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Fractional and Timeshare Ownership of Real Property in Kenya – Is it time?

2023-03-26

Fractional and Timeshare Ownership of Real Property in Kenya – Is it time?

Introduction

I own that villa. Well, a fraction of it. That ordinarily would be a rare statement from an ordinary Kenyan citizen. However, with fractional ownership of property, ordinary Kenyans would be able to enjoy a slice of the pie with respect to dream residential homes or high end commercial space in Kenya if proper legislation and regulations are put in place.

Article 40 of the Constitution of Kenya safeguards the ownership of property of any description in any place in Kenya. Kenya, like the rest of the world has not been left behind in emerging trends with respect to different types of ownership of real property. The form of title and ownership a person gets pursuant to a conveyance of interest in real property in Kenya has equally evolved not to mention the laws regulating such conveyance of interest.

A fairly new concept that is currently penetrating the real estate industry in Kenya is fractional and timeshare ownership of property. The concept originated from the Great Britain in 1960s and subsequently in the United States of America. In Kenya timeshare ownership is fairly recent and some of the developments that have embraced it include  Baobab Beach Resort, The Amber Villas, Mwembe Suites (all in Malindi) and Ziwa Bush Lodge in Nakuru. Fractional ownership on the other hand has been explored by Aberdare Spa and Safari Lodge in Nakuru. 

The fact that timeshare or fractional ownership of vacation homes and high end hotels has encountered fairly good reception in Kenya could possibly imply that the market is ripe for ownership of apartments and villas by way of fractional and timeshare. The major difference between timeshare and fractional ownership is the type of interest acquired upon purchase of either of them. 

Timeshare is a structure of property ownership where several parties acquire interest to use the same property and each time shareholder is allocated a period of time, in which one is entitled to use the property could be a week or month whether specific or as per how the owner would have the need to use the property.  Ownership of interest in property by way of timeshare mostly applies to vacation homes and hotels. This form of ownership envisages that other owners loose possessory rights over the property when another timeshare holder is entitled to occupy the property. Needless to say, issues of conflict especially during what would be considered high season must be properly stipulated in the contract to prevent disputes.

Fractional ownership of property on the other hand allows one to get title to an indivisible fraction of an established property. This is a form of a more well known concept of common ownership of property where a number of people acquire common but indivisible interest in property that is noted on the title and the same is recognised and protected under the Land Registration Act. 

The major reason for advancement of timeshare and fractional ownership of property is to make high end and expensive residential units and vacation homes affordable by pooling together like minded purchasers to own a fraction or a time interest in the properties at a  lower price i.e pro rated to what each can contribute.

It is worthy to note that the enactment of Sectional Property Act (SPA) which makes provision for division of buildings to units introduces a new twist to the fractional and timeshare ownership concept. This is because the objective of SPA is to achieve independent ownership of units situated on the same parcel of land. Implementing the concept of fractional and timeshare ownership where a development has been converted to sectional status and where owners have the ability to deal with their units independently is feasible but may be challenging in terms of management. This is because the sectional status takes away control from a centralized management company, which is vital for proper implementation and success of the concept and which is mainly achieved through covenants set out in the leases that are binding to all the owners. 

Timeshare and Fractional Agreement, Registrable interest and Ownership

This being a novel product in property ownership in Kenya, there has been no laws and regulations specifically outlining how timeshare and fractional ownership of property in Kenya ought to be dealt with. However in terms of process, the parties follow the process of acquisition of interest in property in Kenya. The process entails negotiating and executing an agreement which sets out commercial and legal terms of acquisition of interest in property and thereafter executing an instrument that conveys the interest acquired to all the owners. This therefore means the unique nuances that would apply to timeshare or fractional ownership would need to be properly captured in the contract entered into between the parties and incorporated in the title document.

The timeshare and fractional ownership agreement has to be detailed enough to outline the specific interest acquired by every investor. This must also be set out in the transfer document or the sublease (where applicable) as provided under the Land Registration Act.

Noting that only one title can be issued in respect to a property yet there exists a number of unrelated owners to the same property, the Land Registration Act under section 30(4) envisions a situation where more than one proprietor who are not tenants in common would manage custody of the title. The Proprietors need to agree among themselves who should keep the title and if they fail to so then the title would be filed and kept at the registry.

In the United States of America and Europe, proprietors in a fractional ownership arrangement upon registration of the transfer instrument agree on a trustee to keep the original title to the property owned. 

Questions arise as to what happens when an individual intends to transfer their interest or secure financing based on the fraction they own in the property. Given that the fraction owned by each proprietor is indivisible, an individual cannot deal with his interest to the exclusion of the other co-owners. Accordingly, when any owner needs to deal with his interest in any manner, such a dealing must involve the entire property and this entails involving all the co-owners. This is based on the fact that all the owners with a registerable interest in a property must consent to any disposal of interest in writing prior to completion of the process of registration of any interest. Obtaining the consent may be challenging as some of the owners may not be willing to sign any document or may introduce unreasonable conditions. 

Financing institutions on the other hand might shy away from financing fractional purchases mainly because there lacks firm regulations and laws specifically addressing the parameters of fractional ownership. Further getting consent of the other owners to charge the property might present its challenges with the risks associated with charging of property in Kenya not to mention the ever acrimonious statutory power of sale. It would be problematic convincing the other owners that the interest of the bank will only be limited to the fraction owned by the chargor. 

The challenges notwithstanding, developers find the concept attractive as it allows investors to pool funds in acquiring property which would be ordinarily unaffordable, it also enable developers sell property faster as the concept attracts more investors which in turn leads higher profits. 

From the foregoing it is prudent to have select regulations specifically dealing with fractional and timeshare ownership to facilitate conveyancing of this novel form of property ownership. In South Africa for example, the Share Blocks Control Act (59 of 1980) and the Property Time-Sharing Control Act (75 of 1983) have been legislated to manage the concept of timeshare and fractional property ownership. It is important for property developers and investors to start rethinking the idea of property ownership in Kenya with the fractional ownership in mind. 

This article is not a legal opinion but is meant for general understanding of the topic. Our robust real estate experts will be available to offer tailor made solutions that will at all times protect your interest.

Jessica Mwenje and Winnie Odhiambo