Tag: property law in Kenya

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Due Diligence Before Purchasing Property in Kenya

What to Do for Due Diligence Before Purchasing Property in Kenya

The Kenyan real estate market offers abundant opportunities for local, diaspora, and foreign investors looking to purchase property in one of Africa’s most dynamic economies. From luxurious residential apartments in Kilimani to expansive commercial properties in Westlands, Nairobi is a hub of investment potential. However, with great opportunity comes significant risk. Fraudulent property transactions, fake documentation, and title fraud are real threats that could turn a dream investment into a financial disaster.

To ensure that you’re making a safe investment, conducting thorough due diligence is essential. Whether you’re a Kenyan investor, a member of the Kenyan diaspora, or a foreign buyer, it’s crucial to follow the right steps before purchasing property in Kenya. Here’s a comprehensive guide on what you should do for effective due diligence and how WKA Advocates can help safeguard your investment.

Step 1: Verify the Property’s Title

The first and most crucial step in due diligence is confirming the legitimacy of the property title. Property fraud, such as forged titles or unauthorized transactions, is common in Nairobi and across Kenya. For both local and diaspora investors, verifying the title ensures that the seller has the right to sell the property and that no fraudulent claims or encumbrances exist on it.

It is vital for foreign investors and diaspora buyers to understand that non-citizens are not allowed to own freehold land in Kenya, but can purchase leasehold land. Before proceeding, confirm that the property is leasehold, and ensure all details match the land registry records.

At WKA Advocates, we assist with title verification and help ensure the property is legally available for sale without hidden disputes.

Step 2: Conduct a Land Search

A land search at the Ministry of Lands(https://lands.go.ke/) or the Land Registry is one of the most effective ways to verify the property’s history and ownership. It reveals whether the property is encumbered with any debts, court cases, or claims that could hinder your purchase.

For foreign and diaspora investors, it’s crucial to verify that the seller’s details match those on the title deed, as discrepancies could indicate fraud. Local buyers should also check for any pending mortgages or disputes before finalizing the purchase.

At WKA Advocates, we perform thorough land searches to ensure that all property details are accurate, and the seller is the rightful owner with no legal disputes.

Step 3: Verify the Seller’s Identity and Legal Standing

Before finalizing the purchase, ensure that the seller has the legal capacity to sell the property. In cases of joint ownership, ensure all co-owners consent to the sale. If the property is owned by a company, verify that the sale is being conducted according to the company’s registration documents and board resolutions.

It is also important to ensure that the seller’s identity is legitimate. For foreign buyers, it may be more challenging to track the seller, so confirming valid contact details and documentation is essential to avoid future disputes. Local buyers should ensure that the seller’s personal details, such as their ID and tax status, are up-to-date.

At WKA Advocates, we verify the seller’s identity and their authority to sell, ensuring there are no hidden conflicts of interest or legal challenges.

Step 4: Ensure Proper Zoning and Land Use

In Nairobi, properties are subject to zoning laws and land use restrictions that vary by area. Before purchasing, confirm that the property is designated for your intended use (residential, commercial, agricultural, etc.). For example, commercial properties in residential zones may face difficulties obtaining permits or approvals in the future.

For foreign and diaspora investors, especially in areas like Westlands or Karen, verifying zoning laws is crucial to ensure the land is approved for your intended use. Local investors should also ensure that the property complies with all local government regulations, including building codes and planning permissions.

We help verify zoning laws and land use restrictions, ensuring you avoid any legal challenges after purchase.

Step 5: Examine the Property’s Physical Condition

Although legal due diligence is crucial, don’t overlook the physical condition of the property itself. Check for any hidden defects or needed repairs, which could add unforeseen costs to your investment.

For foreigners and diaspora buyers, it’s advisable to hire a professional surveyor or property inspector to assess the property’s condition before purchasing, especially if you are purchasing remotely or from abroad. Local investors may also benefit from a thorough inspection to identify any potential maintenance costs.

