18. Sectional Properties Regulations, 2021

These Regulations sought to give effect to the Sectional Properties Act 2021 by providing for details, and provides for Forms/Schedules for transactions.

Quick Link: https://new.kenyalaw.org/akn/ke/act/ln/2021/236/eng@2022-12-31

· These regulations were gazetted on 26 November 2021 and came into force on 10th December 2021 and seek to aid the implementation of the Sectional Properties Act 2020. They effectively repealed the Sectional Properties Regulations 1991.

· The Regulations have also provided for the various Forms to be used in transactions relating to sectional units in the Schedules.

· While the 1991 regulations recognized registration under multiple legal regimes/statutes, the 2021 Regulations anchor registration of sectional titles under the Sectional Properties Act 2020, effectively simplifying the process and dealing with the uncertainty and duplicity that typified the former legal regime.

· The Regulations refer to the Land Act 2012 and the Land Registration Act 2012 as opposed to the 1991 Regulations which referred to the Registered Land Act (now repealed). The new regulations have also updated the terms/changed the nomenclature used: for instance, they use ‘cadastral maps’ instead of registry index maps; and ‘georeferenced plans requiring coordinates’ instead of fixed boundaries. The Regulations also refer to ‘freehold’ tenure instead of the formerly confusing absolute proprietorship and ‘title deeds’ replaced certificates of title or certificate of lease.

· Significantly, the new Regulations have decentralized ownership of sectional units as evident through the introduction of rent apportionment forms for use by a rating authority (county governments) to apportion rent, rates, or taxes payable by each unit which then accompany the registration of sectional plans. Accordingly, unit owners can exercise more control over their units and reduce frustration or hindrance by sellers/vendors or management companies in dealing with one’s unit.

· The Regulations now provide that a corporation (established to manage the common areas in a sectional property) will form an internal dispute resolution committee on a need basis to determine disputes among unit owners thereby affording a fast and affordable dispute resolution forum as well as giving the owners more control over the process and outcome. This contrasts with the prior regime whereby disputes among unit owners were resolved at the Tribunal which took inordinately long (given the intermittent nature of sittings of the Tribunal and vacancies in its membership). Once all sectional units have been sold and reversionary interest reverts to the management company/corporation, only the corporation can lodge a suit in court for any violations following a resolution by shareholders (See, Jitendraray Nathwani & another v Hitesh Devendra Makwana & 3 others [2020] eKLR)

· The Regulations allow property developers, management companies and individual owners to convert long-term leases to sectional units, unlike the 1991 regulations which did not allow for this.

· The Regulations empower owners to indirectly enforce corporation’s by-laws against non-unit owner tenants. This is especially important given the difficulties that management companies had to contend with in enforcement of terms including nuisance and collection of service charge charges from tenants owing to the privity of contract doctrine.

· Relatedly, the Regulations also provide specific notification forms by a corporation to a unit owner where a tenant breaches the by-laws; they also provide a right to a corporation to refer the dispute to the internal dispute resolution committee; and provide for a form of notice issued to a tenant to vacate premises where the dispute resolution committee so decides.

· The 2021 Regulations adopt technology by allowing electronic submission of application forms and plans, which enables developers and landowners to file their sectional plans/title documents through the online Ardhi Sasa platform which saves on time and costs, allows users to access digital land information and facilitate land registration and administration. This contrasts with the 1991 regulations which required unit owners to physically register their titles at the various land registries.

· While the 2021 Regulations maintain co-ownership rights by entrenching incidental rights such as the right to quiet possession and duty not to use neighbouring premises in a manner that renders other premises unfit for purpose, they also require obtaining of the consent of an affected unit owner where the sub-division of a unit or consolidation of a unit is likely to affect an owner’s incidental rights. This means that unit owners’ rights are better protected.

· Following stakeholder concerns about the difficulties in implementation of the Act, the Regulations (Regulation 22) now provide useful exemptions to converting long-term leases to sectional titles where: it is expressly provided by agreement that the reversionary interest belongs to the developer, lessor or management company as the legal owner and not as trustee; and in case of large mixed-use developments or phased developments where it is agreed that the reversion shall be retained by the developer; and in case of projects of strategic national importance, substantial transactions and special economic zones which by their nature render it impracticable to relinquish the reversionary interest.

· Importantly, however, the Regulations still do not provide for the process/procedure of applying for these exemptions. There is also a need to introduce these exemptions in the principal statute (Sectional Properties Act 2020) which cannot be as easily changed and given that this is a substantive provision. There is also a need to provide further clarification in the exemptions on what is meant by a ‘mixed-use development’ in terms of minimum acreage and diversity.

· In addition, given the time that has lapsed since the commencement of the Act and the publication of the Regulations, (the 2-year timeline provided for in the Act within which long-term leases must be converted to sectional titles), there may be need for amendment of the substantive Act to extend the timelines or allow the Ministry to extend the timelines.

· There are also expected challenges in the conversion of long-term leases of charged properties where only a portion of sectional units have been sold. This is because there will be the need for the developer and unit buyers issued with long-term leases to cooperate, following issuance of a partial discharge. Where the unit buyers may have charged their units with financial institutions, this creates another challenge. What is more, even in cases of complete transfer of all sectional units, there is still need to ensure there are no gaps in the accuracy of data in this transition (conversion) given that securities are usually noted against individual leases rather than the Head Title. This certainly calls for a phased approach whereby a gazette notice is issued indicating parcels that will be converted including records of management companies for consents to charge.