) |
A purchaser of a unit under the section may, without incurring any liability for doing so, rescind the purchase agreement within 10 days from the date the purchase agreement was executed |
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SECTION 46(3) |
A purchaser may rescind the purchase agreement under Section 46(3) if all the documents required to be delivered to the purchaser under Section 46(2) have been delivered to the purchaser not less than 10 days prior of the execution of the purchase agreement |
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SECTION 46(3) |
Where a purchase agreement is rescinded under this section, the developer shall, within 10 days from his receipt of a written notice by the purchaser of the rescission, return to the purchaser all of the money paid in respect of the purchase of the unit |
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SECTION 47 |
Prescribes the format of the purchase agreement to be entered into between a purchaser and a developer. The purchase agreement should include the following:
(i) A notification that is at last as prominent as the rest of the contents of the purchase agreement and that is printed in red ink on the outside front cover or the first page of the purchase agreement, stating as follows: “The purchaser may, without incurring any liability |
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for doing so, rescind this agreement within ten days of its execution by the parties to it unless all of the documents required to be delivered to the purchaser under Section 46 of the Sectional Properties Act, 1897, have been delivered to the purchaser not less than ten days prior to the execution of this agreement by the parties to it” (ii) A description, drawing or photograph showing: a. The interior finishing of all major improvements to the common property located within the building; b. The recreational facilities, equipment and other amenities to be used by the person residing in the residential units; c. The location of roadways, walkways, fences, parking areas and recreational facilities; d. The landscaping; and e. The exterior finishing amount of the building as it will exist when the developer has fulfilled his obligations under the purchase agreements (iii) The amount or estimated amount of monthly unit contributions in respect of a residential unit; and (iv) The unit factor of the unit and the basis factor appointment for all units comprised in sectional plan |
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SECTION 48 |
A developer or a person acting on his behalf is obliged by statute to hold in trust all the money paid by a purchaser under a purchase agreement, other than rents, security deposit or mortgage advances. If the improvements to the unit and the common property are substantially completed, the money may be paid to the developer on delivery of the title documents to the purchaser. If the improvements of the unit are substantially completed, not more than 50% of that money – less the interested earned on it – may be paid to the developer on delivery of title documents to the purchaser. On the improvements to the common property being substantially completed, the balance of that money and all the interest earned on the total amount held in trust in respect of that purchase agreement may be paid to the developer. Improvements are deemed to be substantially completed when improvements are ready for use or are being used for the purpose intended. |
1.4 MANAGEMENT OF SECTIONAL PROPERTIES
· The SPA provides for a unique method in managing property
· Upon registration and declaration of a particular parcel as a sectional property, a body known as the Corporation comes into being, constituted under the name “The Owners, Sectional Plan No. [insert number given to plan on registration]”
· Important points to note about the Corporation are:
o It consists of all persons who are owners of units in the parcel or who are entitled to the parcel when the sectional arrangement is terminated under the Act
o It shall have perpetual succession and a common seal, but the provisions of the Companies Act shall not be applicable to it
o Its core function is to control, manage and administer the common property – including payment of any insurance premiums, land rent, etc. à to perform these obligations the corporation is required to set up a fund and raise money for the fund by levying contributions on the proprietors in proportion to the unit entitlement of their respective units
· The Corporation must also have a Board of Management – this is compulsory under Section 26 SPA
o It will be the Board that exercises the powers and duties of the corporation
o When the developer registers a sectional plan, he shall within 90 days from the day that 50% of the residential units are sold, or 180 days from the day that the first residential unit is sold (whichever is sooner), convene a meeting of the Corporation at which the Board will be elected
o The Board, once elected, shall have 28 days to appoint an Institutional manager to manage the units, the common property and the immovable property of the corporation à the institutional manager must be either an accountant with a practicing certificate for a period of not less than 5 years; a registered agent; or an advocate
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CORPORATION UNDER SPA v CORPORATION UNDER LRA |
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SPA |
