Registration of Real and Personal Property in Light of the Promulgation of the Constitution of Kenya, 2010

Contents

Introduction
Registration in Kenya
Registration of real property
Registration of encumbrances
Registration of personal property
Registration of personal or movable property under the Movable Credit and Securities Act
Registration of movable security under the Companies Act
Analysis
Analysis on security interests
Registration in England
Real property
Registration of Personal Property
Analysis

Bibliography

Introduction

The use of proprietary interests as a way of securing performance of obligations is a major part of financial transactions and the provision of security promotes economic growth by enabling access to finance.(Gullifer & Raczynska, 2015) Given the importance of security to a country in achieving economic growth, it is important for a country to have modern laws governing the use of proprietary interests as protection against credit risk.

The promulgation of the Kenyan constitution in 2010 facilitated the repeal of old laws and the coming about of new proprietary and security laws. The Kenyan Parliament passed three bills into law in respect to real property on the 2nd day of May 2012, being the National Land Commission Act, the Land registration Act and the Land Act. These Acts repealed a number of statutes that had been in existence as far back as 1899.

The Land Act gives effect to Article 68(The Constitution of Kenya, 2010) which generally requires Parliament to revise, consolidate and rationalize the land laws in Kenya.

The Land Registration Act gives effect to Article 68(The Constitution of Kenya, 2010) and provides for the revision, consolidation and rationalisation of the law governing the registration of title to land, regulation of dealings in registered land and to give effect to the principles and object of devolved government in land registration.

In respect to personal property Movable Credit and Securities Act. These Acts repealed a myriad of laws and consolidated all the laws in respect to registration of personal property into one statute.

The aim of having these new laws was to create a sound investment climate that would provide sound legal and regulatory framework for enterprises and undertakings and improve access to key financial and infrastructure services.

We shall concentrate on the aforementioned laws and the registration of the various interests in property under the said regimes.

Registration in Kenya

Registration of real property

Real property in Kenya is commonly referred to as Land, which is defined in article 260 of the Constitution as the surface of the earth and the subsurface rock, any body of water on or under the surface, marine waters in the territorial sea and exclusive economic zone, natural resources completely contained on or under the surface and the airspace above the surface.

Land is the single most contentious issue and the genesis of this contention is very clearly traced from the colonial times to the present. The constitution and new land laws came about as a way of remedying injustices suffered at the hands of pre and post-independence governments.(Mbote, 2009)

The most common method of transfer of title is by sale of the property. Land identification is the first step in transfer of property transaction, and it is the duty of the buyer to have a full and detailed description of what he or she interested in. The description can range from the size of the land, the location, whether it is a free hold title or leasehold title, and many more. Also to be considered, is whether the buyer is a foreigner, a company or a Kenyan citizen. Upon the promulgation of the new constitution in August, 2010 a foreigner cannot buy nor own freehold title in land. Therefore, all the freehold interest in land held by a noncitizen automatically converted to a ninety nine year lease (Article 8(1), Constitution of Kenya).

Upon identification of the property to be sold, the purchaser carries out a search of the property in the lands registry or even electronically. If at the lands registry, the buyer shall have to present a copy of the land title document at the relevant registry, fill in a search application form, pay the requisite fees and wait three working days for the certificate of official search. The purpose of the search is to receive the certificate of official search which contains particulars of the subsisting entries in the register, certified copies of any document and the cadastral map or plan in respect to the property (Article 34, Land Registration Act). The search will give details on the registered owner of the property, land size, encumbrances on the property such as caveats, restrictions or legal charge or discharges. Furthermore the information contained on the particular search will determine whether the buyer should proceed with the transaction or not.

If, for example, the title is subject of an ongoing court case and therefore has a caveat registered against it, then the transaction would more often than not, fall through. Court cases may go on for years and the registered owner may even end up losing the property. If likewise the property is encumbered by a charge given by the Bank, the Bank’s consent is required to effect the transaction. More often than not, this also requires the purchaser to pay off the existing loan on the property before transferring the title. This process is cumbersome and time wasting, and therefore, if a piece of property is encumbered, a transaction almost always falls through.

After the search and if all is in order, a sale agreement has to be drafted by the vendor or his advocate, and the terms drafted agreed upon by the purchaser or his advocate, before either of the parties can execute the documents. The sale agreement contains terms of the agreement, details of the properties, names of the parties and their addresses, purchase price and mode of payment, among other terms. Although the terms of the sale agreement vary from party to party, it is usual for the purchaser to pay ten percent deposit before or upon execution of the agreement(Law Society of Kenya, 2015).

Upon execution of the sale agreement by the parties, the respective advocates attest and witness the sale agreement.

