The law provides for a harmonized and uniform substance of land law in Kenya.
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This Act aims to revise, consolidate and rationalize land laws and to provide for the sustainable administration and management of land and land-based resources. This Act is also relevant for the housing financing value chain since land or properties are frequently charged to secure financing with lenders given the right to exercise the statutory power of sale in case of default.
· Section 7 lists various ways through which land may be acquired/assembled including: allocation, compulsory acquisition, prescription, land adjudication process, transmissions, transfers, settlement programs, and long-term leases.
· Section 12(3) empowers the National Land Commission to set aside public land for investment purposes upon the request of either the national or county government and the Commission must ensure that such investments benefit local communities and local economies. This means that public land may be allocated for housing as an investment purpose.
· However, under section 12(7), public land cannot be allocated unless it has been planned, surveyed, serviced and guidelines for its development prepared.
· Section 12A (which was introduced through 2016 amendments to the Land Act) created a new definition of ‘controlled land’ for which no transaction by a non-citizen could occur without prior approval of the Cabinet Secretary. Controlled land, in addition to agricultural land, includes: ‘land within a zone of twenty-five kilometres from the inland national boundary of Kenya; and that within the first and second row from high water mark of the Indian Ocean.’ However, this section of the law was recently declared unconstitutional in Malindi Law Society & 12 others v Attorney General & 2 others, Consolidated Petition Numbers 19 & 291 of 2016 [2021] KEHC 168 (KLR), which means the legal provision is of no legal effect at present. The effect of the decision is to relieve non-citizen landowners at the coastal strip/beach plots of the regulatory burden of consulting and obtaining the sanction of the Cabinet Secretary (arguably an arduous task) before dealing in the land (either disposing, charging or leasing).
· Under section 13, lessees to whom public land is allocated through a lease enjoy a pre-emptive right to renewal/extension of the lease upon application, with the National Land Commission required to write to such lessees five years to the expiry of a leasehold tenure to enable such lessees the opportunity to renew if they so wish. This provision is especially important for purposes of enhancing security of tenure and incentivizing property investments, especially in urban areas where land is largely held under leasehold. It also helps prevent incidences of lessees losing their property rights as happened a few years ago in Nairobi. There has since been prepared Guidelines for Extension and Renewal of Leases of Public Land.[1]
· Section 25a of the Act provides that buildings on public land (even those erected by a lessee) in the case of a lease of more than 30 years shall pass to the national or county government without payment of compensation upon termination of the lease unless otherwise provided in the lease agreement. This may create a disincentive for investors/lessees of public land from putting up significant investments especially where a lease is not renewed given the threat of expropriation. For leases below a 30-year term, the buildings thereon may be removed by the lessee within 3 months of termination unless the National Land Commission elects to purchase the said buildings upon professional valuation.
· Section 29 imposes a late payment interest/penalty for unpaid rents for leased public land at the rate of two percent per month on the amount due.
· Under section 31, a lease may be forfeited upon application in court by the government if rent or royalties otherwise payable under a lease remain unpaid for a period of 12 months after becoming due or if the lessee breaches any express or implied covenant of the lease.
· Section 34 allows the government to resurvey the boundaries or leased public land or subdivide it, without making any compensation, even though such land may be subject to continuing interests, cautions or caveats upon serving a notice to holders of any interests in the land.
· Section 85 of the Act provides for the right of a borrower/charger to be discharged from a charge on their land upon payment of the sums borrowed. Section 89 prohibits any law entitling a chargee/lender from preventing a borrower from redeeming their property/land.
