Nairobi property law Archives - epicfinconsulting.com

How Can a Management Company Increase the Service Charge in Nairobi or Kenya?

Under Section 255 of the Companies Act, 2015, members of a company can pass resolutions either as written resolutions or at a meeting of the members. This means that in Nairobi or other parts of Kenya, a Management Company can increase the service charge by passing a special resolution. According to Section 257 of the Companies Act, 2015, this requires a majority vote of at least 75%. Once passed, the Management Company can increase the service charge while ensuring transparency and fairness by following these steps:

Steps to Increase Service Charge in Kenya

Consultation: The Management Company may consult with professionals to determine the appropriate service charge based on the services provided.
Justification: A clear justification for the increase should be provided. Factors like inflation, rising maintenance costs, service upgrades, and facility improvements can all be valid reasons for adjusting the service charge.
Transparency: Maintaining transparency is key. The Management Company should provide property owners with all relevant information, allowing them to ask questions and seek clarifications during the process.

Legal Developments on Service Charges in Kenya

If a Management Company in Nairobi or elsewhere in Kenya neglects its duties or fails to account for service charge funds, property owners and shareholders can seek legal redress in court. It is important to know your legal rights to protect your interests.

How Can a Management Company Recover Service Charges from Defaulters in Kenya?

In cases where some owners refuse to comply with paying service charges, the Management Company has several legal options:

Issue a Demand Letter: The company can issue a demand letter for payment of all outstanding service charges and any arrears.
Disconnect Services: The company may disconnect communal services such as water or electricity, deny gate access, and restrict use of facilities like gyms and swimming pools for defaulters.
Right of Forfeiture: If the owner continues to default, the Management Company can exercise its right of forfeiture, terminate the lease, and take possession of the premises.
Institute a Civil Suit: The company may file a civil suit in the Commercial Court to recover the unpaid service charges as a debt.

Key Court Cases on Service Charge in Kenya:

Melisa Awour Odera v Keringet Estates Limited [2021]: The court emphasized the importance of service charges for maintaining communal facilities and stated that service charge payments are essential for the upkeep of the development.
Debra Limited v Board of Trustees National Social Securities Fund & Another [2017] eKLR: The court ruled that service charge is a debt recoverable through civil action rather than through distress for rent.

Conclusion: Understanding Service Charges in Nairobi and Kenya

Before purchasing or leasing an apartment or office in Nairobi or other parts of Kenya, it is crucial to consult a lawyer to understand the service charge structure, especially if it is not clearly outlined in the lease agreement. If a service charge increase is proposed, seek legal assistance to ensure that the Management Company follows the correct procedures.

For further information or legal assistance on service charge compliance or any other legal issue, feel free to contact us at info@wka.co.ke or visit our website at wakilihub.co.ke/. You can also reach us at +254 798 03 580, Nairobi Hub: Parklands, Valley View Business Park, 6th Floor, City Park Drive, Off Limuru Road.

The Legal Procedure for Lenders to Sell Property in Case of Loan Default in Kenya

In Kenya, many borrowers secure loans from banks and financial institutions by offering their property, particularly land, as collateral. This collateral is legally known as a “charge” on the property. Unfortunately, borrowers often default on loan repayments, leading to the sale of their properties through public auctions. A critical question arises: Do lenders follow the lawful procedure in exercising their statutory power of sale when a borrower defaults?

A key case that provides insight into this issue is Basil Criticos v. National Bank of Kenya Limited (Civil Appeal No. 80 of 2017). On April 28, 2022, the Court of Appeal ruled in favor of Basil Criticos, awarding him Kshs. 2,284,101,000 (KES 2.2 billion) for the improper sale of his property, LR No. 5865/2. The court found that the sale was unauthorized, improper, and irregular, violating the legal procedure under the Land Act, 2012.

The Law Governing Statutory Power of Sale in Kenya

The statutory power of sale is governed by the Land Act, No. 6 of 2012, which sets out clear steps a lender must follow before selling a charged property. If these steps are not followed, the sale may be deemed improper, as seen in the Criticos case. Below are the key legal requirements lenders must adhere to:

Issuing Statutory Notices: The lender must issue a statutory notice to the borrower within one month of the default, as per Section 90 of the Land Act. This notice provides the borrower with an opportunity to rectify the default.
Notice of Sale: Under Section 96, the lender must serve a notice of sale and wait for a period of at least 40 days before proceeding with the sale.
Valuation of the Property: The law mandates that a certified land valuer must assess the property to ensure it is sold for no less than 75% of its market value, as stipulated in Section 97.
Good Faith and Duty of Care: The lender must sell the property in good faith and with due diligence to avoid any exploitation of the borrower. Any surplus proceeds from the sale must be remitted to the borrower.

The Case of Basil Criticos: Lessons on Improper Property Sale

The landmark Basil Criticos case sheds light on how banks may act inappropriately when exercising their statutory power of sale. In High Court Case HCCC 132 of 2009, the National Bank of Kenya sold LR No. 5865/2 for Kshs. 55 million following a default on a Kshs. 20 million loan. However, Criticos argued that his liability as a guarantor should have been limited to the initial loan amount. He also claimed that the property, co-owned with Mama Ngina Kenyatta, was sold for much less than its market value of over Kshs. 3 billion.

While the High Court ruled in favor of the bank, dismissing Criticos’ counterclaim, the Court of Appeal later overturned this decision. The appellate judges found that the property had indeed been sold below its market value and that Criticos’ liability as a guarantor was limited. They awarded him Kshs. 2.2 billion in damages.

The Supreme Court Decision

National Bank of Kenya sought to challenge the Court of Appeal’s decision in the Supreme Court. However, the Supreme Court dismissed the application, affirming the appellate ruling that Criticos was entitled to damages for the unauthorized sale of his property.

Proper Exercise of Statutory Power of Sale

The Criticos case serves as a warning to both lenders and borrowers. Banks and other financial institutions must ensure they adhere strictly to the legal procedure before exercising the statutory power of sale. Key compliance measures include:

Issuing the correct statutory notices within the specified timelines.
Ensuring the property is accurately valued and sold at a fair price.
Conducting the sale transparently and in accordance with the law.

Borrowers, on the other hand, should be vigilant and ensure they understand their rights, especially when their property is at risk of being sold.

For legal guidance on the statutory power of sale or other property-related matters, contact WKA Advocates at info@wka.co.ke or visit wakilihub.co.ke/. Our office is located at Valley View Business Park, Parklands, Nairobi.

Authors: William Karoki – Partner
Florence Mwende – Associate