LRA |
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Governed by the Sectional Properties Act |
Governed by the Land Registration Act |
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A search for the company is conducted at the Land’s Office |
A search for the company is conducted at the Companies Registry |
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This is created automatically |
The lessor must manually create it |
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This management company is mandatory under Section 17 SPA |
This management company is discretionary (i.e. to the lessor) |
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The share certificate is not limited to 50 members |
The share certificates are limited to 50 members |
1.5 TERMINATION OF SECTIONAL PROPERTY STATUS
· This can be through a unanimous resolution of the Corporation
· Alternative, an application to terminate the sectional status of the building may be made to the court by the Corporation, an owner, a registered chargee of a unit, or a purchaser under an agreement for sale of a unit à if, having regard to all factors, the court considers it just and equitable to do so, then it may terminate the sectional status of the building ( Section 55 SPA)
· Upon termination, the Corporation files a notice with the registrar in the prescribed form, who then registers the notice
à the unit owners become entitled to the parcel as tenants in common, in shares proportionate to the unit factors of their respective units (Section 56 SPA)
2. SUBLEASES
· A landowner holding a freehold or leasehold interest from the government may grant a sub-lease out of the leasehold or freehold interest (Section 63 Land Act)
· The property may also be leased by third parties, conveying some or all of the leased property for a shorter term than that of the head lease
· Sub-leases may be sanctioned by the head lessor
· The concept of sub-leases is common with ownership of flats and apartments à the owners of apartments ordinarily constitute themselves into a management company (with the owners being shareholders) purposefully to manage the estate
· Owners of all the apartments enjoy equal enjoyment of the common amenities
· The management company is mandated with purchasing the reversionary interest from the head lease to ensure that upon expiry of the sub-lease, the sub-lease can be renewed in the name of the management company with the shareholders continuing to own common areas
· The management company also collects a monthly service charge from its shareholders to pay for land rates, water, electricity, etc. in the common areas and to maintain the compound
2.1 CHARACTERISTICS OF A SUBLEASE
· The term granted on the sublease must be less than that of the head lease
· The management company is registered under the Companies Act:
o To manage the property upon which the sublease is created;
o For acquisition of the reversionary interest;
o Due to the fact that owners of the subleases are entitled to a share of the management company, as the same entitles them to a reversionary interest
· The building/architectural or site plans will be annexed to the sublease and properly marked
· The unit sold must be properly described, together with ownership of the common areas
· There is a monthly service charge for payment of rents, rates, maintenance of common areas, etc.
2.2 SECTIONAL PROPERTY TITLE v SUBLEASE TITLE
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SECTIONAL PROPERTY TITLE |
SUB-LEASE TITLE |
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Protects the purchase process |
Does not govern the purchase process |
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On registration of the sectional plan, the register is closed and a new one is opened for the Title Deeds |
Registration is under the same registers, in line with section 54 LRA |
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No title is issued for the common property, but the same is registered |
Title is issued for the common property (which may lead to duplicity of titles) |
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Common property is defined and owned as part of the unit in the title |
The common property is not defined and owned by unit owners as shareholders in the management company |
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Corporation is formulated automatically |
Management company is manually formulated and this is discretionary, dependant on the lessor |
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The sectional plan to be used for registration is prescribed |
The sublease to be used for registration is not prescribed |
CHAPTER 11: TAXATION ON DOCUMENTS
1. STAMP DUTY
· Stamp Duty is revenue raised by the Government by requiring that stamps sold by the Government be affixed to designated documents
· The stamps are affixed/embossed/impressed by means of a red dye, franking or use of adhesive revenue stamps
· Section 5 Stamp Duty Act (‘SDA’): the conveyancing instruments subject to this rule (i.e. require to be stamped) are: transfers, leases, partitions, charges and mortgages, discharges of charges, re-conveyances of mortgages, powers of attorney and debentures
· A document that has yet to be stamped will not be registered until the requisite stamp duty has been paid (Section 46 LRA) and a failure to pay stamp duty is an offence (Section 113 SDA)