Section 3 (a) of the Law of Contracts Act provides that no suit shall be brought upon a contract for the disposition of land unless it is in writing and signed by the parties thereto and the signature of each executing party attested by a witness who is present when the contract is being signed by such party. Therefore sale agreements and transfer forms must not only be in writing but they must also be attested to as well, usually by an advocate or the chief land registrar.

The vendor’s advocate then prepares the transfer document which has to be executed by both parties and also releases the completion documents which consists of the original title deed, 3 passport photographs, copy of the tax certificate, clearance certificate in respect to land rent and rates, spousal consent to sell (if an individual), resolution by the directors (if a company) and other relevant documents.

Thereafter, a mandatory stamp duty fee has to be paid to the Kenya Revenue Authority, and the rate is usually 2% of the purchase price for freehold titles and 4% for leasehold interests. It’s noteworthy that an instrument required by law to be stamped shall not be accepted for registration unless stamped at the relevant revenue office (Article 46, Land Registration Act). Stamp Duty is a form of revenue for the government and failure to pay for the same is an offence (Section 20, Stamp Duty Act). Upon payment of the mandatory stamp duty, the documents are lodged for registration at the relevant registry.

The instrument of disposition of land (certificate of title or title deed) has to be registered in accordance with the law in the form prescribed in relation to that disposition under written law (Section 43, Land Registration Act ). Registration is effected immediately and a new title deed is issued for freehold title, with the name of the new buyer reflected on the document. As for a leasehold, the leasehold interest is indicated in the second page of the certificate of title.

Registration of encumbrances

Below I shall explain the registration of charges, which is one of the most common forms of secured transaction in respect to real property. One of the outcomes of the new constitution and land act, is that mortgages were abolished and now the most common form of encumbrance in respect to land is the charge.

The most elaborate and widely accepted definition of a mortgage in Kenyan law was that offered by Lindley LJ in the case of Santley v. Wilde [1899] 2 Ch. 474 as a disposition of some interest in land or other property as a security for the payment of a debt or the discharge of some other obligation for which it is given’. A mortgage not only conferred personal rights on the property but also proprietary rights on the same. This proved to be a rather arduous affair, as the title had to be registered in favour of the financier at the land registry and upon discharge, the title had to be registered back again to the mortgagor’s favour. This process could take up to four (4) months and was rather unpopular.

A charge, unlike a mortgage, confers no interest but merely gives the lender certain rights over the property, which are exercised upon default. Therefore, the charge has effect as a security only.

The Land Registration Act defines the charge as an interest in land or a lease securing payment of money or money’s worth or the fulfilment of a condition, or a sub-charge. Banks are the most common types of financiers or lenders in Kenya and bank loans are the most common form of debt.

The procedure to be followed here is similar to the registration of title, whereby the first process is conducting a search at the lands registry to confirm that the land is not encumbered in any way. Should the property be encumbered, the financier or individual having interest in the property has to give consent before any transaction can be carried out on the property.

Thereafter the charge instrument is drawn up by the advocates of the Lender and approved by the Lender. The Borrower then executes the documents in the prescribed format and thereafter the authorised attorneys of the lender execute the same.

The advocates of the borrower then obtain all the necessary consents and clearances to enable registration of the property. If the borrower is an individual, then the consent of the spouse is a pre-requisite to registration, and if a company, then a resolution to borrow has to be prepared and signed by the authorised directors.

The stamp duty has to be paid before registration and it is assessed as 0.1% of the loan amount. Upon payment, the documents are lodged for registration at the respective lands registry and the original and duplicate of the charge are produced to the land registrar who shall note particulars of the disposition on the very documents. The endorsement on the title documents is so as to indicate the existence of the charge as an encumbrance over the property. If the borrower is a company, the resolution to borrow has to be registered at the company’s registry and a certificate of registration of mortgages is issued. The copies of resolutions have to be lodged with the registrar within fourteen (14) days and if a company or any of its officers fails to do so, they are each liable to a fine upon conviction. (Section 27, Companies Act).

At times, one may even want to transfer the charge from one bank to another via a second charge and through a process called a takeover or procuring a second charge. A second charge is a legal charge on a property that already has an existing charge from a different lender from the second one. The second lender needs the consent of the first bank and also has to clear the loan in full through redemption of the account by the second lender. In this case, the second lender and their advocate have to give professional undertakings to the first bank and their advocates that they shall redeem the account within a certain amount of time upon the first bank’s release of the title documents and discharge of charge documents. The borrower’s advocates then register the title documents and discharge the first charge. Upon registration, the documents are forwarded to the Bank for safekeeping and as per the undertaking, the second bank has to redeem the account of the first bank.

