Introduction
Many foreigners have been duped that they cannot own land in their name in Kenya. This notion is untrue since foreigners are permitted to own land within the Republic of Kenya. However, this ownership is subject to certain pre-qualifications and conditions.
In Hanny Hartmann v. Edward Mganga Mbogo (Civil Case 222 of 2007), Marga Grounstra v. Baya Abraham Wanje (Civil Case No. 284 of 2007) and many other similar cases, more so in relation to coastal properties, foreigners enter into all manner of agreements and arrangements with locals with a view of the locals purchasing properties on their behalf. This is usually based on the alleged representation that a foreigner cannot own land in their name. Such partnerships between locals and foreigners usually turn sour and should be approached with caution.
Accordingly, before a foreigner purchases land or a house in Kenya, proper research should be done through the help of a qualified legal professional to advice and structure a legally sound transaction.
The Law
Article 65 of the Constitution of Kenya (2010), the Land Act (Act No. 6 of 2012) and the Land Registration Act (Act No. 3 of 2012) each state that a foreigner can only own a leasehold property. This is a property leased to the foreigner for a period not exceeding 99 years subject to certain limitations.
If a foreigner were to somehow purchase a property with no lease term (otherwise known as a freehold land) then the Constitution presumes that the freehold land has been converted into a leasehold property of 99 years. This conversion cannot be reversed even when the land is thereafter sold to a citizen.
Limitation of Land Ownership by Foreigners
Under the Land Control Act (Chapter 302 of the Laws of Kenya), transactions affecting agricultural land are defined as controlled transactions. What this means is that you must obtain the consent of the Land Control Board for the area or division in which the land is located in order for this transaction to be valid.
As per the Act, the Land Control Board cannot grant consent to a transaction in which the land is to be disposed of by way of either sale, transfer, lease, exchange or partition to a person who is not:-
a) A citizen of Kenya; or
b) A private company or co-operative society all of whose members are citizens of Kenya; or
c) Group representatives incorporated under the Land (Group Representatives) Act; or
d) State Corporations as per the State Corporation Act.
The effect of this is that foreigners and private companies owned by foreigners cannot hold agricultural land in Kenya. However, the President through a notice in the Kenya Gazette may exempt any person from all or any of the provisions of this Act. Foreigners who wish to acquire agricultural land may therefore apply for such exemption. Further, public companies in which foreigners are members may acquire agricultural land.
Once a foreigner has identified a leasehold property that they wish to acquire, there are certain steps that need to be complied with to assure indisputable title to the property.
1. Conducting of the requisite searches or due diligence investigations.
Having inspected the prospective land and deciding to buy it, one must then get a copy of the property’s title document from the seller. This bears all identification details and it is used to carry out a search to authenticate ownership. Search results will give you details of that particular piece of land including the officially registered owner(s), whether there are third party interests such as charges (mortgages) and easements, acreage, caveats, Court orders or other hindrances if any. The validity of a search is capped at 3 months; a search under Kenyan Law is thus valid only if it has been procured within the last 3 months.
When the seller is a limited company, it is advisable to carry out a search at the Companies Registry in Nairobi. This confirms that you are dealing with an incorporated company. One will also get to know the details of the directors and shareholders of the seller company.
A further search at the local county/municipality office appearing on the face of the Title for the land is advisable. This will help ascertain and confirm whether all due land rates and land rent have been cleared. If not, these must be factored in the purchase price. This is because no land ought to transfer its ownership with accrued land rates or land rent. It is a pre-requisite to completion of a transfer of land in Kenya.
Additionally, one should ensure that their lawyer confirms that the piece of land is not listed in the Report by the Commission of Inquiry on the Illegal & Irregularly Allocated Land, popularly known as the Ndung’u Land Report.
After doing the requisite searches and finding the results satisfactory, one should ensure that their lawyer confirms the land’s beacons and/or boundaries. Such confirmation can be done through the Survey Department of Kenya at Ruaraka.
2. Negotiation of the Purchase Price and execution of a Sale Agreement
Once the due diligence is successfully completed, a buyer then moves to the next step of engaging the seller and agreeing to the terms of purchase and payment. This can be done either through a lawyer, alone or through his agent.
The buyer is usually required to pay 10% of the purchase price as a commitment fee to secure the property. The balance is then paid on or before the completion date of the sale.
The seller’s lawyers are the ones who prepare the sale agreement and send the same for approval by the buyer’s lawyers. This document will set out the terms of the transaction including the details of the parties, purchase price, payment terms, completion period (usually an average of 90 days) and the completion expectations in terms of documents to be furnished by the seller to enable transfer of the property to the buyer.
Invariably, the sale agreement will include the Law Society Conditions of Sale which is a codification of the customary terms of sale adopted by the Law Society of Kenya. If the parties do not want these terms to apply, they must expressly exclude them in the agreement for sale. It is also common for the sale agreement to incorporate a suitable dispute resolution mechanism to ease the process if a dispute was to arise between the parties.
In the instance that the purchase of the property is financed, it is important that this is stated in the agreement. This is because the transfer of land in favour of the buyer and charge in favour of the buyer’s financier need to be registered concurrently. Only when the financier’s lawyers have forwarded the original title and charge to the financer, does the financier settle the financed balance of the purchase price.
Once the terms of purchase have been agreed upon between the parties, the agreement can be finalized and executed. The buyer will usually sign the agreement first then forward the agreement to the seller for signature alongside the deposit cheque or evidence of payment of the same (bank deposit slip). After the seller signs the agreement, the original copy is presented for assessment of stamp duty and stamping at the Lands Office. This is a critical step to ensure that the document is admissible as evidence in a Court or Tribunal in the event of a dispute.
The purchase price is usually held by the seller’s lawyers until such a time as the transaction will be completed. This is unless otherwise agreed. Completion of the transaction is signified by the issuance of a Title in favour of the buyer by the Lands Office.
3. Preparation of the Transfer and Completion Documents
Preparation of the transfer instrument will be done by the buyer’s lawyer for approval by the seller’s lawyer before both parties sign the document. Once signed and in order to register the transfer instrument, additional documents are required such as the original title document, the seller’s national identity card and Kenya Revenue Authority (KRA) PIN certificate, coloured passport size photos of the seller, if the seller is a company their certificate of incorporation together with the company’s KRA PIN, land rates and land rent clearance certificate for the property, duly filled out valuation for stamp duty form, consent to transfer from the Commissioner of Lands or relevant county official where applicable e.t.c. These are what are legally known as completion documents.
4. Stamping and Registration Formalities
The buyer must submit the executed transfer instrument for valuation and thereafter pay the assessed stamp duty. Stamp duty is calculated subject to the current market value of the property. Given their foreigner status, it will be necessary to engage a tax agent for purposes of payment of this duty to KRA through the Office of the Commissioner of Domestic Taxes.
Thereafter, the transfer is lodged for registration at the Lands Office and registered in favour of the buyer. Once this has been done, it is important that the buyer conduct a post registration search for the same property, to ensure that registration was finalized as anticipated i.e in the buyer’s name. For financed buyers, the original registered transfer and charge together with the other original completion documents will be forwarded to the buyer’s financier for safe keeping and held there until the loan is repaid in full.
Conclusion
In summary, while the process and regulation of land acquisition is generally similar between locals and foreigners, there are critical distinctions. These distinctions lie in the tenure of property that can be held by a foreigner, the need to now engage tax agents for purposes of payment of stamp duty and the fact that foreigners cannot own agricultural land under any circumstances.