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ATP 107: CONVEYANCING (DETAILED) REVISION

NOTES

CHAPTER1: 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 simplyby someone seizing

it before someoneelse does

o This theory proceeded on the basis that the first human user of a naturalresource
– 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’scommon property to
the extentthat one’s labourcan utilize it (it is oftenused to analyse the naturalrights
of inventors, authorsand 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 lookingat 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 ascontinuing personal entities in
the world. They may be as different as people are different, but some
commonexamples might be a wedding ring, a portrait, an heirloom, or a house

2. LAND AND PROPERTYRIGHTS IN KENYA

· Land law in Kenya is not a direct development of customary law to statutelaw –

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 Zenjempire 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 ofand law
which can be easilyunderstood

· 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 areaswas mostly reservedby the Colonial Government for
Europeans, hencethe common

term the ‘WhiteHighlands’

o The coast wasformerly the protectorate of Kenya and before independence it was
leased by the Britishgovernment 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
othermovable property) is referred to as personalproperty

· 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 underthe common law, land was the only object over
which restitution could be employed

4. INTRODUCTIONTO 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
landfrom one ownerto another’
· Conveyancing may also involvea simple modification of title or involuntary
transfer of interest,e.g. sale by a mortgagee

à the appropriate definition is thus: conveying/effectingthe transfer of legal

property, or modifying interestin relation to property, by means of a (written)
document

Three criticalingredients:

· ‘Conveyance’ describesthe document used to effectthe conveyance, while

‘Conveyancer’ describes the qualified

professional or specialist lawyer retained by parties to a transaction to deal with the

paperwork 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 differentto 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 excusesbeing 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 matterare invalid, and we so hold’.

5. HISTORY OF CONVEYANCING

· The historyof conveyancing law in Kenya draws mainly from Englishlaw

· The earliestand most important form of conveyance was the feoffment

o This involved no formalities, save for a ceremony knownas 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

interestbe registered within the month of their making to ensure their availability
in evidence

o Registration under the RDA does not act as aguarantee 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; Powersof Attorney;

BuildingPlans, etc.
· Second came the Land Titles Act 1908 (LTA) which was enactedto deal with
the haphazarddeserted parcels of land at the coastal strip ofthe country (however,
this also did notguarantee title)

· Next came the Government Land Act 1915 (GLA) which was enacted to deal
with conveyancing and land titles in the interiorhinterland

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 recordedon the register as the proprietor, and of all other interests
recorded on the register)

o It provided for registration of and guaranteeof titles

o It attempted to make conveyancing simple by introducing a statutory

conveyancing form (albeit not mandatory)

o Title documents underthe 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 documentsunder 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 propertyunder the SectionalProperties Act)

· Finally, the Land Registration Act 2012 (LRA) was enactedto repeal the LTA,
GLA, RTA, ITPA and RLA

6. RELATIONSHIP BETWEEN CONVEYANCING AND OTHER

BRANCHES OF LAW

· Land Law: land law gives us the principlesthat define rights and interestsin 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 oneperson to anotherand 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 includespecific 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 neededto 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 specificperformance, asking the court to compel the
seller to transfer the land to thefirst 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 operatesto
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. Section34(1) of the Advocates Act prohibits unqualified
persons from either directly, or indirectly, participating in the transaction by taking
instructions, drawing or preparing documentsrelating to the conveyance of a
property, etc.

The generalduties of conveyancers include:

1) Advising clients on the buying and sellingprocess 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 paidthe necessary
taxes),e.g. stamp duty, capital gains tax, land rates, land rents, etc.

6) Keeping records of all paymentsmade for or on behalfof a client and

preparingcompletion statements

7) Perfecting of the documentation, includingproper 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 advocateand

those of any estate

agents involved

b. Full particulars of the property concerned, including the address(where

possible) and whether it is freeholdor leasehold

c. The price of the propertybeing 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 mortgageor charge on the property(if any), the lenders name
and the outstanding balance

f. Whether the propertyis vacant, whetherthere 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 transferor conveyance

o Attesting the executionof the transfer or conveyance

o Receiving and accounting for the proceedsof the sale to the vendor

(iii) PURCHASERS ADVOCATE: this is the buying party’sadvocate. The

dutiesinclude:

o Obtaining information on:

a. Full names and addressesof 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 freeholdor leasehold

c. The price of the propertybeing 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 mortgageor charge on the property(if any), the lenders name
and the outstanding balance

f. Whether the propertyis vacant, whetherthere are any chattels thereon,etc.

g. The expected date of completion and the fact as to whether the purchase
moniesare 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 transferor conveyance and engrossing the same

o Attending to the execution of the conveyance or transfer where necessary

o Stamping and lodgingthe documents for registration

o Obtaining and paying the purchasemonies to the vendor’s advocate

o The purchaser’s advocatemust also advise their client on: finances, possible
future liability for taxes, legal costs
and expensesof 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 beforethe 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 ControlBoard consent

6) Obtaining the Town Clerk’s consent

7) Obtaining consent of Trustees

8) Obtaining consent of a PublicCorporation/Authority

9) Payment of Stamp Duty: it is chargedpursuant to the Stamp Duty Act and is
ordinarily4% of the price declaredin the transfer by the parties (for
municipalities/urban councils)and 2% of the ad valorem for property situatein 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 conflictof interest or the possibility of a
futureconflict arising (King WoollenMills Ltd v M/S Kaplanand 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
swornpursuant 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 acquiredwhen 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, theother 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 breachmay 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 propertyownership, e.g. is the

propertya 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
brokersthe conveyancing deal

o Brokers are recognised under the EstateAgents 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 enactedto ‘provide for interalia the registration of persons who, by
way of business,negotiate for or act in the sellingor purchasing or letting of landor
buildings erectedthereon’

o Section 2(3) expresslyexempts 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 CompanyAdvocates)

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 declarednull, void
and unenforceable ex turpicausa

o General duties of estate agentsinclude:

a. Ensure land ratesand 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 auctionwhen necessary (when an agentfor the buyer)

e. Can appraisethe property and advise on its value

f. Can market the property (whenan agent for the seller)

g. Can offer adviceon current marketconditions (when an agent for the seller)
(v) LAND VALUER: they must be qualified under the ValuersAct (Cap 532).
The duties include:

o Conducting valuations in respect of any type of movableproperty (Section 2

ValuersAct)

o Thus, they undertake valuations of all classesof property (commercial,

residential, industrial, agricultural, etc.) to decipherthe 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

PhysicalPlanners 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 shapingtowns, cities and rural areas

o Preparing long term plans, proposalsfor new development and examining those
of other developments
o Can assist in changing the use of a parcelof land, e.g. from single dwelling to
multiple dwelling

o Facilitating control of developments and liaising subdivision of properties

withinlocal 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 boundarylines and establishcorrect 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 onits surroundings must be
conducted
o This assessment should identify both the positiveimpacts (and how to
maximiseon these) and the negativeimpacts (together with mitigation measures)

o NEMA issues a license once it is satisfied that the projecthas 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, DUTIESAND RESPONSIBILITIES OF AN

ADVOCATEIN 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 becomea computerised process

(iii) Ability to detect fraud/ability to act diligently (so as to avoid negligent

oversights)

· Duties and Responsibilities:

(iv) Follow conveyancing protocolsto 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 entriesof important dates,e.g. completion dates

(viii) Create a good workingrelationship 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 clientto confirm the existence of the property(e.g. through
physicalexamination and delineation)

(xi) Advise the clienton the conveyancing procedure in a mannerunderstood

by a layman

(xii) Advise the clienton any encumbrances which may hinder

vacantpossession

(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 clientregularly on the progress of the transaction

CHAPTER 2: DISPOSITIONS OVER LAND [CONTRACTS FOR SALE OF

LAND]
1. NATURE OF CONTRACTS FOR SALE OF LAND

· Acontract 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
partieson essential terms

· Section 3(3)(a)+ 3(3)(b) Law of ContractAct and Section 38(1)(a)+ 38(1)(b)

Land Act: a disposition of interest in land:

a) Must be in writing;

b) Must be signedby all parties; and

c) The signature of the signing parties is to be attestedby a witness present when

the contractis 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 contractto be reduced into writingwithin two hearsfrom 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 documentor affixing the thumbprint (or other personalmark) as evidenceof
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

· Acontract binds the parties to the sale and preventslast minute withdrawals
(which may have damaging financialconsequences) as well as facilitates completion

· Parties may use the contract to confer specialadvantages on themselves

· Contracts may be used to transferthe legal intereston chattels to as to reduce

the duty payableat the completion stage

· Contracts providefor remedies for breach of contract

· The contractual stage in generalgives 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
provisionis not to make the contract void but merelymake it unenforceable

· Generally, takingfrom 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 againstfraud

(ii) Evidentiary function: the formalityof 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 originalform in the freehold estate

(iii) Protective function: to protect personsin vulnerable situations who are

not able to make informeddecisions
(iv) Creation of obligations: enabling parties to re-thinktheir 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 contractwhere parties have signed underseal

2. CONTENTS OF A CONTRACT

· Itis 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)

VENDOR IS BOUND

PURCHASER IS BOUND

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

To produce, upon request, title documents

To pay the purchase price upon completion

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

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

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.

To hand over possession of the property upon

completion

To pay all public charges and rent

2.1 CONTENTS OF A SALEAGREEMENT

(i) Parties: the parties to the contract must be properly identified and their
addressesmust be clearly noted. The address is crucial in the eventthat there will
beneed to issue a notice to either party

(ii) Particulars: this includesinformation such as:

a. The physical and legal description of the property;

b. Any encumbrances over the property(and an indication as to who will

dischargethe same);

c. Any fixtures and/orfittings on the property; and

d. The consideration (purchaseprice) for the property

(iii) Special conditions; theseare sui generis/peculiar/specific terms, such as:

a. Capacity of the vendor;

b. Payment of the deposit;

c. Payment of balanceand interest on unpaid purchaseprice;

d. Payment for chattels/fixtures/fittings;

e. Possession before execution or completion;

f. Time and schedulewithin which mattersaffecting the title must be dealt with;

g. Date of completion;

h. Remedies in the event of default;

i. Any exceptions and/orreservations;

j. The risk and liability for insurance pendingcompletion;

k. The power of the vendorto rescind the contract;

l. The power of either party to servea completion notice;and

m. Any situation where the sale has been made subjectto 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 contentof 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 purposeis to state the capacityin which the
parties are executing the document

2.2 EXECUTION/ATTESTATION

· Section 44 LRA states that:

a) An instrument effectinga disposition of interest in land must be executedby

parties consenting to it;

b) Execution can beby 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 personsare 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 producedto identify the person mandated to execute;

e) Execution by a company is throughaffixing of the seal and attestation is by

two directors or a director and a company secretary;

f) For Government bodies,the establishing Act will providewho is mandated to

executedocuments; and
g) Limited Cooperative Societies will execute documentsby 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 signatureand complete
a certificate verifying the due execution of theinstrument

· 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,
PublicOffice 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 thateffect

· 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 INITIALCLIENT 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 purposeis to gather facts and advise the client)

· Aconveyancer’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 offeredmust be independent (BBK PLC v O’Brien

[1994]1 ALL ER):

o Explain the entirepurpose of the transaction;

o Confirm that the client has understood the transaction and its
relatedimplications;

o Ensure you give the clientchoices;

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 narrowview (legal peg holes);

· Do not forget to meet and greet (make small talk);

· Forget to clearly ascertainexactly 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 clientagrees with the proposed
plan of action;

· Do not cross examinea client as though they are in a witnessbox (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 IMPORTANTDATA 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, youshould 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 mannerthat 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 crucialto ask the wife to obtain independent

legal advice

(ii) Details of propertyand proposed conveyance – e.g. the parcel number,any

fixtures, the consideration, etc.