While WKA Advocates does not handle physical inspections, we work with trusted third-party professionals to ensure that you receive an accurate report on the property’s condition.

Step 6: Review the Sale Agreement

Once you’ve confirmed all the legal aspects of the property, the next step is to review and sign a sale agreement. This agreement must cover all terms and conditions, such as the payment schedule, the handover date, and any warranties or guarantees.

For foreign buyers and diaspora investors, it’s important to ensure the agreement clearly outlines the payment methods, which should be in compliance with Kenyan banking laws and foreign exchange regulations. Local investors should ensure that the sale agreement contains all necessary details to prevent misunderstandings during the transaction.

At WKA Advocates, we draft and review sale agreements to ensure that your rights are protected and that all terms are clear, fair, and legally binding.

Step 7: Completion and Transfer of Title

Once the sale is complete, ensure that the title is transferred into your name. The final step involves the registration of the property with the Ministry of Lands, which makes the transaction official and legally binding.

For local buyers, the process can be straightforward, but foreign and diaspora investors may need assistance in completing the registration, especially when managing property from abroad.

At WKA Advocates, we handle the entire property registration process, ensuring that the title deed is transferred smoothly and that the property is legally yours.

Why Choose WKA Advocates for Property Transactions in Kenya?

At WKA Advocates, we specialize in assisting local, diaspora, and foreign investors navigate the complexities of the Kenyan real estate market. Our team of legal experts offers a full range of services to ensure that your property purchase is legally secure and free from risks.

With our help, you can confidently navigate the property buying process, knowing that all aspects of due diligence, from title verification to contract review and registration, are in good hands.

Contact WKA Advocates today and let us help you make a secure and profitable investment in Kenya’s real estate market.

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Commercial Lawyers in Kenya

Commercial Lawyers in Kenya

Shareholders, Joint Ventures, Mergers, and Acquisitions

In today’s highly competitive business landscape, legal expertise is essential for the growth, protection, and sustainability of companies. Corporate and commercial law services, such as safeguarding shareholders’ rights, structuring joint ventures, and managing mergers and acquisitions (M&A), are critical. In Nairobi, WKA Advocates is the leading law firm providing businesses with expert legal counsel in these areas.

Shareholders’ Rights and Corporate Law in Kenya

Shareholders’ rights are fundamental to corporate governance and business management. The Companies Act of 2015, which governs corporate law in Kenya, defines these rights, including voting on critical business decisions, entitlement to dividends and profits, and protection from unfair practices by majority shareholders. Disputes commonly arise over corporate governance, profit-sharing, and exit strategies, necessitating expert legal intervention.

WKA Advocates specializes in shareholder law, providing customized legal solutions aimed at dispute resolution, governance, and protection of both majority and minority shareholders. For more information about shareholder rights, visit Kenya Law.

Joint Ventures in Kenya: Legal Structuring and Protection

Joint ventures (JVs), where two or more parties collaborate for a specific project or business goal, are becoming increasingly popular in sectors like real estate, energy, infrastructure, and manufacturing. These collaborations are governed by detailed joint venture agreements that address key elements such as equity distribution, management control, financial obligations, and exit strategies.

WKA Advocates offers specialized legal advisory on structuring joint ventures to ensure they comply with Kenyan law, safeguard client interests, and facilitate successful collaborations. They also guide clients in navigating industry-specific regulations, such as those laid out by the Public Private Partnerships Act for infrastructure and large-scale development projects. Learn more about legal frameworks for joint ventures in Kenya at Kenya Investment Authority.

Mergers and Acquisitions (M&A) in Kenya

Mergers and acquisitions (M&A) in Kenya involve complex legal processes, business negotiations, and compliance with regulatory bodies such as the Competition Authority of Kenya (CAK). These transactions require due diligence, risk assessment, and precise legal structuring to ensure smooth transitions, mitigate financial risks, and avoid penalties for non-compliance.

