Steps To Buying Real Property In Kenya

The case however is that many Kenyans indulge  in land transactions with such reckless abandon that they disregard the need to maintain the barest modicum of due diligence.

That is when they end up being defrauded. So here is the process explained step by step to help you know what to do next time you want to buy property in Kenya.

1. Identify the property

The first step is obviously finding property (land, house etc) that interests you. You can do this by contacting the vendor directly or by enlisting the services of a reputable real estate agent. When you have identified the property you want to buy it is important to conduct a site visit to ensure that the property and its surroundings meet your specific needs.

2. Conduct a search

The buyer should obtain from the seller a copy of the title of the land and a copy of the national identity card of the seller. The copy of the title will be used to conduct a search of the land at the lands office while the copy of the national identity card will be used to verify the identity of the seller at Registration of Persons Bureau.

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In order to conduct a search one is required to file a search application form at the lands registry and attach a copy of the relevant title deed. The search application fee (Kshs 500) is also required to be paid. The search results are usually ready for collection from the lands registry 2-3 days after application. The results usually reveal details such as:

a)      The registered owner of the property

b)      The size of the property

c)       The encumbrances registered against the title if any, such as courts orders, prohibitions, caveats and cautions

As an additional measure, the buyer should check whether the land is included in the Report by the Commission of Inquiry on the Illegal and Irregularly Allocated Land (Ndung’u Land Report). The buyer should also enlist the services of a registered surveyor to confirm the beacons on the land and to conduct additional checks at the Survey Department.

3. Negotiation & Sale Agreement

Consequently the process of price negotiation should begin only when the preliminary due diligence has been done. Any agreement for the sale of land that is reached without conducting a search amounts to courting trouble. The buyer should, either by himself or with the help of his lawyer, engage the seller or his estate agent for purposes of discussion and agreeing on the terms of sale including the price and the terms of payment. It is customary for the buyer to pay a 10% deposit and then the balance of the purchase price upon completion of the sale transaction. The deposit is usually considered as a show of intention to see the deal through.

An important question that arises at this point is where the deposit money is to be held as the sale process proceeds. A common practice is for the money to be held either in a joint account in the name of the seller’s and the buyer’s advocates or with an independent escrow agent.

Upon completion of the negotiation process, the seller’s advocate prepares a sale agreement outlining all the terms that had been agreed upon during negotiation. The agreement sets out the names of the parties, the purchase price and mode of payment, the completion period (which is usually 90 days) and the completion documents to be furnished by the seller to enable registration of the transfer of property in favour of the buyer.

Many sale agreements will usually incorporate the Law Society Conditions of Sale (1989 Version). This is a codification of customary terms of sale as adopted by the Law Society of Kenya. Sometimes the balance of the purchase price is to be furnished by a third party such as a bank or finance company. When this is the case such an arrangement must also be included in the terms of the sale agreement.

Once the terms of the sale agreement have been agreed between the parties, the agreement is engrossed and executed by the parties or their power of attorney.  The buyer should be the first to sign the sale agreement, which should then be forwarded to the seller’s advocates for the seller’s execution accompanied by the deposit cheque or evidence of the payment of the same.

Getting the sale agreement executed is the first step, it must also be presented for stamping duty at the lands office. This is very important because unstamped documents cannot be accepted in a court of law as evidence in the event of a dispute. The current rates for the stamp duty are Ksh 200 for the original and Kshs. 20 for each counterpart (November 2013).

4. Transfer & Completion

A transfer is a document that shows a formal ‘movement’ of proprietary rights from the seller to the buyer. It is usually prepared by the seller’s advocate and approved by the buyer’s advocate. It is then signed by both parties. Unless otherwise stated in the sale agreement between the parties, it is usually the seller’s duty to obtain all the requisite completion documents, which are required to  effect the registration of the property in favour of the buyer) at his own costs.  These documents include:-

i.     The original title for the property

ii.     The transfer of property duly executed by the vendor/ seller (in triplicate)

iii.      Identity Card/ Certificate of Registration of the vendor/ seller and Pin Certificate;

iv.     Three(3) passport sized photographs of the seller. If the seller is a company, photographs of two of its director or a director and company secretary and their Pin Certificate will also be required;

v.     Land Rent Clearance Certificate for the Property, where the land is a leasehold from the Government;

vi.     Rates Clearance Certificate for the Property issued by the relevant local authority (if applicable);

vii.     original receipts evidencing the payment of rates and rates;

  1. Consent to transfer the property issued by the Commissioner of land, the relevant land control board or where the land is a leasehold from a local authority, the consent is issued by the Town Clerk of the relevant local authority.

ix.     Valuation form duly completed by the Vendor or his advocate;

If the property is a flat/apartment or office space, and comprised the in a lease, additional completion n documents will include:

i.     the original lease for the property and the transfer of lease duly executed by the parties, as appropriate;

ii.     the consent by the  lessor and/or the management company, incorporated in the transfer of lease,

iii.      the letter from the management company confirming that the seller has paid all the outgoings;

iv.     the original share certificate in the management company;

v.     the transfer of share form duly executed by the parties;

vi.     Form D in respect of the share transfer duly signed by the company’s auditors;

5. Stamping & Registration formalities

The next stage of the sale process is the payment of stamp duty on the transfer of property and registration charges. To determine the amount of duty payable, the seller’s advocates must apply for valuation of the property at the lands office. The valuation is done by government valuers who are required to determine the market value of the property. It should be noted here that the market value of the property as determined is not necessarily the value indicated in the sale agreement or the transfer documents.

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When the valuation has been done, the market price of the property is indicated on the transfer by the collector of duties. The seller’s advocates thereafter present the documents to the lands office for assessment of the duty payable.  This is done by filling a form known as the stamp duty declaration, assessment and pay-in-slip, which is complicated in quadruplicate.

The following stamp duty rates are applicable in transfer of land:

a) Where land is in a municipality- the duty is 4% of the market value of the land as determined by the Government valuer. The market value may be higher that the value indicated by the parties in the transfer documents.
b) Where land is agricultural or outside a municipality- the duty is 2% of the market value of the land as determined by the Government valuer.
c) In respect of a charge or mortgage – the duty payable is 0.1% of the mortgage amount.
Stamp duty is collected by the Kenya Revenue Authority and should be paid to the Commissioner of Domestic Taxes through various banks such as the Kenya Commercial Bank and the National Bank of Kenya which have been appointed as collecting agents. Once stamp duty on the transfer documents has been paid by the buyer the documents are then lodged at the lands office for stamping with duty. The collector of stamp duties will normally stamp the documents once he is satisfied that the correct amount of stamp duty has been paid.

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The final step is for the transfer documents and all the attendant documents i.e the original titles, land rent and rates clearance certificate, consent to transfer, the duly completed valuation for stamp duty form, and the stamp duty declaration, assessment and pay-in-slip should be booked of registration.

6. Registration
The very final step of the sale process is the registration of the transfer in favour of the buyer. When a duly registered transfer has been released to the buyer it is important to conduct another search on the property just to ensure that the proper registration has been done.

For this reason if the purchase price was to be provided by a bank or other financier, the duly registered documents are released to the financier to enable it settle the balance of the purchase price. The documents will then be held by the financier until the buyer pays the full amount of the loan.
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