(iii) Authorisation to disclosedetails and information about other

relatedtransactions

o See: MortgageExpress 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
clientthat the transaction could take longerthan expected if the said information is
not sharedwith others
(iv) Details on pre-contract responsibilities such as consents, clearances, etc.
(if actingfor seller)

(v) Details of financing, deposit, stamp duty, undertakings, etc. (if actingfor
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 wherethere is a conflict of interest between those clients

o While there is no specific bar to actingfor both parties,the Advocate must refrain
from being involvedin negotiation of the sale price of the propertyand it is
advisableto get written consent of both parties

o Acting for a lender and a borrower is generally permittedprovided that the

chargee is an institutional lender which providescharges on standard terms in the
normal courseof its business

(viii) Discussion on fees tobe charged

o All relevant client care information, together with information on the fees to be
charged, must be confirmed in writingat 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, underan obligation to disclose latentdefects he is aware of)

o To protect the interests of the bona fide purchaser for value withoutnotice of
defectin 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 isespecially
since a seller is underno obligation to disclose patent defects, and is only obliged to
disclose latentdefects 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 noticeof defect in title acquiresgood title to the
propertyand remains unaffected by matters of which he had no
notice. However, this rule also places an obligation on buyers to investigate titles
beforethey can be afforded this protection (see: Oliver v Hinton [1899] 2 Ch D 264,
Section3 Conveyancing Act 1881, Section199 LPA 1925)

3) Prudence and general practice: investigation of title is generally required of

any prudent practitioner. A client wants to be certainthat what they are obtaining is
a good and marketable title, and failureto 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 thetitle (or property) is part of ‘defensive conveyancing’

· The vendor deduces the title by submitting an abstract of the titlewithin 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 purchaseror 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 documentsand other relevant information which together
constitute the title

Investigation of title has 3 stages:

4.1 PRE-CONTRACT INQUIRIES

· These inquiries are a mediumof 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 physicalinspection); and

b) The proposedcontractual document

· Pre-contract inquiriesare 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 physicaldefects);

c) Existing disputes in court/tribunal touchingon the property; and

d) People in occupation of the propertyand their status

· The personal/physical inspection at this stage is to ascertain:

a) The condition and/orstate 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 GelatoLimited v Richcliff (Group) Limited [1992] 1 All ER 865; National
Provincial Bank Limited v Hastings [1965]ac 1175)

· The physical inspection is important becausethe purchaser ordinarily buys the

propertyas 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 shouldbe fully surveyedand inspected
beforethe 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 vendorand answer as accurately as
possible. If unequivocal answersare relied on, but later turn out to be untrue, this
can lead to a suit in damages both against your client and against yourselfas the
Advocate for the vendor

o Liability especially arises where the advocate steps out of his role as an advocate
and accepts directresponsibility 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 Limitedv Hastings
[1965]AC 1175)
4.2 SEARCHES

· To conduct an investigation of title after receiving the abstract from the

Vendor, searchesare 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 advocateso as to check ownership of the interest
being acquired/secured, as well as ascertainany planning, environmental, financial
or otherincumbrances which affectownership of the interestbeing transferred or
acquired

· The result of searcheswill 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 decisionto 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 ofconveyancing – it is

prudentfor the buyer to find out as much as possible about the subject property
before executing a binding agreement

· Therefore, the buyer’s advocatemust conduct all appropriate searchesand

inquiries beforeadvising 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 failureto conduct everyappropriate (and
foreseeable) search may renderthem liable for negligent conveyancing practices for
any loss suffered by theclient by a failureto conduct the check

4.2.2 THE SIGNIFICANCE OF SEARCHES

· Searches are important as they may lead to the followinginformation (among

other)being discovered:

a) Discovering that documents lodged for registration cannot be

registeredbecause 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 vendoris not the registered proprietor of the
subjectproperty

d) Discovering that land rates and land rentshave not been paid for a numberof
years

4.2.3 IMPORTANCEOF 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 buyersshould obtain their own surveyreport 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/oreasements affect or benefit (from)the

property

(v) Toensure that fixturesand fittings which are contracted for under the sale
agreementare on the property just prior to the exchangeof 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 ift leads to an increase in
transactional costs

· A failure on the Advocate’s part to give this adviceto 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 necessaryespecially if the property is being chargedto 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 threemodes of searchat the Land Registry: Officialsearch, Postal

searchor 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 governedby 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 personalsearch because it enjoys a state guarantee and
indemnityfor 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 indemnityfor any loss resulting or sustained by reasonof
a defective officialsearch

§ However, the disadvantage of such a search is that the Registry staff may not be
able to discernand avail all the relevant information. Moreover, such failureto
impart all relevant information may not qualifyas a ‘defective search’ so as to qualify
for indemnity
§ The procedure to be followed for this searchis:

i. Pay the prescribed fee and apply in writingfor 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. Ifthe title is under RTA, LTA and GLA, the Land Registrarwill issue
certifiedcopies of the title in the deed file

o POSTAL SEARCH:

§ Same procedureas 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 relevantregister, parcel or deed file availed by the Lands Registry staff

§ In our context, this search is generally conductedby the advocate or his clerk and
the advocate must take personal responsibility for what he purports to find

§ The procedureentails paying the prescribed fees, after which a request for the
parcel documentsis lodged and theadvocate 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 advisableto conduct the
same (see the recommendations in the Ndungu Report)

§ Perusal of the correspondence file will assistone to get to the ‘root of the title’ as
this file containsdetails

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 allotmentto any subdivisions. It is comprisedof internal
correspondence between the varioussub-departments of the Lands Department,
and may thus be ranked confidential. It is therefore important that an official
requestis 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 detailson 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 AttorneyGeneral 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 registeredproprietor 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 companyis
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 propertyis assigned a Land ReferenceNumber/Title Number

o This search avails index maps/deed plans/cadastralmaps, etc. which all

determinewhether the property is actually registered
4.3 REQUISITIONS

· Requisitions are such objections or queries arisingafter 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 handsover
possession/transfers the interest whilethe purchaser pays the balanceof 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
(Section54 ITPA and Section 3 RLA recognisethat the Sale Agreement is merely
executory)

· In order to acquire the interest, the acquiring party needs to register the
transfer after paying the requisite stampduty

· Prior to completion, the purchaser’s advocatewill prepare a transfer

document(‘conveyance document’)

o The transfer is ordinarily drawn by the purchaser’s advocate and forwarded to

the vendor’sadvocate for approval

o The transfer documentis what causes the disposition to take effectonce it is

registered

o The form taken by the transfer document depends on the statute under which
the property is registered & the interest which isbeing 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 expiredat the point of completion, which
can be done by conducting a pre-completion search

· However, titlewill 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 partiesupon completion.

5.1 DATE OF COMPLETION

· The date of completion may be expresslyagreed upon by the partiesand 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 assemblesthe balance of the purchaseprice

o The vendor obtains the relevant consents,clears all encumbrances picked up

during requisitions and investigations, compilesthe 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 providethat ‘time is of the essence’, then the
completion date must be strictly adheredto

· 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 essencecould have been more strongly expressed’

· Inthe Kenyan case of Sagoo v Dourago [1983] KLR 365,however, the Courtof
Appeal held that time will not be considered of the essence in any contractunless:

(i) Parties expressly stipulate that conditions as to time must be strictly

compliedwith

(ii) The nature of the subjectmatter shows that time should be of the essence

(iii) A party subjected to unreasonable delay gives noticeto 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 entitledto specific performance (even if he is the guilty party)

5.1.2 Completion Notice

· Ininstances of undue or unreasonable delay, the aggrievedparty 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 contractfor

failure to abide by a Completion Notice

· Aproper Completion Noticewill constitute the reason for the allegedbreach

and demandthat 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 Serverhimself must be ready, able and willingto

complete – in which case time is of the essence

5.2 REMEDIES FOR FAILURE TO COMPLETE

· Remedies available where the offendedparty is the vendor:

a) Specific performance à in which case the vendor is precluded from forfeiting

the deposit

b) Action for damagesà usually calculated as the difference between the

marketprice and contractprice

c) Rescission of contract

d) Forfeiture of deposit

e) Treating the contractas repudiated

f) Resale of the property to recover expensesfrom loss of sale

· Remedies available where the offendedparty 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 betweenthe

market price and contractprice

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 + OriginalLand Rent paymentreceipts

(for leaseholdtitles only);

(iv) Land Rates Clearance Certificate + Original Land Rate payment receipts
(for municipal/urban properties of both a leasehold and freehold nature,provided a
localgovernment authority has levied land rates on the property)

(v) Copy of CapitalGains 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 ControlBoard for agricultural land obtained in

pursuance of the Land Control Act;

c. Consent of any chargee or mortgagee havingan 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 theproperty)

(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

· Itis 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 ClearanceCertificate, which acts as
prima facie evidencethat the rates due and any interestaccrued 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 parcelsof land, whetherfreehold 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 Grantbeing 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 leaseholdproperty 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 providesthat for purposesof completion,

all necessary consentsmust 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 obtainingthe necessary consents (especially in situations where
the presenceof both partiesis 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 theconsent is not obtained in a certain period of
time

(i) Land Control Board Consent:

o This consentis applicable to all land designated as ‘agricultural land’ under

Section2 of the Land ControlAct (Cap 302) and is required for transactions
touching on/concerning such land
o Transactions touchingon/concerning agricultural land will be exempt from the
Land Control Board consent if the Presidentso directs, if it a transmission, or if the
Government is a party to the transaction

o Section 6, Land Control Act outlines the transactions requiringthis consent

o The procedure to apply for LCB Consentis 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 companythen 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 appointedagents

Remember: the application to the Board must be made within6 months from the
date of the transaction, otherwise the transaction is null andvoid

o The LCB mainly checks to ensure that the transfer meets the stipulated
conditions. It enjoys a wide range of discretion and can declinethe consent, or give
the same afterhearing 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 husbandon 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 dealingwith 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 obtainedin 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 unlesssatisfied 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 theland, or that no consentis required

o This consent is applicable only to leasehold properties, and may even include
payingall 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 obtainedprior to any dealingsin that land

o This requirement is not providedfor in the Kenya RailwaysCorporation Act

(Cap. 397)

o The Deed Plan to most properties reveala Railway line running throughthe
parcel of land

o This consent wouldbe applicable in addition to LCB consentin some situations

(iv) Kenya Airports Authority Consent

o This consent is issued by airport ownersfor all properties which may be

adjoining flightpaths

o The purposeof 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 consentis applicable to individuals who have obtaineda leasehold title from
the Government (as the head lessor) and now wish to sub-lease the property

o This is aimedat ensuring that agreements in the lease are honouredas well
ensuringrent is paid
(vi) Consent of Trusteesof National Parks

o In Kenya, the trustees of National parks are the Kenya WildlifeService

o Properties adjoining or within such parks thus require KWS consentbefore 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 contractand
completion. This period is important for two reasons:

a) The performance of various contractual obligations in preparation for

completion happensduring this period;and

b) The risk of the property

5.4.1 Performance of contractual obligations

· The contractwill have variousobligations imposed on both the parties

· The purchaser is ordinarily obliged with: paymentof the deposit (ordinarily

10% of the purchase price),visiting and inspecting the property, etc.