WKA Advocates excels in M&A law, offering comprehensive legal services that guide clients through the entire process—from initial negotiation to regulatory approval and post-merger integration. Their services ensure all transactions align with Kenyan competition laws and industry-specific regulations. Visit the Competition Authority of Kenya for more information on merger regulations.

 

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WHAT IS THE LAWFUL PROCEDURE FOR A LENDER TO SELL YOUR PROPERTY IN CASE YOU DEFAULT IN LOAN PAYMENTS?

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:

  1. 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.
  2. 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.
  3. 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.
  4. 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

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HOW TO AVOID PROBATE-WKA ADVOCATES

How to Avoid Probate in Kenya

One common question was, ‘Can I avoid drawing a will and still maintain control over my estate upon my demise?’ We found it important to address this pertinent issue.

Death is inevitable, and it is essential to plan for the future, particularly regarding your property (estate). It is imprudent to live without making arrangements for how your property will devolve upon death. Such plans ensure that dependents and next of kin are well provided for, and the wishes of the deceased are respected.

The Law of Succession Act provides rules for writing a valid and enforceable will, as well as the rules for the succession of an intestate’s estate. However, Kenyan courts have often declared wills invalid or revoked them, rendering the deceased person intestate. The main disadvantage of dying intestate is the loss of control over property upon death, exposing next of kin to the arbitrary rules of intestacy and potential disputes among family members.

Fortunately, the law provides other means to maintain control over estates upon death without writing a will or dying intestate. These include survivorship, nomination, family trusts, and donatio mortis causa (gifts in contemplation of death).

1. Survivorship

In re Estate of Johnson Njogu Gichohi (Deceased) [2018] EKLR, the court stated that property can pass upon death other than by will through survivorship, particularly in cases of joint tenancies. Section 91(4) of the Land Registration Act, CAP 300 states that in joint tenancies, a co-owner’s interest automatically passes to the surviving tenant upon death by virtue of the principle of survivorship. Section 43 of the Law of Succession Act adds that in the event of simultaneous deaths, it is presumed that the younger person survives the older person, and for spouses, it is presumed they died simultaneously.

2. Nomination

A nomination is a direction by a nominator to a trustee holding an investment to pay the funds to a nominee upon the nominator’s death. In Kenya, nominations are common for savings and investments in cooperative societies and provident pension schemes. Nominations take effect upon death and are not subject to the law of succession. They can be revoked by a later nomination, subsequent marriage of the nominator, or the death of the nominee before the nominator. However, a nomination cannot be revoked by a subsequent will or codicil.

3. Family Trusts

A Family Trust is created by a Settlor through a Trust Deed, instructing a Trustee to manage assets for the benefit of the Beneficiary. Section 3D of the Trustees (Perpetual Succession) Act, 2021 Cap 164 defines a family trust, which can be living (inter vivos) or testamentary. The advantages of family trusts include avoiding probate, benefiting unrelated persons, protecting assets from creditors, benefiting multiple generations, and imposing restrictions on beneficiaries. Trusts are also valuable for estate and tax planning.

4. Donatio Mortis Causa (Gifts in Contemplation of Death)

For a gift in contemplation of death to be valid, as outlined in Cain v Moon {1896} 2 QB 283 and Section 31 of the Law of Succession Act, it must be given because of a present illness or imminent danger, be conditional upon the donor’s death, be delivered to the donee, be capable of making the subject matter of donation mortis causa, and the donee must survive the donor.

Contact Us

We at WKA Advocates have a dedicated Real Estate and Succession Planning department. If you have any questions or require assistance in avoiding probate, drawing up your family trust, or will, kindly feel free to contact us by email at info@wka.co.ke.

We hope this information helps you understand the ways to avoid probate in Kenya and maintain control over your estate upon death. Please note that this newsletter provides a general guide to the subject matter and should not be relied upon without legal advice.

For further information or legal assistance, contact us at info@wka.co.ke, visit wakilihub.co.ke/, or call +254 798 03 580. Our office is located at Nairobi Hub: Parklands, Valley View Business Park, 6th Floor, City Park Drive, Off Limuru Road.