A professional undertaking is undertaking is defined as an equivocal declaration of intention addressed to someone who reasonably places reliance on it and made by an advocate or a member of an advocate’s staff in the course of practice. (Page 82, Ojienda) Therefore, an advocate must be very careful when giving one since failure to honour may lead to a number of sanctions under the Advocates Act which may lead to his admonishing, suspension from practice, striking off of name from the roll of advocates, payment of a fine or compensation to the aggrieved party (Section 60(4), Advocates Act).

After registration, the duly registered and endorsed documents are forwarded to the bank for safekeeping and the loan amount is released to the borrower as agreed upon in the offer letter.

A further charge on the same property is registered in the same way as mentioned above. It will rank in priority to the subsequent charge once the provision for further advances is noted in the register in which the charge is registered and the charge has consented in writing to the priority of the further advance (Section 82(1), Land Act). The consent clause is found in the further charge document which is executed by both the Borrower and the Bank, and witnessed by the respective advocates.

Once the charge amount and interest are fully repaid by the borrower, the property is discharged. The discharge document is prepared by the lender and executed by the bank attorneys and a stamp duty of 0.05 percent of the loan amount is paid before lodging it for registration.(Registration of Securities in Kenya)

Registration of personal property

The Kenyan law of personal property has developed a range of techniques used to protect against credit risk such as those that secure credit like the charge, hire purchase, liens, chattel mortgages and the likes. Traditionally the banking sector has been issuing loans on land and other high end machinery, for instance motor vehicles and industrial plants.

Registration of personal or movable property under the Movable Credit and Securities Act

The Movable Credit and Securities Act which came into force on the 16th of May 2017 is part of a number of laws that the Kenyan Government enacted as a part of Kenya’s Vision 2030’s objective of developing an efficient and globally competitive financial services sector(Sejpal, 2017) .

The preamble of the Act states that it was established to facilitate the use of movable property as collateral for credit facilities, to establish the office of the registrar of security rights and to provide for the registration of security rights in movable property. Of significance to note is that the Act has no implication to security rights in proceeds of collateral if the proceeds constitute a type of asset that is governed by another law.

The act aims at promoting consistency and certainty in secured financing relating to movable assets; enhancing the ability of individuals and entities to access credit using movable assets; and establishing the office of the Registrar and a Registry to facilitate the registration of security rights in movable assets.

A security right is created by a security agreement provided that the grantor has rights in the asset to be encumbered and the power to encumber it. The assets to be encumbered have to be described in the security agreement in a manner that reasonably allows their identification and consisting of all the grantor’s movable assets. The Act boasts a broad application when it comes to security rights in movable assets. It applies to security rights in movable assets including every transaction that secures payment or performance of an obligation, without regard to its form and person who owns collateral and also to chattels mortgage, credit purchase transaction, credit sale agreement, floating and fixed charge, pledge, trust indenture, trust receipt, financial lease and any other transaction that secures payment or performance of an obligation.

Notably, the Act does not apply to a security right in book-entry securities under the Central Depositories Act, 2000; the creation, lease or transfer of an interest in land, excluding a right to payment that arises in connection with an interest in or a lease of land; a security right in a vessel including a mortgage right subject to the Merchant Shipping Act, 2009; a security right in an aircraft subject to the Civil Aviation Act, 2013; and except as otherwise provided in this Act, a lien, charge or other interest created by law.

Registration of the movable asset entails doing an electronic search first. The registry in respect to this Act shall be purely via electronic means (Regulation 3, Movable Property Security Rights General Regulations of 2017) a search is carried out after one pays the prescribed fees and the registrar then issues a search certificate to the applicant.

Thereafter a security agreement is drawn up to create a security right, which shall be in writing and signed by the grantor, identify the secured creditor and the grantor and describe the collateral (Movable Credit and Securities Act, 2017). The registration of an initial notice is ineffective unless authorised by the grantor in writing.

Registration of the document is then done so in form of a statutory notice which requires information such as the name and address of the grantor, the secured creditor, a description of the collateral, period of effectiveness of the registration, statement of the maximum amount. The collateral has to be clearly described and it has a serial number, the same must be indicated together with the make and name of manufacturer. (Reg. 11, Movable Credit and Securities Regulations) The registrar also assigns a unique registration number to a registered initial notice and associates all subsequent amendments and cancellation notices that contain that number with the initial registered notice.

The registration of an initial, amendment and cancellation notice is effective from the date and time when the information in the notice is entered into the records in the registry. (Section 29, Movable Credit and Securities Act)

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