· Section 90 stipulates the conditions/steps to be followed before a lender/chargee can exercise its statutory power of sale/foreclosure in the event of a default of payment or failure to observe a covenant by a borrower; i) Where a borrower is in default for 1 month, the lender may serve a written notice to the borrower requiring payment of the amount due. This notice must contain the following information: nature and extent of default; amount that must be paid to regularize/rectify the default and the time (being no less than 3 months) within which the payment must be made; where the default is non-observance of a covenant of the charge, the thing that must be done/not done and the time within which the same must be done/not done (being not less than 2 months); the consequence that if the default is not rectified within the time stipulated that the lender will proceed to exercise any of the remedies available to it; the right of the borrower to apply for relief in court against any of the remedies exercised by the lender. ii) Where the borrower does not make good the default within 90 days after service of the notice, the lender shall serve to the borrower another notice to sell in the prescribed form and shall not proceed to sell the land until after 40 days following service of the notice (section 96 of the Act); iii) Where the borrower does not rectify the default upon the lapse of the 40 days’ notice, the lender is then at liberty to instruct an auctioneer to sell the land. The Auctioneer is however required under Rule 15 (d) of the Auctioneers Rules to issue a Notification of Sale/Redemption Notice to the borrower of no less than 45 days before auctioning the property (See, David Ngugi Ngaari v Kenya Commercial Bank Limited [2015] eKLR).
Overall, there is an elaborate process with various steps (of at least 175 days/nearly 6 months) from default by a borrower to exercise of any potential statutory power of sale by a lender, with the borrower still at liberty to challenge any such sale-section 103 (See, East Africa Ventor Co. Ltd v Agricultural Finance Co-op Ltd & another [2017] eKLR). The foreclosure process is rather slow and in favour of borrowers as opposed to sellers, potentially restricting extension of credit using land as security/collateral. Courts have strictly applied/interpreted this provision and invalidated any sale that did not strictly accord with these procedures. See Yusuf Abdi Ali Co Ltd v Family Bank Limited [2015] eKLR; Florence Njeri Karanja vs Molyn Credit Limited [2014] eKLR.
· Section 97 of the Act provides that a lender exercising a power of sale owes a duty of care to the borrower to obtain the best price reasonably obtainable of the property and must conduct a forced sale valuation of the land (no more than 6 months old-section 98(5)) (See, David Gitome Kuhiguka vs Equity Bank Limited [2013] eKLR). Where the land is sold at 75 percent below the price at which comparable land is selling in the open market, a rebuttable presumption that this duty of care has been breached arises. This provision was meant to check against instances of sale of charged land at throwaway prices thus disadvantaging borrowers. Where this duty of care is breached by the lender, the borrower can hold the lender liable. In case the sold land fetches a higher price than the debt owed by the borrower, the lender is under an obligation to turn over the balance of the sum accrued from the sale to the borrower (section 101). While this provision seeks to protect borrowers, it can complicate efforts at debt recovery, especially during times of depressed markets (as was the case in the COVID-19 pandemic when auctioneers had trouble getting buyers of properties being auctioned given the high prices).
· Section 99 of the Act protects purchasers of land/property that is the subject of the statutory power of sale even though such sale later turns out to have been improper or irregular. The party prejudiced by the improper sale has a remedy in seeking damages against the party who engaged in the irregular sale. This provision is important in that it provides some comfort to prospective homeowners who may purchase houses in the auction market or through a private treaty following a loan default by another homeowner.
· Section 103 of the Act still gives a borrower a right to challenge/apply for relief against a seller’s right/power to sell even where such right has crystallized and gives the court power to: cancel, vary, suspend or postpone an order for any period the court thinks reasonable; extend the period for compliance by the borrower over and above the statutory timelines provided; or substitute a different remedy to the one sought by a lender. Some of the factors that the court takes into consideration in deciding whether to provide relief to a borrower include: whether the borrower will be rendered landless or homeless; whether the borrower will have alternative means of providing for themselves and their dependants; and whether it is necessary at all to sell the land. These provisions in effect mean that a lender may well be prevented from exercising their rightful power of sale owing to other extraneous factors including the financial position of the borrower.