· Onthe other hand, the vendormust 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

· Ina Court of Equity, once there is a valid Contract of Sale, the vendor becomes
a trustee for the purchaser of the estate sold and thevendor himself becomes the
owner of the purchase money

· Asa vendor qua trustee, the vendor thereforehas a personal and substantial
interest in the property whichhe/she is duty bound to actively protect

· The vendors interests include obtaining the purchase money, however, this can
only be done upon deliveryof 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
wilfullydamage it

o The vendor has to use reasonable care to maintainthe property butis not obliged
to improveit

· The purchaser’s interest is, however,only in the property and not in any
incomebeing derived therefrom
o The purchaseris 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 propertyhas 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 advisedto 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
purchaseprice), 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 Agreementfor 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 engrossedcopy of the Agreement

(vii) Procure execution of the Agreementby the Vendor and attestto the
Vendor’s signature

(viii) Hold the depositon behalf of the Vendor

(ix) Set up a meeting for the Purchaserto pay the balance of the purchaseprice
(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 Agreementby the Purchaser and attest to the
Purchaser’s signature

(v) Forward signed copiesof the Agreement back to the Vendor’sAdvocates

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 variousremedies available are as follows:

(i) Specific performance: (this is a remedy peculiar to land transactions)

o The Plaintiff(who could be the purchaseror vendor) seeks a decree from the
court orderingthe 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 remedyof 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 contractor 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
establishhis 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 ‘rescissionfor 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 innocentparty’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 rescissionab initio and
the innocent party’s entitlement to damages for breach remainsintact

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 completethe

transaction, the deposit it forfeitedto the vendor (even if heldbyan intermediary
stakeholder) and the vendoris charged from the contract

o However, where the vendor opts for specific performance, the deposit will still
countas part of the purchaseprice 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 providefor part-forfeiture
(v) Lien:

o Deposits are not only part of the purchaseprice, but are also earnestsor
guarantees on the part of the purchaser to complete the transaction

o Therefore, they entitlethe purchase to a lien over on the propertyas security for
the purchaseprice

(vi) Vendor’s right to regain possession

CHAPTER3: COMPARING SALE AGREEMENTS

[COMPARING CONVENTIONAL SALE AGREEMENTS TO ONES

CATERINGFOR 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 andsimple agreements,

parties open themselves up to impliedprovisions and the court’s mercy

· All agreements for sale, however, must comply with any statutoryrequirements
(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

allowsfor incorporation by reference)

· The crux of all agreements for sale isthat they must be certain, as a contractmay
be voided on groundsthat it is not certaineven 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 remedywill 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 balanceof the
purchase price wouldbe 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 embodyyour 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 provisionexpressed in specificor

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 generalwords follow specificwords, the

generalwords are restricted to the same category as the specific words;

(iii) Contra preferentum: an ambiguousprovision 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 drafteras to what they meant in
draftingthe 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’sobjectives. Other matters to takeaccount 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 otherprofessional advisers need to be engaged;

(v) What the proposed timetable of the transaction is and whetherthe same is
feasible;

(vi) How all eventualities (i.e. where things go wrong)will be dealt with, etc.

1.2 CONTENTS OF A SALEAGREEMENT

CLAUSE

CONTENT

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.
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.

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.

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

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

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

EXECUTION

The Sale Agreement is to be executed and witnessed in accordance with the Law of
Contract Act.

1.3 MODEL SALE AGREEMENT

CLAUSE
CONTENT

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]”.

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.
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)

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…”

5.

SPECIAL
CONDITIONS

I.e. sui generis clauses or clauses which act as a variation of the general conditions.

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?

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.”

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.

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.

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…”

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…”

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.

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.

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.

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.

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…”

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.

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.

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.

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.

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 TAKENBY 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 proposedsale; the

necessaryauthorisation to disclosedetails in the chain transaction; the replies to all
pre-contract inquiries, etc.

o At this stage,the advocate should check whetherthere is a conflictof 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
availableimmediately)

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
leaseholdbe deduced?

(iv) Draft answers to the pre-contract inquiries and confirmthe 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 draftagreement 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 agreementon receipt from the purchaserà If there have been
amendmentsproposed by the purchaser’s

advocates, then consultthe vendor on the same before engrossing

(vii) Return the agreement (contract) to the buyer for execution

(viii) Receive any depositpayable and depositthe same into the client account

(ix) Confirm that the deposit cheque has been honoured and procure
execution of the contractby 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 towardsthe property à
the vendor is to take reasonable care to ensure that the property remainsin the same
condition as it was on the date of the contract

(xii) Respond to any specific requisitions on title à attend to specific queriesor

objections raised by the purchaser

(xiii) Peruse and approvethe 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 addthe apportionments)

(xvi) Arrange for executionof the Conveyance

(xvii) Arrange for and host the completion meeting

(xviii) Report on statusof the completion to the purchaser (and Estate

Agent,where necessary)

(xix) Authorise of releaseof the keys to the Buyer

(xx) Redeem the mortgage(s) + Comply with the Undertakings issued +
Obtainrelease from the Undertakings

(xxi) Account to the vendor for proceeds of the sale à Full purchaseprice less
mortgageredemption less commissionto 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 depositfrom the purchaser and deposit the same into the
clientaccount

(v) Liaise with the vendor or vendor’s advocatesas to the financial

arrangements, and send a letter to the purchaseron the

desirability of having a survey and/orphysical 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 surveyorand/or valuer’s reports

(ix) Deal with planning(permission) matters

(x) Conduct (or procurethe conduct of) pre-contract searchesand enquiries

(xi) Consider the draft Agreement for Sale forwarded by the vendor’sadvocate
and raise pre-contract inquiriesof 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 mortgagefacility and advisethe purchaser on

the termsof the mortgage

(xvi) Engross Agreement for Sale

(xvii) Procure execution of the contractby the purchaser

(xviii) Return engrossed and executed copy of the Agreement, togetherwith

the depositcheque, 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’sadvocate for
approval, and upon its return engrossthe 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 moniesfrom the purchaser (i.e. disbursements, fees, balance
of the purchaseprice and apportionments)

(xxv) Attend completion and report back to the purchaser

(xxvi) Stamp the conveyance and mortgage à Ensure to get the conveyance
endorsedwith the assessedvalue

(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 PURCHASEOF LAND à CHECKLIST: ACTINGFOR

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 vendorto point out the beacons?

(vi) Does the propertyhave 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 searchon the Title

(x) Is Land ControlBoard Consent required?

(xi) Is Commissioner of Lands Consentrequired?

(xii) Is any other form of Consent required?

(xiii) Does the client have the necessary depositready?

(xiv) Is vacant possession going to be granted on completion? If earlier, on

what conditions?

(xv) Are there any tenancies?

(xvi) Is the transferdocument prepared?

(xvii) Are the currentowners’ joint tenantsor tenants in common?

(xviii) Have (we) collectedStamp Duty and fees from the client?

(xix) Have all completion documents been received?

(xx) Has Stamp Duty been paid?

(xxi) Has a valuationbeen conducted by the Government Valuer?

(xxii) Has the documentbeen 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 enteredon the register?

(xxvi) Has the completion statement and fee note been prepared?

1.4.4 SALE AND PURCHASEOF LAND à CHECKLIST: ACTINGFOR

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 purchaserpaid the deposit?

(vi) Prepare the (draft)Agreement for Sale

(vii) Is Land ControlBoard Consent required?

(viii) Is Commissioner of Lands Consentrequired?

(ix) Is any other form of Consent required?

(x) Does a Noticeto Vacate need to be served on the currentoccupants 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 vendorreceived a duly registered counterpart copy of the

transfer?

(xvii) Have the completion statement and fee note been prepared?

2. SALE AND PURCHASETHROUGH AUCTION

· An auctionis a sale in public to the highestbidder 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 auctionsare
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 (Section96, 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 undera 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 auctionis
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 propertyà 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 conductan 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 cancelledby notice

o The presence of a reserveprice, 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 fora duration of 3 months(cannot proceed withoutthis period

lapsing)

o The demand is issued only when the repayment date has not been specified in
the Chargeinstrument OR demandhas not been made on the repaymentdate à if
you have done either of these 2 things, you are permittedto skip the first step of
issuing a demand

o See: Bamboo Tree Holdingsv NBK [2019] eKLR

2) Issuance of Statutory Notice under Section90, 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
performcovenants 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 shouldalso 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 Noticeof Intention to Sell under Section 96, Land Act

o While the notice under Section 90 calls for the repaymentof the outstanding
amount only, the notice under Section96 calls for the entireloan unpaid, i.e. the
principalamount + interestaccrued thereon + bank charges

o This is a 40-day notice containing the same detailsas the Section 90 notice

o Remember: the notices should always inform the Chargor of their right to seek
relief from the court as againstthe Chargee/Borrower

o See: Albert Mario Cordierov Vishram Shamji [2015]eKLR

4) Issuance of an Auctioneers Notice under Rule 15, Auctioneers Rules 1997

o Upon expiry of the 45-daynotice, the auctioneer should advertise the intended
auction

o The 45-daynotice is applicable only to immovableproperty; a 7-day notice is

applicable to movable propertythat 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 dictatethat 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. Inrespect 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 notthey are to be sold subject to a reserve price;

vi. Incase of immovable property: all the information required to be

contained in the court warrant or letter of instruction, except the amountto 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
throughanother means of communication (e.g. radio or television)

2.2 DIFFERENCE BETWEENAUCTION SALES AND OTHER LAND

SALES

(i) Potential buyers are required to pay a deposit of more than 10% beforethe
auction

(ii) Interested buyers are given 15 days to pay the auctionprice of the property
after the fall of the hammer à ifthey fail, the property is offered to the next highest
bidder

(iii) The minimum price offered at an auctionis the forced sale valueor the
reserve price

2.3 DUTIES OF ADVOCATES IN AN AUCTIONSALE

2.3.1 DUTIES OF ADVOCATE FOR PROSPECTIVE PURCHASER

· Conduct a search (‘caveat emptor’) – Most auctioneers are quite secretiveand so

the advocate is tasked with raising the relevant requisitions and inquisitions
discoveredfrom the search

· Conduct enquiries on whether there are any pending mattersin 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 topay 30% – 40% of the purchaseprice 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 valueof the property

2.3.2 DUTIES OF ADVOCATE FOR PROSPECTIVE VENDOR

· Act in good faith by ensuringthat the propertyfetches the best price

· Ensure properprocedures are followedonce 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 propertyis acquired with all its defects

· Time is short, makingit difficult to conduct extensivedue diligence

· The property might end up lockedin court due to disputes between the
Chargor and Chargee
· Bad root of the title can be disposedoff

· There are too many interested partiesinvolved since the sale is publicised

· Auctioning properties is costly (auctioneers fee, advertising costs,taxes, bank

charges,etc.)