· Section 6 SDA states that stamp duty is to be paid within 30 days of the document being executed (if the document is executed within Kenya), or alternatively, within 30 days of receipt (if executed outside of Kenya)
· Section 10A SDA states that reference shall be made to the Chief Government Valuer to determine the true open market value of a property to be transferred, as at the date of the conveyance/transfer, to ascertain whether there is the need for any additional stamp duty
· Failure to pay stamp duty is equivalent to tax evasion and as such is a criminal offence under Section 113 SDA. Moreover, Section 20 SDA stipulates that the effects of non-payment of stamp duty include:
a. Non-admissibility of documents as evidence in court;
b. Non-registration of documents; and
c. A possible penalty of Kshs. 1/= for every Kshs/ 20/=, and if every fractional part of Kshs. 20/= of the duty chargeable in each quarter of the year
1.1 STAMP DUTY VALUATIONS
· These valuations are conducted by the Valuation Section of the Department of Lands
· The amount payable is that prescribed by the SDA on the advice of the Minister for Finance, and is generally payable by the recipient of the interest in the land
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CONVEYANCE |
STAMP DUTY PAYABLE |
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Transfer of immovable property |
Land within a municipality – 4% of the purchase price |
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Land outside a municipality /agricultural land – 2% of the purchase price |
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Mortgages, charges, second/subsequent charges |
Kshs. 2/= per Kshs. 1,000/= (0.2%) |
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Further mortgage or charge |
Kshs. 1/= per Kshs. 1,000/= (0.1%) |
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Equitable mortgage or charge |
Kshs. 1/= per Kshs. 1,000/= (0.1%) |
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Discharge of charge, re- conveyance of mortgage |
Dependant on the amount secured. Rate is ordinarily Kshs. 0.5/= per Kshs. 1,000/= secured (0.05%) |
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Leases |
Ordinarily dependant on the annual rent payable |
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Period exceeding 1 year but less than 3 years – Kshs. 10/= per Kshs. 1,000/= (1%) |
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Period exceeding 3 years – Kshs. 20/= per Kshs. 1,000/= (2%) |
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Gift inter-vivos |
Section 52 Stamp Duty Act |
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Transmissions (testate and intestate) |
Attracts a nominal amount of stamp duty where the property is transferred to a beneficiary |
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Agreement for sale |
Nominal amount – Kshs. 500/= |
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Surrender of lease |
Nominal amount |
1.2 PROCEDURE FOR PAYMENT OF STAMP DUTY
(i)
(i) Applicant presents document for assessment by the Collector/Valuer
(ii) The Assessor confirms if duty is payable, counterchecks information on the form and related documents, ascertains the amounts, and then endorses both the Form and the documents
(iii) The applicant then generates a KRA PIN Form on the iTax Platform
(iv) Applicant pays the amount in the desired bank (procedure below)
(v) Applicant returns document, together with proof of the payment, to the Collector
(vi) The Collector reconciles records and stamps document by franking
(vii) The document is then audited by the Government accountant and dispatched
1.3 PROCEDURE FOR PAYMENT OF AMOUNT ON iTAX PORTAL
(i) Register and/or log on to the iTax Portal through www.itax.kra.go.ke
(ii) Go to the ‘payments’ menu à select ‘payment registration’ à click ‘next’
(iii) On the payment’s registration form, select ‘Agency Revenue’ as the Tax Head and ‘Stamp Duty’ as the Tax Sub-head
(iv) Select the type of instrument you are dealing with, e.g. a charge à enter the declared value and the date of the instrument, then fill in the fields that will be populated as a result of the choice of instrument
(v) Declare the PIN of the vendor + click ‘add’ à Declare the PIN of the purchaser + click ‘add’
(vi) Select ‘Mode of payment’ and enter the ‘Receiving bank’s name’
(vii) Submit the form à download the payment slip & print 2 copies à Make payment at selected bank
(viii) If payment is through mobile money, select ‘Mode of Payment’ as ‘Cash’ and ‘Receiving Bank’s name’ as ‘M-Payment’, then make the payment through the pay-bill instructions given
1.4 RELIEFS AND EXEMPTIONS UNDER THE STAMP DUTY ACT
· Adjudication of stamp duty is to the discretion of the Collector. Generally, all documents are to be stamped unless specifically exempted under Section 17 SDA:
a) Where there is an instrument executed by or on behalf of the Government, or in favour of the Government, it is the Government that is to pay the stamp duty payable;
b) A bond given by a public officer in exercise of his duties;
c) A will, codicil or testamentary disposition;
d) Instruments on the sale/transfer of land for the construction/expansion of educational institutions;
e) Family investment companies;
f) Research institutions;
g) Charitable institutions;
h) Subsidiary companies
· There are general ministerial recommendations for reliefs from stamp duty or exemptions on the interest of the public (Section 106 SDA) à e.g. development partners, research institutions, etc.