· Section 105 of the Act gives the court power to reopen a charge relating to a matrimonial home and revise the terms of such charge in the interests of doing justice between the parties. This is arguably contrary to the doctrine of freedom of contract and means that financial institutions may be shy at extending credit on the strength of matrimonial homes as security/collateral. There is already a requirement for written and informed spousal consent relating to charging of a matrimonial home (utilized by spouses as a family home) under section 12(1) and (5) of the Matrimonial Property Act 2013 and therefore does not appear to need extra protections as provided here. Under section 106, the court gives regard to various factors in deciding whether to reopen the charge including: age, gender, experience, understanding of the commercial transaction, health of the borrower when the charge was created, financial standing and resources of the borrower relative to those of the lender at the time of creating the charge, degree to which borrower was under financial pressure at the time of making of charge, interest rates prevailing at the time of creating the charge and during continuation of the charge and degree of risk accepted by the lender having regard to the value of the charged land and financial standing of the borrower.
· Part VIII (section 107) provides for compulsory acquisition of private or community land into public land for public purpose/use, which may include housing. These provisions of the Land Act repealed and replaced the Land Acquisition Act Cap 295 Laws of Kenya which provided for compulsory acquisition under section 3. The right of the state to compulsorily acquire land is also circumscribed to ensure there is no violation of private property without adequate compensation. This can indirectly spur demand for housing as prospective buyers are assured of the sanctity of their title. The High Court in Patrick Musimba –vs- National Land Commission & 4 Others (2016) eKLR explained/summarized the process of compulsory acquisition of land. Where the process is not strictly adhered to, the entire compulsory acquisition process is nullified.
· The process of compulsory acquisition as outlined by the Court (paragraphs 85-95) is as follows: i) the National Land Commission is prompted by the national or county government (or agencies of either government) through the Cabinet Secretary or County Executive member respectively. The land must be acquired for a public purpose or in public interest as dictated by Article 40(3) of the Constitution; ii) the National Land Commission must then publish in the gazette a notice of the intention to acquire the land. The notice is also to be delivered to the Registrar as well as every person who appears to have an interest in the land; iii) As part of the National Land Commission’s due diligence strategy, the National Land Commission must also ensure that the land to be acquired is authenticated by the survey department for the rather obvious reason that the owner be identified. During such inquiries, the National Land Commission is also to inspect the land and do all things as may be necessary to ascertain whether the land is suitable for the intended purpose; iv) The National Land Commission then moves to gazette an intended inquiry and the serves the notice of inquiry on every person attached. The inquiry hearing determines the persons interested and who are to be compensated. The National Land Commission exercises quasi-judicial powers at this stage; v) Upon completion of the inquiry, the National Land Commission makes a separate award of compensation for every person determined to be interested in the land and then offers compensation. The compensation may take either of the two forms prescribed. It could be a monetary award. It could also be land in lieu of the monetary award, if land of equivalent value, is available. Once the award is accepted, it must be promptly paid by the National Land Commission. Where it is not accepted then the payment is to be made into a special compensation account held by the National Land Commission; vi) The process is completed by the possession of the land in question being taken by the National Land Commission once payment is made (though payment may be deferred if there is a dispute as to the amount payable), even though the possession may actually be taken before all the procedures are followed through and no compensation has been made. The property is then deemed to have vested in the National or County Government as the case may be, with both the proprietor and the land registrar being duly notified.
· Section 107A of the Act, introduced through the Land Value (Amendment Act) 2019, created a land value index in the entire country which will give an indication of the valuation of land in each geographical area to guide compensation for infrastructure projects, curb land speculation and establish land banks. The land value index will also determine the valuation of land for purposes of calculating stamp duty and taxation of private land. The land value index is to be prepared by the Cabinet Secretary in consultation with county governments and approved by the National Assembly and the Senate. It was required that the land value index be prepared within 6 months of the commencement of the Act (19th August, 2019) which effectively meant by 19th February 2020.
· While the land value index has been prepared for a few counties, it is yet to be undertaken in many counties including in most urban areas. The Ministry developed value zone maps for Mombasa, Kericho, Bomet, Kisumu, Narok and Nakuru, and has collected data for five counties (Kajiado, Kiambu, Nakuru (Larger Nakuru), Machakos and Meru) with inspection of the data currently ongoing. The Ministry is currently collecting data in 17 counties.[2] In other words, a national land value index is yet to be completed.[3] This is an issue that needs urgent fast tracking, implementation and support.