· The price the propertyis sold at does not indicate its true market value

· The procedureis embarrassing to the individual whose property is being

auctioned

3. SALE OF A PROPERTY OFF-PLAN(DEVELOPMENTAL

CONVEYANCING)

· This is a purchase with no actualstructure tobuyà it is essentially basing a

purchaseon 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 purchasera letter of offer (preparedby the
vendor’s advocate) and requires the purchaser

to pay a non-refundable commitment fee (Note: the commitment fee is not

thedeposit)

· 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 entersinto a Share PurchaseAgreement)
· 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 partieswith 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 purchasermust ensure that there are well-drafted warranties and

indemnities clausesto 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 depositsto 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 seekingto buy one unit in the estate,will also
purchaseone share in the Management Company (therefore it is necessary to execute
SPAs and ensure that each purchaser has a ShareCertificate)

(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 headlessor being the Government (in leasehold
properties)

o Where the leasehold interest is more than 25 years in duration, the Government
issues the purchaserwith a Certificate of Lease

3.2 AGREEMENT FOR LEASE

· The sale agreement in this situation differs from an ordinary Agreement for
Sale à ina 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 whetherthis differs with the Registry<ap where the legal sub-divisions are
marked

3.3.2 DUTIES OF VENDOR’SADVOCATE

· Obtain planningpermission and ensure compliance with the buildingcodes

· Obtain a Certificate of Practical Completion

· Follow up on issuanceof the Certificate of Occupation so as to closein on

completion date
4. SALE OF A PROPERTY THROUGHSURVEY 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 subjectin 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 closingthe
register relatingto the parcel and openingnew registers in respect of the new parcels
resultingfrom 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 sketchmap annexed to the agreementto show the specific
portionbeing sold;

ii. The cover page will read “Sale of a portion of Land ReferenceNo. 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 SOCIETYOR

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 CompanyX is wound up, all
the property of the Companywill be sold – including the 50

acresof land. The creditors of the Companywill be paid first, afterwhich the
shareholders can split what is left. However, being a shareholder, your right to the 1
acre extinguishes as soon as thecompany 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 takinga 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
ordinarycompletion documents), and so a Share TransferForm should be executed

· Itis prudent for the purchaser’s advocate to conducta 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 shouldbe 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 importantto look out for

thingssuch as protected tenants (and to get vacant possession where and when
possible)
· Areas in Nairobi are normally allocateduses: Residential (Karen);Industrial use
(Industrial area); Commercial use (CBD, Upper Hill); Agricultural use (Kiambu),
etc.

6.1 CHANGE OF USER

· The power to controlland 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
througha registered physicalplanner

· E.g. where the Title Deed says that the property has been allocated a use of
‘single dwellinghouse, with one guest house’,yet the propertyhas been purchased
with the intention of demolishing the existing structure and putting up a
commercial property, a changeof user is required (and is normally a condition
precedent, to be obtainedby 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 placedon the site indicating the intention to changeits use within the
same duration

(iv) A planning brief/planning report is then prepared by the PhysicalPlanner

o The processof 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 impacton the land or neighbouring
properties

(v) The requisite fee will be paid to the respective CountyGovernment and
the receipt will be annexed to the planning brief prepared by the Physical Planner

(vi) The brief will then be submitted to the CountyGovernment’s

Department of Physical Planningfor approval

(vii) The County Governmentthen receives submissions from the general

public on any oppositions to the Change of User –

this process couldtake up to 14 workingdays

(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 PhysicalPlanning shall, if it finds that the changes

soughtare 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 Changeof User application are:

i. Two duly filed PPA1 Forms intriplicate, submitted and signed by a

Registered Physical Planner;

ii. Planning brief, preparedand 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 receiptof the same; and

vii. The latest rates payments receipts.

7. SALE AND PURCHASE OF A LEASED BUILDING(E.G. TENANT
OFFICEBLOCK)

· When actingfor the purchaser in this situation, ensurethe following:

o To conduct all pre-contract investigations in order to ascertainthe existence of

any covenantsand 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 shouldbe obtained by the Lessor

o Ensure the requisiteplanning permissions are obtained

· When acting for the vendor, ensurethat there is a guaranteethat the tenantswill
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, usuallya jet, yacht or piece of resort real estate

o It can be done for strictly monetaryreasons, but typically there is some amount
of personal accessinvolved

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

multipleparties hold rights to use the property,and each owner ofthe same
accommodation is allotted their period of time

o The minimum purchaseis a one-week ownership, and the high-season weeks

demand higherprices

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 differenttimes of the year, and the amountthey pay
dependson what time of the year they are allowedto 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 governedby the Landlord and Tenants (Shops, Hotels
and CateringEstablishments) Act and is ordinarily for hotels or shops with a lease
term of less than 5 years

· Such agreements cannot be enteredinto between a local authority and any other
body

· When seeking to increasethe rent for controlled tenants,the landlord must

show an increasein the market value of the property in the area

· Section 4(2) of the Act governsthe procedure for terminating or altering a

controlled tenancy:

(i) Anotice 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) Ifthe agreement prescribesa notice period of higher than 2 months, then
that notice period in the agreementtakes precedence and must be adhered to;

(iv) The notice must state the grounds for

termination/alteration/reassessment;
(v) The notice may be servedon the tenant, an adult member of the tenant’s
family, or any other servant employer

in the premisesconcerned

9.1 GROUNDS FOR EVICTION IN CONTROLLED TENANCY

· These groundsare 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 tenanthas defaulted in rent paymentsfor two months or

consistently delays rent payments;

(iii) Where the tenanthas committed other substantial breachesof 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
withoutobtaining 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.

CHAPTER4: POWER OF ATTORNEY

1. INTRODUCTION

· Apower of attorney is ‘an instrumentby which a person appointsanother to act

for him in any matters, includingthe dispositions of interests in land’

· Section 48, LRA: a power of attorney is ‘an instrument bywhich a

personappoints another to act on his behalfn 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 attorneyconferring power to the holderthereof to

transferproperty must be: executed, attested& verified and registered

· A power of attorneypresupposes that the person donatingit 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 purportsthat he has a power of attorney donatedto
him by a personof unsound mind, the power is null in law

· Pursuant to Section 48 LRA, an instrument dealing with an interestin land

shall not be acceptedfor registration where it is signed by an agent without a power
ofattorney

o The original power of attorneymust be filed

o Where one wishes to file a copy, then this mustbe with the consent of and duly
certified by theLand 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 obtaininga 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 typesof 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 prescribesa mandatory form tobe 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 originalcopy of the power of attorney

· A copy of the power of attorney may be filed subject to the consentand

certification of the Registrar

· A power of attorney must be in the prescribed form as detailed in

Section116(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 vAhmed
[1990] KLR 667: a power of attorney preparedin accordance with the United
Kingdom Power of AttorneyAct 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 executedby 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 personas is prescribed and, unlesshe is known to the Registrar or the
publicofficer 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 thereonor attached theretoa 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 theprescribed form to the
Registrar, indicating his intention to revoke the power of attorney

· Such a revocation must be enteredin the register of powersof attorney,

notedupon the power,and the noticeshould be filed in the file of powers of attorney

· Section 116(4) RLA: an interested party may give notice in writing to the
Registrarthat a power of attorneywhich was registered has been revoked by death,
bankruptcy or disability of the donor,or the death or disability of the donee

o Such a noticemust be accompanied by such evidence as the Registrar may require

o Here too, the revocationmust be entered in the register of powers of attorney,

noted upon the power, and the noticeshould 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 sincethe execution of a

power of attorneyor for any other reason,the Registrar considers it desirable, he may
require evidence that the power has not been revoked and may refuse toregister any
disposition by the donee of the powerof attorney untilsatisfactory evidence is
adduced

· Section 117(1) RLA: a duly registered power of attorney, where no noticeof

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 noticeof revocation and in good faith(bona fide
purchaser for value)

4.1 SITUATIONS OF REVOCATION OF POWERS

· By the donor executinga 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 ATTORNEYUNDER THE REGISTERED TITLES ACT

· Section 50 RTA allows any proprietor of land, providedhe is not a lunatic,a
minor or a personof 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 registera memorandum of the particulars therein
contained and of the date & hour of its depositwith him

· However, under the RTA, a power of attorney executed in due and customary
form and giving sufficient powers (in the opinionof the Registrar) may be registered
as though executedin 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 thatpower

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 agentsfor each (and each coveringa different subjectmatter)
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 myname (in so far as my signature attendance or
participation would be requisite) all documents, correspondence, meetings and
other activities relatingto:
a) ordinary correspondence, checks and otherbills 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 accountwith any bank or

financialinstitution;

e) recovery of any and all moneys,debts or propertydue 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 receiptand 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
havean interest or to give proxy therefore;

h) arbitration, suits, actionsand other legal or equitable proceedings in whichmy

interests are concerned;

i) employment, retention, suspension or dismissal of any and all employeesin

my employ;

j) execution signing sealing and delivery of all deeds contracts receipts

acknowledgement notices instruments documents and lettersnecessary and proper
for effectively doing or causingto be done any or all of the acts and things which the
Attorney is by these presents empoweredto 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 mentionedherein 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 WHEREOFI have hereunto set my hand and fixed my seal this
……………………………. day
of……………………………………………………………………………………………………… 2019.

SIGNED and SEALEDby me the said: ) RADHIKA ARORA )

In the presence of – )

Advocate. )

DRAWN AND FILED BY

Arora & Company Advocates, P.O. Box 23456 – 00100,

Letter A Building, School Lane, Westlands, NAIROBI.

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
andconditions as seen to him expedient to:

1. to sell to any personall or any of my interest in the Property;

2. to charge or mortgage all or any of my interest in the propertyfor any sum at

any rateof interest;

3. to lease all or any portion of the propertyfor any term of yearsat any rent;
4. todemand collect receive and take all necessarysteps to recover all rents and
other sums owing to me in relationto the property;

5. to obtain or accept the surrender of any leasein 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 chargeeunder any Act of Parliament in relation to
the Property;

7. torepresent me and to appearin 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 matterswhich may be required
by law in connection with this power of attorney;

8. to enter and permit othersto 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 inrelation to the Property as fully and effectually as I could
do them myself.

REVOCATION

I shallnot revoke this Power of Attorney as long as I remain indebtedin any manner
to the Attorney.
IN WITNESS WHEREOFI have hereunto set my hand and fixed my seal this
……………………………. day
of……………………………………………………………………………………………………… 2019.