· There are also some general statutory exemptions from stamp duty (Section 117 SDA), including to: Educational institutions; family investment companies; charitable institutions; subsidiary companies, etc.
2. CAPITAL GAINS TAX
· Capital Gains Tax (‘CGT’) was reintroduced by the Finance Act 2014 after having been suspended in 1985, and the Finance Act 2019 has proposed an increase of capital gains tax
· Section 3(2)(f) Income Tax Act stipulates that gains accruing on the transfer of property on or after January 2015 shall be
chargeable to ‘CGT’ at a general rate of 5% on the net gain
· CGT, in contradiction to Stamp Duty, is payable by the person who has transferred the interest in the property and not by the person who the interest in the property is transferred to
· A transfer takes place:
o Where a property is sold, exchanged, conveyed or disposed off in any manner, including by way of a gift;
o On the occasion of loss, destruction or extinction of the property; or
o On the abandonment, surrender, cancellation or forfeiture, expiration of rights to property
2.1 METHOD OF COMPUTING CGT
·
The rate of Capital Gains Tax is 5% of the net gain
· Transfer value: this is the value of consideration/compensation for the property transferred MINUS the incidental costs incurred in transferring the same
· Adjusted cost: the cost of acquisition/construction + enhancement costs + preservation costs + costs of defending the Title
+ incidental costs to acquiring the property
2.2 EXEMPTIONS AND EXCLUSIONS FROM CGT
(i) Individual residence occupied at least 3 years immediately before the transfer
(ii) Sale of land by an individual, where the proceeds of the sale are less than Kshs. 3 million
(iii) Agricultural land that is less than 50 acres in size
(iv) Transfer of property for securing a debt or loan
(v) Transfer of assets between spouses, former spouses or immediate family
(vi) Transfer or sale of a property for the purpose of administering the estate of a deceased person (must be within 2 years of the death and with a court order)
(vii) Income that is taxed elsewhere
(viii) Issuance by a company of its own shares or debentures
(ix) Disposal when administering the estate of a deceased person
(x) Vesting property to a liquidator or receiver
(xi) Exchange of property during company restricting
(xii) Transfer of securities traded at NSE
2.3 PROCEDURE FOR PAYMENT OF CGT
(i) Register and/or log on to the iTax Portal through www.itax.kra.go.ke
(ii) Go to the ‘payments’ menu à select ‘payment registration’ à click ‘next’
(iii) On the payment’s registration form, select ‘Income Tax’ as the Tax Head and ‘Capital Gains Tax’ as the Tax Sub-head
(iv) Fill in details on the type of CGT (if it is a CGT exemption, select the option on ‘exemptions’ and choose the relevant
exemption applicable from the list)
(v) Declare the PIN of the vendor + click ‘add’ à Declare the PIN of the purchaser + click ‘add’
(vi) Fill in details on the Land Reference Number + year of purchase + date of instrument + declared value, etc.
