15. Sectional Properties Act, No. 21 of 2020

The law repeals the 1987 Act and provides for division of buildings into units to be owned by individual proprietors and common property to be owned by proprietors of the units as tenants in common.

Quick Link: https://new.kenyalaw.org/akn/ke/act/2020/21/eng@2022-12-31

· This statute repealed the earlier Sectional Properties Act, 1987. It seeks to provide for the division of buildings into units to be owned by individual proprietors and common property to be owned by proprietors of the units as tenants in common and to provide for the use and management of the units and common property.

· The Act applies to both freehold and leasehold property where the unexpired residue term of the lease is not less than 21 years; where there is an intention to confer ownership; and there are two or more units described in the sectional plan.

· Substantive changes introduced by the Sectional Properties Act 2020 are:

i) Sectional properties are now to be issued with a certificate of title or certificate of lease (as the case may be, depending on the nature of interest) and the title shall include the proportionate share in the common property.

ii) The Act now applies to long-term leases that are not less than 21 years whereas the 1987 Act applied to leases not less than 45 years.

iii) Long-term subleases intended to confer ownership (21 years and above) registered before the coming into force of the Act must have conformed to the new Act within 2 years from 28 December 2020 (which means by 28 December 2022).

iv) The Act introduced an internal dispute resolution committee to resolve disputes among sectional unit owners relating to the enforcement of by-laws. The 1987 Act required such disputes to be referred to a Tribunal set up under the Landlord and Tenant (Shops, Hotels and Catering Establishments) Act, which took longer time to resolve.

v) The Act allows for one to challenge the decision of the internal dispute resolution committee at the Environment and Land Court. The repealed Act did not allow for any appeal to the court from the decision of the Tribunal, save for an error of law.

vi) The Act requires sectional plans to geo-reference sectional units with management corporations also allowed to employ technology.

vii) The Act allows a property developer to charge a security deposit at will if a purchaser of a unit opts to rent a unit prior to receiving their sectional title. The repealed Act had placed a cap on rental security deposit to only one month.

viii) The Act has abolished various provisions relating to purchase agreements that were contained which included: rescission of the purchase agreement, mandatory contents of such agreement and protection of purchaser regarding proceeds of sale handled by a developer.

ix) The new Act provides for the automatic dissolution of management corporations upon termination of the sectional property status of the development.

x) The Act provides for termination of sectional property status to include substantial or total damage to the building and compulsory acquisition of the building. The Act has removed the earlier requirement for an application to court by a unit owner/charge/purchaser or corporation for such termination.

xi) The Act has removed the mandatory requirement for a management corporation to appoint an institutional manager to manage the units, the common property and property of the corporation, with the powers and duties of the corporation to be exercised by the board of the corporation.

· Section 13(2) of the Act which provides for conversion of all long-term leases (21 years and above) — that intend to confer ownership to conform to the Sectional Properties Act — will likely hinder obtaining financing on the strength of long-term leases as collateral given the uncertainties associated with the passing of the deadline of December 2022. At present, sectional units are not recognized by the survey office by being put on the cadaster which means that the 2-year deadline which expired on 28 December 2022 was hardly complied with. Given that this is a statutory provision, the moratorium/deadline can only be extended through a statutory amendment in Parliament. This needs to be dealt with as a matter of urgency to avoid negative impact on financing, especially since most land in urban areas is held under leasehold terms.

· Relatedly, while section 54(5) and the regulations require the Survey Office to issue a unique prefix number to support geo-referencing, the Survey Office is yet to formulate procedure/guidelines to inform this, despite the deadline for the process having been on the 28 December 2022. These concerns are stalling the perfection of securities with a negative impact on financing.

· SPA currently has no application in phased developments or mixed-use developments where a developer wishes to retain reversionary interest or vest it in a management company i.e. no intention to confer ownership. This does not seem to be captured in the law.