SIGNED and SEALEDby me the said: ) RADHIKA ARORA )

In the presence of – )

Advocate. )

DRAWN AND FILED BY

Arora & Company Advocates, P.O. Box 23456 – 00100,

Letter A Building, School Lane, Westlands, NAIROBI.

CHAPTER5: 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 landfor
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 betweenmortgagor and
mortgageeas 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
leasesgoverned 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 residueof his term
2.2 LEASE AND UNDERLEASE

· A lease is a direct relationship between the lessor and the lessee

· An underlease anticipates the existenceof a head lessor. The under lessoris,

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), allowingthe 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 licenseehas no interest in the premises but he can exclude the whole world
from the premises, exceptthe 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 occupiedby 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 theremust be
clear intention to create a lease

· London Northwestern Railway Company v Buckmaster [1874] 10 LR:

exclusive possession (which is the central andindispensable 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 propertyin a certain way and on certain terms while it remains in the
possession and controlof 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 granteerequire 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 clearlydefined/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 Registrardeems 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 ashop 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 exclusivepossession (concurrently)

(iii) Certainty of duration:

o If the lessee has a fixed term, he can underlet or sublet the whole or a portionof
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 definiteterm, 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 clausesfor 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 commenceat a future date is called areversionary 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 premisesfor ‘the durationof the war’ was
held to be void due to uncertainty

of the period of the intendedlease

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 provisionis made for giving notice
to terminatethe 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, monthto month, year to year, or any other
periodicbasis 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 expiredlease will continueto apply)
· The lease may be terminated by giving noticewhose 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 providesfor 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 yearsshould be registered

o Section 30 LRA: No Certificate of Lease shallbe issued unlessthe lease if for a
certain periodexceeding 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 originaland
duplicate lease or charge

o Section 7 Land Act: Title to land may also be acquired througha long-term lease
exceeding 21 years

· In the event of non-registration of a lease,the effect is asfollows:

o Section 43(2)LRA: No instrument effecting any disposition of private land

under the LRA shall operate to transfer any lease untilthe 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

construedas 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 continuedto accept the rent à Section
52 RLA provided that acceptance of rent by the lessor was evidenceof 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 propertyhas been destroyed by Acts
of God, e.g. natural disasters, there is normallya suspension of rent for a period of 6
months (or until the repairs are completed). After these 6 months have lapsed, if the
repairsare 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 mannerand 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, exceptfor deterioration caused by:

a. Reasonable wear and tear

b. Fire, floor, explosion, civil commotion, lightning, storm, earthquake,

volcanicactivity, other naturaldisasters

(iv) Keep all boundarymarkers 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 ata reasonable time to inspectthe condition of the premises and determine
whether it needs any repairs

(ii) Terminate the lease by servinga Notice of Intention to Terminate in the

followingsituations:

a. If any rent is unpaid for one month after its due date, whether or not it has
been demandedin writing; or

b. Where there is a breachof the lessor’s covenants by the lesseefor one month

7. EXPRESS COVENANTS

· These are the covenantsexpressed in the lease document(and usually

includeimplied covenants)

· These may differ dependingon the usage of the leased property,and they serve
the purpose of coveringaspects which may notbe covered by the implied covenants

· Examples of express covenantsare:

(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, paymentof service charges, risk in the use of property, etc.

(iii) Covenant to repair

(iv) Covenant against assignment, transfer or otherwiseparting with

possession

(v) Covenant for renewal

(vi) Covenant against alteration

(vii) Covenant to deliverpossession at the end of the term

(viii) Option to renew the reversion: one of the express covenantsis that at the
end of the lease term, the landlordis willing to extend the lease for another periodas
may be agreed by the parties.The contents of this clause are:

§ Time withinwhich the tenantmust indicate his desire to renew the lease, e.g. 3
months toexpiry;

§ 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

· Acovenant by the lessee not to do anything without the consent of the lessor
shall be construedto mean that the lessorshall not unreasonable withhold consent if
the lessee applies for theconsent

· Unreasonable denial by the Lessor includessituations 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 lesseeto seek damagesand

recover money lost

· Chanty v Ward [1913] 29 TLQ: the court held that the Landlordmust show a
solid and substantial cause for withholding the consent

9. REMEDIES AND RELIEF

9.1 REMEDIES AVAILABLE TO THE LESSORUNDER THE LEASE

(i) Forfeiture:

o The lessor has a right to forfeit the lease in situations where the lessee:

i. Commits any breachof the agreement or a condition therein;

ii. Is adjudgedto 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
primacyways:

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’ noticeof the forfeiture under Section75 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 periodspecified 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 courtfor
relief againstforfeiture

§ This is a discretionary remedy– the court may eithergrant or refuse to grantthe

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 involvedin the breach (and this section
appliedwhether 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 aview to selling them to recoverthose
arrears of rent

o This remedy must be carried out within 6 months after the expiryof the lease

o Gusii Mwalimu Investment CompanyLimited & Others v MwalimuHotel

Limited, Civil Appeal No. 160 of 1995: the court held that distrained goods must
remainin situ for at least 10 days

(iii) Action for recoveryof rent arrears:

o However, this is subject to the limitation period of 6 years under the Limitation
of Actions Act (Cap. 22)

o The landlordmay only sue if after distraining the goods alreadysold it is

discovered that the proceedsare inadequate to meetthe rent arrears

(iv) Action for damages: to put the landlordin 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 relievedfrom paying rent where unlawfully evicted (Section 77

Land Act)

10. THE LANDLORD AND TENANT (SHOPS, HOTELSAND CATERING

ESTABLISHMENT) ACT, CAP 301

· This Act applies to:

o ‘Catering establishments’ – any premises on which is carried out the businessof

supplying food or drinkfor consumption on such premises,by persons other than
those who reside and are boarded on such premises

o ‘Hotel’ – any premisesin 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’ – premisesoccupied wholly or mainly for the purposesof a retail or

wholesaletrade or business,or for the purpose of rendering servicesfor money or
money’s worth

· Section 2(1) of the Act definesa ‘controlled tenancy’as a tenancy of a shop,

hotelor catering establishment –
a) Which has not been reducedinto writing; or

b) Which has been reduced into writing and which –

i. Is for a periodnot 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 premisesof specified natureby the Minister as controlled

tenancies

· Provided thatno 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 increaseof rent, right to possessionand
creation of premiums and for fixing of standardrents 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 assessmentà the Act controlsthe
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 (obtaincopy of the Title)

b. Portion to be released (if not whole)

c. Rent to be paid

d. Proposed use of the propertyby the lessee

e. Covenants

(ii) Draw the lease to reflect the wishes of your client, ensuringall the
essentials of a lease are included and the covenants

protect your client’s interests

(iii) Obtain all requisiteconsents, e.g. consentto lease, consentto 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 clienton the contents of the draftlease

o Sykes v Midland Bank & Trustee [1970] All ER 471: there was a prohibition on
any other use of the premises unlesspermission 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 clauseto 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 lessorand
lessee)

o Francis Mugo & 22 Others v James Muthee & 3 Others [2005] eKLR:
application for Andrew Musangi to cease acting for the plaintiffbecause he drew
and witnessed a lease betweenthe defendant and other partiesrelevant 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 matterin which he may be called as a
witnessto give evidenceà the Advocate was ordered to disqualify himself

13. ASSIGNMENT AND TRANSFER

· The effectof both an assignment and a transferis more or less the same

· The subjectof the transfer or assignment is the interestheld 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 remainsin
possession – Section 71 LA
· If the lessee vacates the land before the termination of the lease, he shall remain
liable toperform 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 ortransfer, but the liability (underthe 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 yieldsup 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 subleaseis periodic, whichmeans 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 propertyis 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 Actrequires notice
equivalent to theperiod 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

CHAPTER6: CHARGES & MORTGAGES

1. INTRODUCTION

· Charges are generally definedas follows:

o Section 2 Land Act, LRA: a charge is ‘an interest in land securingthe 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 writtenand witnessed Professional Undertaking from the Chargor, acceptedby

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 Chargeein 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 ofcharges 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 chargeover 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
doublesecurity of the originalchargor and the original chargee’

2.2 BASIC REQUIREMENTS OF A CHARGE

· The basic details that must be included in any chargeinstrument 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 receiptof loan

(vi) Covenant to repay principal and interest

(vii) Special conditions (if any)

(viii) A charging clause

· Under Section80(3) Land Act, every chargeinstrument 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, financialinstitutions and mortgageinstitutions

· National HousingCorporations, e.g. the Tenant PurchaseScheme

· Employees housingschemes

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 ofother 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 securedby the charge;

o The proposed repaymentperiod and mode, e.g. is it monthly,quarterly;

o Particulars of the property to be charged– Title numberor 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 properand thorough investigation of Title

(iii) Confirm the capacityof the Chargor to enter into the transaction

o If the Chargor is a company – confirmif its Memorandum and Articlesof

Association allow for borrowingand charging of company property;
o If the Chargorare Trustees – confirm if the Trust Deed allowsfor borrowing and
charging;

o If the Chargoris a spouse – confirm if the other spouse has obtained independent
legal advice, etc.

(ii) Draft the Charge and transmitthe same to the borrower’s advocates for
approval(ordinarily a ‘take it or leaveit’ situation)

(iii) Confirm execution and attestation of the Chargeis the Advocate

qualified? – Ndolo Ayah case)

(iv) Engross the chargeand send it for executionand attestation

(v) Ensure execution and attestation is done in accordance with the law

(vi) Dispatch the documentto the lender for execution and attestation

(vii) Procure statement of Stamp Duty (the same is obtainedfrom the

borrower)

(viii) Lodge the Charge document for registration atthe Land’s Registryand
Companies Registry(e.g. if it i s a company,the Charge documentmust be registered
within 30 days as per Sections884 and 884, Companies Act 2015)

o Particulars to be registered under Section 884, Companies Act 2015 are:

§ If it is a charge createdby a company – the ate of its creation;

§ If it is a charge which was existingon property acquiredby the company – the date
of the acquisition;
§ The amountto be secured by the charge;

§ Short particulars of the propertycharged; and

§ The personsentitled to the charge

(ix) Forward the perfected documents to your client with a reporton the title
confirming the registration

(x) Confirm disbursement of loan proceedsfrom the Chargeeto the Chargor

(xi) Follow up on payment of fee

2.4.2 DUTIES OF THE CHARGOR’S ADVOCATES

(i) Discuss offer letterwith the borrowerand advise on the effect of the
security

(ii) Obtain all requisiteconsents 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 Titlefrom 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 documentfor any purpose

other than for the transaction

(vi) Approve the charge

(vii) Explain the contentsof the charge to your client and their effect

(viii) Obtain adequate funds for paymentof 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 & Othersv Central Bank of Kenya & Others (2)
[2002])

· Inthe case of Mortgage Express Limitedv 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 failureto follow this step may open the transaction up
to challenge (BBK PLC v O’Brien [1994])

2.6 TACKING

· This is theright of a secured lenderto add further monies to the securityso 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 agreementwhich was securedby 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 notneed 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 beforethe offer was accepted) is evidence of a primafacie case

2.8 IMPLIED TERMS

(i) To pay principalmoney on day appointed in the chargeand interest at rates

agreedupon

(ii) Pay all rates,charges, rents, taxes and other outgoings

(iii) Repair and keep in repairall buildings and other improvements

(iv) Insurance

(v) Use land in a sustainable manner

(vi) Not to lease or subleasethe land for more than a year without consentof
the chargee

(vii) Not to transfer, assign or lease without writtenconsent of the chargee

(viii) If it is a lease to pay rent and observeall covenants in the lease

(ix) If it is a secondor 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 chargorand include the
amount so paid in the principalamount).