(vii) Calculate the incidentals incurred
(viii) Select ‘Mode of Payment’ and enter the ‘Receiving Bank’s name’
(ix) Submit the form à download the payment slip & print 2 copies à Make payment at selected bank
CHAPTER 12: PROFESSIONAL UNDERTAKINGS
1. INTRODUCTION
· A professional undertaking is an ‘unequivocal declaration of intention addressed to someone who reasonably places reliance on it, made by an Advocate in the course of his practice, either personally or by a member of his staff, under which the Advocate becomes personally bound’
· The ingredients of a professional undertaking are thus summarised as:
o Unequivocal declaration of intention
o Made personally by an advocate or a member of the advocate’s staff
o Addressed to someone
o [Which someone] relies on it
· It is simply a promise made by an advocate, or on his/her behalf, to do something or refrain from doing something
· Professional undertakings are important in conveyancing as they are one of the ways in which to facilitate completion of a sale transaction
2. PURPOSE OF THE UNDERTAKING
· Undertakings are given by advocates to smoothen and hasten the process of conveyancing transactions
· The undertaking creates a ‘bridge’ without which a transaction may never be completed à e.g. a bank would not release funds without registration of the charge in its favour first, and the vendor on the other hand faces the risk of losing his property to a purchaser if the purchase price is not released at the point of completion
· Therefore, the instances in which a professional undertaking may be given include:
(i) Vendor’s advocates undertaking: not to release the balance of the purchase price to the vendor pending the actual registration of the transfer in favour of the purchaser
(ii) Purchaser’s advocates undertaking: to hold completion documents to vendor’s order pending the payment of
the purchase price
(iii) Mortgagee’s advocates undertaking: to advance the loan upon registration of the charge and/or transfer simultaneously
(iv) Mortgagor’s advocates undertaking: to pay the redemption amounts upon registration of the charge
· Professional undertakings therefor involve arrangements for settlement, such as: payment of purchase monies, loan funds, discharge of obligations, accounting to the other party for documents in return, etc.
3. CONSTRUCTION OF AN UNDERTAKING
· Professional undertakings are generally to be exchanged between professionals (and not laymen, who would not understand the severity of the obligations contained therein)
· The undertaking ought to be in writing (and this is what is recommended), although no law bars oral undertakings
· The giver and recipient of the undertaking do not have to be in an advocate – client relationship (Bridge up Containers
Services v Gichana Bw’omwando t/a Gichana Bw’omwando & Company Advocates)
· The LSK Digest of Professional Conduct and Etiquette provides that an undertaking shall be in a form which is clear and, once accepted by an Advocate, shall bind him or his firm to the undertaking, and any breach thereof shall constitute professional misconduct
4. BREACH OF AN UNDERTAKING
· A professional undertaking by an advocate is subject to supervision by the court, the breach of which amounts to professional misconduct which is enforceable in court for breach of contract
· Naphtali Radier v D. Njogu & Company Advocates: an advocate is obliged by law, as an officer of the court, to honour his professional undertaking. A failure to honour the same amounts to professional misconduct and as such is actionable as against the advocate who gave the undertaking
· This is so because professional undertakings are based on mutual trust
· The concept of implied undertakings as known in the common law are also applicable – e.g. to return documents held by
the purchaser’s advocate should registration fail for any reason
· Care should be taken when responding to requisitions, such that sufficient particulars of the specific charges and mortgages (the subject of the undertaking) should be given – e.g. avoid blanket/vague statements which may unintentionally bind you in the future
5. PROFESSIONAL UNDERTAKING AS A CONTRACT
· Professional undertakings place both a legal and an ethical obligation on the giver of the undertaking
· Peter Ng’anga Muiruri v Credit Bank & Charles Nyachae t/a Charles Nyachae & Co. Advocates (Civil ppeal No. 263 of 1998)
à it was held that an undertaking is a solemn thing, and in enforcing it the court is not guided by considerations of contract, but instead is aimed at securing the honesty of its officers
· Kenya Re v Muguku Muriu t/a Muguku Muriu & Co. Advocates (Civil Appeal No. 48 of 1994 à an undertaking must be clear, unambiguous, certain and without conditions precedents
· Pyrethrum Processing Company Limited v Rogers Shako Advocates (HCCC No. 148 of 2004) à an undertaking is a form of trusteeship
· David Muema v Victor Mulee [2007] eKLR à undertakings should be looked at from an ethical point of view
6. ENFORCEMENT OF UNDERTAKINGS
· Once it is determined that an undertaking exists, and that the same has been breached, the recipient of the undertaking has the following options open to them (jointly and severally):
(i) Co-operation with the undertaking party, e.g. extending time;
(ii) Demanding compliance in writing;
(iii) Seeking enforceability through court action (Order 52 CPR, by way of a Chamber Summons); and
(iv) Reporting the matter to LSK for disciplinary action
· It is important to remember that undertakings can even be enforced by a third party, i.e. you need not be a recipient to enforce the undertaking (KCB v Mohammed Muigai Advocates HCCC 757 of 2003)
7.