· Courts have held that given the exigencies of the moment and the need to deliver on public projects, the government can take over private/community land compulsory acquired before making compensation where there is a dispute as to the amount payable or to whom amount is to be paid as the dispute is resolved (section 120(2) African Gas Oil Company Ltd –vs- Attorney General and 3 Others (2016) eKLR para 26; Nightshade Properties Ltd v National Land Commission & 3 others [2021] eKLR (paragraph 44).
· Section 107B provides that where the government intends to compulsorily acquire public land leased to a private individual and the lessee of such public land is in breach of any term of condition of the grant of lease, the land shall revert to the national or county government. However, where the lessee has complied with all conditions of the grant, the compensation payable will depend on the value of developments or improvements on the land and costs incurred; and value of the land based on the unexpired term of the lease calculated based on a land value index.
· Section 132 exempts compulsory acquisition transactions from payment of stamp duty.
· Section 133A (introduced through the 2019 amendment) provides for the creation of the Land Acquisition Tribunal which under section 133C has jurisdiction to hear and determine appeals from decisions of the National Land Commission relating to compulsory acquisition as well as those relating to creation of wayleaves/easements and public rights of way. This was in a bid to expedite such disputes (disputes must be resolved within 60 days unless time is extended) and fast track the release of land and reduce the workload of the Environment and Land Court where disputes are currently lodged. (see Ravaspaul Kyalo Mutisya v National Land Commission [2022] eKLR, paras 15).
· Section 134 of the Land Act 2012 provides that the national government shall implement settlement programmes to provide access to land for shelter. This offers an opportunity for the national government to set aside land from its public land inventory as a settlement scheme, on which to build houses, particularly for low-income households. Settlement schemes are normally established to provide land to squatters and displaced persons. There have been many settlement schemes established in Kenya since the colonial period, with most of them being established in the 1980s (post-independence period). At present, there are about 530 official settlement schemes.
· Section 135 of the Act sets up a Land Settlement Fund to source financing for the acquisition of land to settle the landless.
· Section 152G provides mandatory procedures to be followed during an eviction (including from a house by a landlord/owner) and demolitions by the government including: identification of those taking part in evictions/demolitions; presentation of formal authorizations for the action; government officials present; carried out in a manner that respects the dignity, right to life and security of the people; include special measures to protect the vulnerable; give affected persons the first priority to demolish and salvage their property; respect principles of necessity and proportionality in the use of force, among others. These safeguards are critical in further securing property rights and increasing confidence among prospective buyers, especially considering recent inhumane evictions and demolitions.
· Section 158 provides that any corrupt transactions relating to the grant of public land or issuance of a certificate of title to land shall be illegal from inception, void and of no legal effect. This means that such a title can be invalidated by the court without any compensation. Significantly, such will be the case where: any party to the transaction is convicted of corruption in relation to the transaction and there is no further chance of appeal; any public official is interdicted or retired in the public interest on grounds that the person has engaged in corrupt actions that related to the transaction; or where a court of competent jurisdiction so declares. Any person occupying land as a result of such transactions shall be liable to forfeiting the said land to the government without compensation. The import of this provision is that due diligence must be given by investors/purchasers to land transactions to ensure that the transactions are not tainted with corruption.
· Section 159 provides for the Cabinet Secretary to prepare/publish guidelines on penalties for non-compliance with the minimum and maximum acreage of land that may be held by an individual, pursuant to articles 66(1) and 60(1) of the Constitution. This was meant to ensure that there is not much idle land being held for speculation by individuals and not being put into productive use. Implementation of this provision, while politically contentious, can help reduce incidences of land speculation, unproductivity of land/idle land, and release the said land for use/housing. Notably, these guidelines on minimum and maximum acreages as well as for penalties for non-compliance have never been published/prepared.
[1] These guidelines were developed following the appointment of a Taskforce to Investigate the Processing of Extension and Renewal of Leases since 2010 vide Gazette Notice No. 1812 of 16th February 2017.
[2] <https://lands.go.ke/case-studies/national-land-value-index/ >
[3] MOLPP, Strategic Plan p. 25.