2.9 FORM AND CONTENTOF 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 agreementby the borrower to pay the bank

ii. Clarifies when the bank’spowers 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 – aggregateprincipal amount, all interest from time due,

all costs/taxes/liabilities/charges and expenses incurredby the bank from time to
time inrelation to the charge

d. Charging clause – i.e. charge the premises as continuing securityfor the

payment and dischargein full of the securedobligations

e. Chargor’s covenants

f. Events of default

g. Bank’s/lenders remedies – service noticeas per Section 90 Land Act and if the
chargordoes 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 subleasethe premises;

iv. Enter into possession of the premises;

v. Sell the charged land.

h. Further advances – to rank in priorityto 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 chargesis 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 chargoris to indemnify the chargee/receiver

l. Power of attorney

i. The chargorappoints the chargee to be attorneyof the chargor

ii. This enables the bank to create title to assets over which it only has an
equitablecharge, 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 tackingand

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 ora 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 thateffect (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
thingsprovides for the remedies of thechargee

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 advocatedrafts the securitydocuments (i.e. chargeor

mortgage)
· A sampleof the attestation and execution is as follows:

gor RGOR]

……………… ure

ID Number: ……………………………………………

PIN Number:………………………………………….
…………………………………………………………….

Chargor’s Signature

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
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.

· Retrospective effect: Part VII of the Land Act (Section 78(1))dictates that the
section has retrospective effect à i.e. it shall apply toall charges, including any charge
made beforethe coming into effect of theLand Act

· Variation of charge: Section84 Land Act states that where it is contractually

agreed that the rate of interest is variable, the chargee must serve a writtennotice to
the chargor:

o Giving the chargor30-days’ notice of the reduction or increase in the rate of

interest; and

o Stating clearly and in a manner likelyto 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 priorchargee or
chargorhimself to a subsequent lender,leading to the creation of a subsequent
charge, will resultin the subsequent chargee having priority in the exerciseof 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 definedunder Section 2 to mean ‘any property that is

owned or leasedby one or both spousesand

occupied by the spousesas 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 Section28 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 ofthe potential
chargorand also if the propertyis occupied as a matrimonial home

· The bank should also make inquiries through the valuer

· If the spouse misleads a lender as towhether his or her spouse has consented to
the charge,the charge becomesvoidable at the option of the spouse or spouses who
have not consented to thedisposition

2.12.1 SPOUSAL OVERRIDING INTEREST

· Spousal rights over matrimonial property have now been included asan
overriding interest,subsisting over registered land whether or not thoseinterests are
notedon the register (Section 28 LRA)
· Though not defined, ‘matrimonial property’ encompasses more than the
matrimonial home

· This is the doctrineof ‘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 PatagoniaMeat and Cold Storage Company[1914] AC 25:

Lord Parker said ‘the equitywhich arises on the failure to exercise the contractual
right cannot be fettered or clogged by any stipulation contained in the mortgage or
enteredinto as part of themortgage 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
failureto repay on the CDR did notdebar 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 bymortgagee. The mortgagor sought
release from this clause on repayment and the court held that this was a clog to
theequity 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 aclause which allowed mortgagor a limited period of redemption
was void)

2.14 NOTICE

· Under Section56(2) LRA, where the date of payment of the money securedby a
charge has not been specifiedor has

passed without demand being made, the money becomes payable3 months after
service of a writtennotice of demand by chargee to chargor
· Under Section90(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 shouldinform 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 paymentin default must be completed (this
should not be less than 3 months);

o If defaultconsists 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 chargorto apply to court for relief againstthose remedies

2.15 REMEDIES AVAILABLE TO THE CHARGEE [BANK]

· Under Section 90(3) Land Act, if the Chargordoes not complywithin three
monthsafter service of the (above mentioned) notice,the Chargee has the following
options:

a) Sue the Chargor for money due and owingunder the charge;

b) Appoint a receiverof the income of the charged land;

c) Lease the charged land, or if the chargeis of a lease,then sublease the charged
land;

d) Enter into possession of the chargedland; or

e) Sell the charged land

· Section 90(5) Land Act states that the form which the statutory notice isto take
will be prescribed by the CabinetSecretary in consultation with the National and
Commission

(i) Action for money

· Under Section91 Land Act: the Chargeecan sue for money securedif:

a) Chargor is personally boundto repay;

b) The security is rendered insufficient (not by chargee or chargor’s fault) and

chargeehas given chargoropportunity

to provide additional security; or

c) The chargeeis deprived of the whole or part of the securitythrough a

wrongfulact 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 remedycan 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 effectnot later than 6 monthsafter its date

o The lease must reserve the best rent

o The lease must be not more than 15 years orthe length of the term of the charge,
whicheveris shorter

o The lease must contain reasonable terms and conditions, having the interests of
the chargorat the forefront

o The lease must contain a declaration of appointment of a receiverby the chargee

(iv) Possession
· Under Section 94 Land Act: uponexpiry 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 takingover 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 beengranted, 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 personwith 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 onthe 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-dayNotice to Sell

o Auctioneers Act: 45-dayAuctioneers Notice

· Section 98 Land Act imposes some conditions on the mannerin 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, havingpriority to the

chargee’s charge;

o It may be by wayof subdivision;

o It may be by wayof private contractat market value;

o It may be by way of publicauction – with reserve price;

o The purchase price may be payable in one lump sum or by instalments; and

o May be subjectto any other conditions of the chargee

· There are certain dutiesof the chargee to be borne in mind when exercising its
power of sale:

i. Duty of care owed to the chargor,guarantor, any chargeeunder 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 declaredvoid; and

iii. Duty to value the property prior to the sale to determineits 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 purchaserif there has been
irregularity in the same of the charged property,

i.e. the purchaser can claim damagesagainst the personexercising 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 chargorunder an informal charge
withoutan order of the court

2.16 RELIEF
· Under Sections 103 – 106 Land Act, a chargor, spouse,guarantor, lessee or a
trusteein bankruptcy may apply to the court for reliefagainst the exercise by the
chargee of any of the above remedies

· The court has wide ranging powers, including wideningthe scope of orders by
the court, e.g. to extend the time for the chargorto rectify default (Section 102 Land
Act)

· E.g. the court has power to re-open chargessecured 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 doingjustice between the parties

o Section 106 Land Act specifiesthat charges can be re-opened in 3 instances, on

application by:

a) Chargor or chargee to enforce a charge or commence an action underSection

90;

b) Chargor for reliefagainst exercise of any remedyby the chargee; or

c) Registrar wherethere is evidenceof unfair dealingby the chargee, or the

chargee is a corporate body that

discriminates against certain classesof chargors, e.g. on the basis of gender

· When re-opening a charge, the court may:

o Direct that the charge shallhave effect subjectto certain modifications

o Require the chargeeto repay the whole or part of the sum paid by the chargor
o Require the chargeeto compensate the chargor

o Direct the chargee,which is a corporatebody, 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
securityback to the chargor

· Like the right of redemption, the right to discharge of charge shouldnot 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 chargeshall give one
month’s notice, shall pay not more than one month’s interestat the rate at which
interest as payable, as well as pay all other moniessecured 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 leaseholdinterest as security for a loan

3.1 NATURE OF MORTGAGES

· Itis a conveyance or transferof interest in land or other properties – this could

be a legal or equitable interest, depending on the mode of creating the mortgage or
the natureof the interest that the mortgagor has in the property

· Consideration is paid from the mortgageeto the mortgagor in terms of the loan
that is advanced

· However, the conveyance of the interestis not absolute – i.e. it is subject to

redemption upon payment of the loan

3.2 TYPES OF MORTGAGES

(i) Simple mortgage: no deliveryof possession but the mortgagor binds

himself to pay back the loan or else the propertywill 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 mortgagemoney, the latter will
returnit (the best and most popularform 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 propertyabsolute,
subject to the provisothat the mortgageewill 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 executea legal
mortgage;

b) Through deposit of title with the mortgagee (recognized by: Equitable

MortgagesAct (Cap. 291), Section 100(2)(g)ITPA, Section 66 RTA);

c) Where the estateor interest is equitable; or

d) Where there is a written memorandum identifying the property and

indicating the intention to charge the property.
LEGAL MORTGAGE

EQUITABLE MORTGAGE

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

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

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
CHAPTER7: DEBENTURES

· Besides mortgagesand charges, there are severalother forms of securities for loan
advances

· They include, for example:debentures, chattels transfermortgages, guarantees,

letterof hypothecation of goods and bills of lading

1. DEBENTURES

· Adebenture 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 assetsof 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

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

Debentures may be issued at a discount

Shares in general may not be issued at a discount

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 issuedpursuant to the provisions of the Articlesof

Association of the company(in particular, the provisions that deal with borrowing)
· There must be a resolution by the Boardof Directors of the issuingcompany to
that effect

· Generally, an agreement by the borrowingcompany to issue debentures in

consideration of an actual advance of money has the effectof putting the lenderin
equity in the same position as if the debenture had been issued

· Accordingly, a contract to take up a debenture may be enforcedby way of an

actionfor specific performance

3. TYPES OF DEBENTURES

(i) Registered Debentures: these are payable eitherto the registered holder or the
bearerof 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

conditionthat the company is bound to redeem a certainnumber 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 eitherby a fixed charge or a floating charge
· In practice,many debentures are securedby both a fixed and a floatingcharge

· Such charges are expressed to cover all moneys ‘due by the companyto the
holder, including futureand 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

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

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 rankingin priority to or in pari passuwith the
original charge

· However, this could be altered if the provisions of the chargeallow it

6. REMEDIES OF DEBENTUREHOLDERS
· 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 obtainingjudgement, levy
executionagainst the company;or

(ii) Petition for winding up of the company by a court on the ground that the
companyis 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, asecured
creditor) may:

(i) Sue for the principal or interest;

(ii) Present a petition for the windingup 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 benefitof 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, thesecurity 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 companywere entitled to appoint a receiver
becausetheir security was in jeopardy
· Thus, a receiver will be appointed by the courtwhere:

o Execution has issued at the behest of a judgement creditor;

o Where a petition for winding up has been presented by a creditorand 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 receiversby courts are infrequent à note: a receiver

appointedby the court is an officer of the court and not an agentof the company or
debenture holders (he cannottherefore 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 courtis three-fold:

(i) Floating charges crystallise and become fixed à this preventsthe company
from dealing with the chargedassets

without the receiver’s consent

(ii) When a receiverof the undertaking of the company is appointed, the
Directors’ powersof 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 changein personality of the employerwhile in the latter there
isnot