PRINCIPLES OF PROFESSIONAL UNDERTAKINGS
(i) An undertaking is an unequivocal declaration of intention addressed to someone who reasonably places reliance on it, made by an Advocate in the course of his practice, either personally or by a member of his staff, under which the Advocate becomes personally bound
a. There is no obligation on an Advocate either to give or accept an undertaking, nor can an Advocate be required to stand guarantor for a client by way of an undertaking
b. The Society does not recommend the giving or accepting of oral undertakings. Oral undertakings can lead to uncertainty as to the nature and extent of the undertaking. Evidential problems may arise. When oral undertakings are given, the lack of formality detracts from the gravity which should be attendant on the giving of any undertaking. The Society recognizes that an oral undertaking given by one person to another may be enforceable at law, but the Society will not render assistance to a party seeking to enforce that undertaking as a matter of conduct
c. Undertakings can be given even to lay persons. (See KCB Limited vs. Adala 1983 KLR 467)
(ii) Failure by an Advocate to honour the terms of a professional undertaking is prima facie evidence of professional misconduct. Consequently, the society will require its implementation as a matter of conduct
a. The Society has no power to order payment of compensation or to procure the specified performance of an undertaking if an Advocate declines to implement it. The Society will proceed by way of disciplinary action for failure to honour the undertaking
b. The Society will require an undertaking to be honoured by Advocates for so long as their names remain on the roll and regardless of whether they hold current practicing certificates or not
c. The Society has no power to order the release of an Advocate from the terms of an undertaking. This is
a matter for the court, or the person entitled to the benefit of the undertaking.
(iii) An undertaking will normally be required to be honoured only as between the giver and the recipient
a. The Society will normally require compliance with an undertaking only at the instance of a recipient
b. An Advocate cannot assign the burden of an undertaking (and thus claim to be released from its terms) without the express approval of the recipient à ROA Otieno v AGN Kamau & Co 134/03
c. The court will however not hesitate to enforce an undertaking on an application by the recipient’s client. See: Naphtally Radier vs. David Njogu t/a D. Njogu & Co. Advocates HCCC No. 582 of 2003 (Nrb); Kenya Commercial Bank Limited vs. Mohammed Muigai Advocates HCCC No. 757 of 2003 where the court held that undertakings are not just given at the behest of clients but the recipient‘s client takes the benefit of the same and can enforce the same
(iv) An ambiguous undertaking is generally construed in favour of the recipient
a. Wording of the undertaking is very important. It has to be clear
b. In interpreting an undertaking, the court will not invite extraneous evidence or terms implied
(v) An undertaking does not have to constitute a legal contract to be enforceable in conduct
a. No consideration is necessary for a professional undertaking to be enforceable in conduct
(vi) An undertaking is still binding even if it is to do something outside the Advocate’s control
a. Before giving an undertaking, an Advocate must carefully consider whether it will be possible to implement it
b. It is no defence to a complaint of professional misconduct that the undertaking was to do something outside the
Advocate’s control
(vii) An Advocate is responsible for honouring an undertaking given by a member of the Advocate’s staff, whether admitted to
the Roll of Advocates or not
(viii) Where an Advocate in a partnership gives an undertaking as an Advocate in the course of practice, all partners are responsible for its performance
(ix) An Advocate cannot avoid liability on an undertaking by pleading that to honour it would be a breach of the duty owed to the client
a. Since an Advocate will be personally bound to honour his undertakings, it is essential for the Advocate’s protection that the client’s authority to do so is given before the undertaking is furnished
b. See: Kenya Reinsurance Corporation v E Muguku & Company Advocates [1995 – 1998] 1 EA 107
(x) An Advocate who gives an undertaking which is expressed to be dependent upon the happening of a future event must notify the recipient of the undertaking immediately if it becomes clear that the event will not occur
(xi) In addition to the Society’s power to enforce undertakings as a matter of conduct, the court, by virtue of its inherent
jurisdiction over its own affairs, has power of enforcement in respect of undertakings
(xii) An undertaking should not be given by an Advocate as an inducement to a client to secure that client’s business
(xiii) The seeking by an Advocate of an undertaking from another Advocate which the first Advocate knows, or ought to know, should not be given, may be deemed professional misconduct