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 blockairflow and light; must not block the
scenic view, etc.
2. RIGHTS IN ALIENO SOLO

2.1 CAUTIONS/INHIBITIONS/RESTRICTIONS

· A cautionis a document sent to the Lands Registryby someone who may have a
right over the land

· A cautionordinarily demands that no dealingsin the land are registered until

the personwith the righthas been informed

· Section 71 LRA statesthat a caution may be lodged by a personwho:

(i) Claims a right to obtain an interest in the land/lease/charge, which is

capableof creation by an instrument registrable under the Act;

(ii) Is entitled to a license; or

(iii) Has presented a bankruptcy petitionagainst 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 entriesaffecting that land/lease/charge

2.1.1 PROCEDURE FOR LODGING A CAUTION

(i) To be lodgedin 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 effectedby the Court or Registrar

(iv) Any interested party may apply for the cautionto be removed and the
Registrar shall serve a written notice on the cautioner, notifyinghim or her of the
time of expiry of their caution

a. If no objectionis raised to the expiry of the cautionby the cautioner, the same
will be removed

b. If the cautioner wants toobject, he shall notify the Registrar in writing

withinthe time givenin 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 cautionfrom the same person in
relation to the same matter as ina precious caution

(vi) The punishment for wrongful cautionsis liability in an action for

damages (Section75 LRA)

(vii) The court may order an inhibition forbidding registration in land under
Section68 LRA

(viii) Arestriction on the title is placed by the Registrarunder Section 76 LRA

to prevent fraud or improper dealings over the land

INHIBITION

CAUTION
RESTRICTION

Section 68 – Section 70 LRA

Section 71 – Section 75 LRA

Section 76 – Section 78 LRA

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

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

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 easementis 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 relatingto the land; or

o Restrict the proprietor’s use to a particular extent

· There are 2 piecesof land involvedin 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 typesof 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 toqualify as an easement, it must be the only way in which the

dominant tenementmay 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 positiveeasements and negativeeasements: (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’sland, a right to accessa water source,etc.

o Negative easements connote something that should not be done over, under or
upon the servienttenement, e.g.

not being allowedto constrict a building that will block a view/block someone else’s
rightto entry

2.1.1 RIGHTS OF WAY

· Section 139 Land Act – Entryorder:

o This is where the owner of the dominantland may seek an entry order from
court to enable him to enter the servientland 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 propertyto 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 analogousrights to an entry
order)

2.1.2 CREATION OF EASEMENTS

a. Ƒchange

(ii) Creation by implication:

a. Prior use: if property that is ownedby 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 easementcan be acquired if a person uses property that
does not belong to him or her in a mannerconsistent with the existence of an
easementfor a period longer than the jurisdiction’s statute of limitations (20 years)
(iv) Easement by necessity: these typesof easements are typically not
registered

2.1.3 CANCELLATION OF EASEMENTS

· Governed by Section 99 LRA

· Cancellation can be effectedby the owner of the dominant land or the servient
land (if the Registrar is satisfied that the periodof 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 aneasement to be registered at all

2.3 WAYLEAVES

· A wayleaveis a right of way over another’sland, 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 relevantstate department, countygovernment, public authority or
corporate body to thecommission

· The Government gives notice of wayleave creations and compensates the owner
of the land (the servienttenement)
· Awayleave (created on the servient land) is a terminablelicence which does not
automatically bind future owners of the property

· It grantsyou access to the way leave for purpose of development, restricting, etc.

· A way leave will normally containprovision for termination at the expiryof a

notice period (commonly6 or 12 months)

· In an easement we have two properties concerned, but with a wayleave you are
concernedonly with one property and with creation/enjoyment of certain rights
that are createdover 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 rightto catch fish,to
graze, to hunt, to cut trees,to fetch clay, to extractpetroleum/other minerals, etc.
(Note: you cannot have a profitto take minerals and water)

2.5 RESTRICTIVE AGREEMENTS

· Section 2 LRA, Land Act define restrictive agreements as:

o A restrictive covenant;or
o An agreementby 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 confera negative duty on neighbouring land, e.g. to

maintain a certain standardof design

CHAPTER9: 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 (Section2 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 interestin land by way of a transfer(Section 43 Land Act)

· ‘Conveyance/Assignment’ are not defined by statute,however are

generallyaccepted as being the Deed by which the
owner of a freehold/leasehold property whose title is subjectto the Deeds Registry
transfers ownership

· Transfers can be eitherinter vivos (i.e. betweenliving people) or upon death

· Effecting a transfer involves: (see: Section 27, 37 LRA + Section43 Land Act)

a) Consideration (with or withoutgifts);

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 happeningof a future event/fulfilment of any condition or at any other
future time

· Interests capableof being transferred are: freehold, leasehold, sub-leases,

charges, profitsa pendre, etc.

1.1 PRESCRIBED FORMS

LRA FORM

INTEREST TRANSFERRED

LRA 33

Transfer instrument – Freehold

LRA 63
Transfer instrument – Leasehold

LRA 57

Transfer of a charge à Chargor (borrower) to Chargee (bank), to transfer an interest

or charge

LRA 35

Transfer of undivided share

LRA 36

Transfer of joint interest

· The above prescribed forms aremandatory and have to be adopted (Section 37

LRA, Section43(2) Land Act)

· Under Section 37 LRA, if an Advocate choosesto use a form otherthan those

prescribed, he must have them approvedby the Registrar first

· Legal NoticesNo. 143 – 146 stipulate that both partiesto a conveyance must
sign a transfer

1.2 REGISTRATION OF A TRANSFER

· A transfer does not operateas 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 issuedwith:

(i) A Certificateof 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 issuedwith a Certificate of Lease
(Section 54(5))

APPLICABLE PROVISIONS OF THE LAND REGISTRATION ACT

PROVISION

WHAT IT STATES

SECTION 43(2)

A transfer is to be affected by an instrument in the prescribed form

SECTION 43(3)

Completion of the transfer process is only after registration of interests at the

Land’s Registry

SECTION 36(1)
All dealings in land must be in accordance with the provisions of the Land
Registration Act

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

SECTION 40

Contingency or conditional transfers are prohibited

SECTION 43(2)

Transfers are effective only upon registration

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

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 agreementand parties to agreement

b. Instruments are to be stamped within30 days of execution and lodged for

registration within3 months from the date of the instrument. Therefore, it is
advisableto leave the instrument undateduntil 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 historyand back ground of the transaction, e.g. how the vendor
becamethe owner

b. Give details on the changeof 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 interestgranted, 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 preparedthe instrument

(Section34 + 35 Advocates Act)

1.4 TRANSFER OF A LEASE

· Section 45 Land Act, Section 71 LRA

· When transferring a lease,there is an implied warrantythat the rent, agreements

and conditions in the Lease have been met by the transferor as at the transferdate,
and that these obligations shall be met by the transferee from the said date

· Under Section72 LRA, the transferee becomesthe lessee after the transferof
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 chargorwho
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

chargeinstrument expressly or impliedly says so (Section87 land Act)

1.6 FREEDOM (RIGHT) TO TRANSFER

· The freedomto transfer interests in land is enshrined under the Constitution

2010

o Article 40: subject to Article 65, every personhas the right to acquireand own
propertyof 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 contractto

be valid. However, thereis 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 withoutconsideration is only applicable for transfers to:

o To oneself – e.g. where there has beena change of name;

o To one’s spouse;

o To one’s beneficiaries; and

o When the transferis a gift

· For transfer of land as a gift to be exemptfrom the requirement of

consideration, the gift must be acceptedby the donee (recipient) during the lifetime
of the donor (diver)

· The transfer of land as a gift must be effectedby 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 churchthrough court action after
he resigned from the churchservice. The superiorcourt 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 ofa transferor, the propertybelongs to the
donee
2. TRANSMISSION

· ‘Transmission’ is the passingof land, a lease or a chargefrom one person to

anotherby 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 happenin 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 – COMPANYLIQUIDATION

· The Registrar is presented with a resolution or order appointing a liquidator,

which he entersin the register

· Instruments lodgedfor registration shallbe sealed with the company’s seal and
attestedto by the liquidator

· See: Section53 Land Act, Section 64 LRA, CompaniesAct 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 petitionfor the debtor to be adjudged bankrupt

· A court makes a receiving order,placing the propertyin the control of an official

receiverappointed by the court

· An adjudication order is made and the propertyof the debtor who has been
adjudgedbankrupt then passesto the trustee in bankruptcy for distribution among
creditors

· The transferto the trustee in bankruptcy is effected throughthe registration of

the adjudication order by the registrar

· See: Section52 Land Act, Section 63 LRA and Insolvency Act

2.3 Transmission – VESTINGORDERS

· This is a court order that creates or transfers legal ownership of a propertyin

place of a legal conveyance. This happens in:

a) Court orderedpurchases/sales of mortgaged land

b) Specific performance of a contractwhere 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 contingentright of an unborn person, and
when born the court may make an order

e) Infant mortgagees

· See: Sections45 – 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 theestate of
[insert deceased’s name]”

· The Registrar is to registerby transmission, upon confirmation of a grant and

on the production of the same thereof:

a) Any transferby the personal representative; and

b) Any surrender of a lease or dischargeof a charge by the personal representative

2.4.2 Joint Proprietors

· The applicable sections of the law here are: Section49 Land Act, Section 60
LRA
· The propertyautomatically passes to the surviving tenant under the doctrine of
jus ascrendi

· When one of the joint tenantsof any land, lease or charge dies, the
Registrarshall, upon proof of the death, delete the name of the deceased tenant
from the register by registering the death certificate

2.5 Transmission – ADVERSEPOSSESSION

· Adverse possession is a situation where a persontakes possession of land and

asserts rightsover it, and the personhaving title to it omits or neglects to take action
againstsuch person in assertion of his title for a certain period

· In Kenya,the relevant periodfor 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 Actstates that if land is registered,

then it is held in trust for the adversepossessor until he obtains a vesting order from
the High Court

· The procedurefor acquisition of title by the adversepossessor is under Order 37,

Rule 7(1) Civil ProcedureRules:

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 directon whom and in what manner the summons shallbe
served”

2.5.1 THE ESSENTIAL ELEMENTS OF ADVERSEPOSSESSION

· Possession of the property/land in question adversepossessor is neither by force,

stealth or under the license of the registered owner of the land

· There must be adequatecontinuity, and publicity (i.e. to the extent whichshows

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 – tothe exclusion of the registered owner;

o Actual possession; and

o Non-permissive, hostile/adverse use – withoutowner’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 Article60, Constitution 2010

2.6 Transmission – COMPULSORY ACQUISITION

· This is acquisition of land for public purposeor 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
exemptfrom stamp duty

· There are 3 clear cut stagesin 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

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

· 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

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

directlycontributed to the property

· I v I [1971] EA 278: this established the applicability of the MarriedWomen

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

financialcontribution 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

CHAPTER10: 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 commonproperty 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 topurchase the units the abilityto
access financingfor the same because such titles can be used as collateral

· The Act is primarily advantageous as it allowsfor individual ownershipof a unit

(Section 3(1) SPA)

· Leasehold conveyancing seems to be the preferred methodof 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 enforcedagainst future/subsequent owners ofthe land
becausea successor in title is not privy tothe contract containing the covenant

o A lease, however, allows for the running of positive covenants in land because the
covenants in a lease are enteredinto on behalfof 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 headingof the plan as a ‘sectional plan’;

c) Delineate the externalsurface boundaries of the parceland 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 drawingillustrating 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 numbersthe 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 servedon 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 endorsedby 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
easementhas 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 existingstructure

(ii) Assoon 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 effectfrom the date of
registration of the sectional plan)

(iii) Delivery of registered copy of the plan to local authorityof area in which
parcelis located within 21 days (Section 9(3) SPA)
(iv) Register for parcel describedin the sectional plan is closed and Registrar
opens aseparate register for each unit that has been described in the plan

a) Register for each unit includes the share in the commonproperty apportioned
to the owner of that unit

b) Common property includes:all rights of support, shelterand protection,

passageand provision of water, etc.

c) SPA provides that common propertyshall 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 Propertyin

respect of each unit is issued

a)

Using this certificate, each unit may be transferred, leased, charged or dealt with in
the same manneras 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 deliveredto the purchaser a copy of the:

a) Purchase agreement;
b) By-laws or proposedby-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 affectsor proposed charge that will affect the title to the
unit or proposedunit, or, in respect of that charge orproposed charge, a
noticeprescribed under Section 46(2) SPA; and

g) The sectionalplan or proposed sectional plan

APPLICABLE PROVISIONS OF THE SECTIONAL PROPERTIES ACT

PROVISION

WHAT IT STATES

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

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

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

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
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

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 SECTIONALPROPERTIES

· The SPA provides for a uniquemethod in managingproperty

· 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 numbergiven to plan on registration]”

· Important pointsto 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 parcelwhen the sectionalarrangement 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 commonproperty –

includingpayment 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 exercisesthe 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

managerto 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
CORPORATION UNDER SPA v CORPORATION UNDER LRA

SPA

LRA

Governed by the Sectional Properties Act

Governed by the Land Registration Act

A search for the company is conducted at the Land’s

Office

A search for the company is conducted at the Companies

Registry

This is created automatically

The lessor must manually create it

This management company is mandatory under Section 17 SPA

This management company is discretionary (i.e. to the lessor)

The share certificate is not limited to 50 members

The share certificates are limited to 50 members

1.5 TERMINATION OF SECTIONALPROPERTY STATUS

· This can be througha 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 considersit 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
prescribedform, 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

· Alandowner holding a freehold or leasehold interestfrom the government may

grant a sub-lease out of the leasehold or freehold interest(Section 63 Land Act)

· The propertymay also be leased by third parties,conveying some or all of the

leased property for a shorterterm 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 enjoyequal enjoyment of the commonamenities

· The management company is mandated with purchasing the reversionary
interestfrom 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. inthe common areas and to
maintain the compound

2.1 CHARACTERISTICS OF A SUBLEASE

· The term granted on the subleasemust 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 subleaseand

properly marked

· The unit sold must be properlydescribed, together with ownership of the

commonareas

· There is a monthlyservice charge for payment of rents, rates,maintenance of

commonareas, etc.
2.2 SECTIONAL PROPERTY TITLEv SUBLEASE TITLE

SECTIONAL PROPERTY TITLE

SUB-LEASE TITLE

Protects the purchase process

Does not govern the purchase process

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

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)

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

Corporation is formulated automatically

Management company is manually formulated and this is

discretionary, dependant on the lessor

The sectional plan to be used for registration is

prescribed

The sublease to be used for registration is not prescribed

CHAPTER11: TAXATION ON DOCUMENTS

1. STAMP DUTY

· Stamp Duty is revenue raised by the Government by requiring that stamps sold
by the Government be affixedto designated documents

· The stamps are affixed/embossed/impressed by means of a red dye, frankingor

use of adhesive revenuestamps
· 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 (Section46 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 withinKenya), or
alternatively, within 30 days of receipt (if executed outsideof Kenya)

· Section 10A SDA states that reference shall be made to the Chief Government
Valuer to determine the true open market value of a propertyto be transferred, as at
the date of the conveyance/transfer, to ascertain whetherthere 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-admissibilityof documents as evidence in court;

b. Non-registrationof 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 ValuationSection 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

CONVEYANCE

STAMP DUTY PAYABLE

Transfer of immovable property

Land within a municipality – 4% of the purchase price

Land outside a municipality /agricultural land – 2% of the purchase price

Mortgages, charges,

second/subsequent charges

Kshs. 2/= per Kshs. 1,000/= (0.2%)

Further mortgage or charge

Kshs. 1/= per Kshs. 1,000/= (0.1%)

Equitable mortgage or charge

Kshs. 1/= per Kshs. 1,000/= (0.1%)

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%)

Leases

Ordinarily dependant on the annual rent payable

Period exceeding 1 year but less than 3 years – Kshs. 10/= per Kshs. 1,000/= (1%)

Period exceeding 3 years – Kshs. 20/= per Kshs. 1,000/= (2%)

Gift inter-vivos

Section 52 Stamp Duty Act

Transmissions (testate and

intestate)

Attracts a nominal amount of stamp duty where the property is transferred to a

beneficiary

Agreement for sale

Nominal amount – Kshs. 500/=

Surrender of lease
Nominal amount

1.2 PROCEDURE FOR PAYMENT OF STAMP DUTY

(i) Applicant presents documentfor 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
theForm and the documents

(iii) The applicant then generates a KRA PIN Form on the iTax Platform

(iv) Applicant pays the amount in the desiredbank (procedure below)

(v) Applicant returns document,together with proof of the payment, to the

Collector

(vi) The Collector reconciles records and stampsdocument by franking

(vii) The document is then auditedby the Government accountant and

dispatched

1.3 PROCEDURE FOR PAYMENTOF 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’sregistration 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 chargeà enter the
declaredvalue and the date of the instrument, then fill in the fields that will
bepopulated as a resultof 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’sname’

(vii) Submit the form à download the payment slip & print 2 copies à Make
paymentat selected bank

(viii) Ifpayment is throughmobile 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, codicilor 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 reliefsfrom stamp duty or

exemptions on the interestof 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), includingto: Educational institutions; family investment companies;
charitable institutions; subsidiary companies, etc.

2. CAPITAL GAINS TAX

· Capital Gains Tax (‘CGT’)was reintroduced by the FinanceAct 2014 after

having been suspended in 1985, and the FinanceAct 2019 has proposed an increase
of capital gains tax

· Section 3(2)(f)Income Tax Act stipulates that gains accruingon the transfer of
property on or after January 2015 shallbe

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 propertyand not by the person who the interest in the
property is transferred to

· A transfertakes place:

o Where a propertyis sold, exchanged, conveyed or disposedoff in any manner,

including by way of a gift;

o On the occasionof 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 CapitalGains Tax is 5% of the net gain

· Transfer value: this is the value of consideration/compensation for the

propertytransferred 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 acquiringthe property

2.2 EXEMPTIONS AND EXCLUSIONS FROM CGT

(i) Individual residence occupiedat least 3 years immediately before the

transfer

(ii) Sale of land by an individual, where the proceedsof the sale are less than
Kshs. 3 million

(iii) Agricultural land that is less than 50 acres in size

(iv) Transfer of propertyfor securing a debt or loan

(v) Transfer of assetsbetween spouses, formerspouses or immediate family

(vi) Transfer or sale of a propertyfor the purpose of administering the estate

of a deceasedperson (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 deceasedperson

(x) Vesting property to a liquidator or receiver

(xi) Exchange of propertyduring 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 detailson 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 detailson 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’sname’

(ix) Submit the form à download the payment slip& print 2 copies à Make
paymentat selected bank

CHAPTER12: 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 Advocatebecomes personally bound’

· The ingredients of a professional undertaking are thus summarised as:

o Unequivocal declaration of intention

o Made personally by an advocateor a member of the advocate’s staff

o Addressed to someone

o [Which someone]relies on it

· It is simplya promise made by an advocate, or on his/herbehalf, 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 releasedat 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 balanceof the purchase
price to the vendor pending the actual registration of the transferin favour of the
purchaser

(ii) Purchaser’s advocates undertaking: to hold completion documents to

vendor’sorder pending the payment of

the purchase price

(iii) Mortgagee’s advocates undertaking: to advance the loan upon registration

of the charge and/or transfersimultaneously

(iv) Mortgagor’s advocates undertaking: to pay the redemption amountsupon

registration of the charge

· Professional undertakings therefor involve arrangements for settlement, such

as: payment of purchasemonies, loan funds, discharge of obligations, accounting to
the other party for documents in return, etc.

3. CONSTRUCTION OF AN UNDERTAKING

· Professional undertakings are generallyto 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),

althoughno law bars oral undertakings
· The giver and recipientof 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
againstthe advocate who gave the undertaking

· This is so becauseprofessional undertakings are based on mutual trust

· The conceptof implied undertakings as known in thecommon 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

giverof the undertaking

· Peter Ng’anga Muiruriv Credit Bank & CharlesNyachae t/a CharlesNyachae &
Co. Advocates (Civilppeal 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 Limitedv 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 shouldbe 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 throughcourt action (Order52 CPR, by way of a

ChamberSummons); and

(iv) Reporting the matterto LSK for disciplinary action

· Itis important to remember that undertakings can even be enforced by a third

party, i.e. you need not be a recipientto enforce the undertaking (KCB v
Mohammed MuigaiAdvocates 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
Advocatebecomes 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 detractsfrom the gravitywhich should be attendant on
the givingof 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 Limitedvs. 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 failureto 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 entitledto the
benefit of the undertaking.

(iii) An undertaking will normally be required to be honouredonly as

between the giver and the recipient
a. The Society will normally requirecompliance 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 approvalof the recipient à ROA
Otienov 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 inviteextraneous evidence

or terms implied

(v) An undertaking does not have to constitute a legal contractto be

enforceable in conduct
a. No consideration is necessary for a professional undertaking to be enforceable
in conduct

(vi) An undertaking is still bindingeven if it is to do something outside the

Advocate’s control

a. Before giving an undertaking, an Advocate must carefully considerwhether it

will be possibleto implement it

b. It is no defenceto a complaint of professional misconduct that the

undertaking was to do something outsidethe

Advocate’s control

(vii) An Advocate is responsible for honouring an undertaking givenby a

member of the Advocate’s staff,whether admitted to

the Roll of Advocatesor not

(viii) Where an Advocate in a partnership gives an undertaking as an

Advocatein the course of practice, all partners are responsible for itsperformance

(ix) AnAdvocate cannot avoid liability on an undertaking by pleading that to

honourit would be a breachof 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’sauthority to do so is given
before the undertaking is furnished

b. See: Kenya Reinsurance Corporation v E Muguku & CompanyAdvocates

[1995 – 1998] 1 EA 107

(x) AnAdvocate who gives an undertaking which is expressedto 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) xi) In addition to the Society’spower to enforceundertakings 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) xii) An undertaking shouldnot be given by an Advocate as an inducement

to a client to securethat 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

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