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Kenya’s Sectional Properties Act and its impact on the Registration of Long-Term Leases with respect to Units

2023-04-26

Kenya’s Sectional Properties Act and its impact on the Registration of Long-Term Leases with respect to Units

  1. Introduction

Kenya’s Sectional Properties Act (the “Act”) commenced operation on 28th December 2020 and its main purpose is 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. 

The Act was also intended to address three key concerns by the general public: firstly, it was to ensure that purchasers can obtain titles that are completely delinked from the developer thus protecting purchasers and streamlining the administration of land rates and rent. Secondly, it was to make it impossible for developers to change the common areas for their benefit to the detriment of the purchasers. Thirdly, it was to prevent developers from changing the details of the unit after the sale. 

  1. Analysis of the key provisions of the Act

The Act provides for the division of buildings into units and is to the effect that an existing structure may be designated a building containing a unit or part of a unit or divided into two or more units. This will be achieved through the registration of sectional plans prepared by surveyors from building plans approved by the county government. 

Upon registration of the sectional plan, the land registrar shall close the register of the parcel described in the sectional plan and open a register of each unit described therein. The registrar shall also issue, in respect of each unit, a certificate of title or a certificate of lease and include the unit’s proportionate share in the common area. This is a shift from the previous regime where unit owners owned common property by way of shareholding in the management company. 

Every sectional plan presented for registration is required to be endorsed by a surveyor stating that the structure shown on the plan is within the external surface boundaries of the parcel and have a certificate from the county government indicating approval of the division of the structure by the county government. This prevents the sale of non-existent units by ensuring that the developer has progressed with construction before offering units for sale.

A sectional plan presented for registration is accompanied by an application for registration by the corporation established to manage the common property and a list of the unit owners. The corporation is to be regulated by the Act which contains provisions on the management of the Corporation and the model by-laws specified in the Regulations. 

The Act requires developers to furnish purchasers with the following due diligence documents before the sale:

  • the purchase agreement, 
  • the by-laws or proposed by-laws,
  • the management agreement or proposed management agreement, if any, 
  • the recreational agreement or proposed recreational agreement, if any,
  • the lease or title of the parcel on which the unit is located or the certificate of title or the certificate of the lease in respect of the unit, 
  • any charge that affects or proposed charge that will affect the title to the unit or proposed unit; and
  • the sectional plan or proposed sectional plan.
  1.  Regulations to give effect to the Act

Under Section 59 of the Act, the Cabinet Secretary for Lands and Physical Planning gazetted the Sectional Properties Regulations of 2021 (the “Regulations”). The Regulations contain standard forms applicable in the registration of sectional plans, the manner of registering the sectional plans, the fees payable, conversion to sectional units and winding-up of management companies among others. 

  1. Impact of the Act on Registration of Long-Term Leases

The Act requires the review of long-term sub-leases intended to confer ownership of an apartment, flat, maisonette, townhouse or office registered before the commencement of the Act to conform to section 54(5) of the Land Registration Act within two (2) years from the Act’s commencement date.

The Land Registration Act and the Land Registration (General) Regulations, 2017 require every long-term lease presented for registration to be accompanied by among others a sectional plan.

According to the above provisions, the Cabinet Secretary issued a public notice to the effect that Registrars will no longer register long-term leases unless they are accompanied by sectional plans.

Regulation 18 of the Regulations provides that under section 13(2) of the Act, all long-term leases shall be converted to sectional units per the Regulations.

Long-term leases to be converted to sectional titles include where:

  • all the units have been transferred to the respective owners and the reversionary interest has been transferred to the management company to hold in trust for the owners; or
  • all the units have been transferred to the respective owners and the reversionary interest is by written agreement intended to be transferred to the management company to hold in trust for the owners; or
  • part of the units have been transferred to the respective owners and the reversionary interest is by written agreement intended to be transferred to the management company to hold in trust for the owners. 

Regulation 22 of the Regulations however provides for categories of long-term leases that are exempt from conversion. These include long-term leases:

  • which it is expressly provided by the agreement that reversionary interest belongs to the developer or management company as legal owner and not as a trustee;
  • large mixed-use developments and phased developments where it is by agreement provided that reversion shall be retained by the developer or to be otherwise held by a management company; or
  • projects of strategic national importance, substantial transactions, and special economic zones, which by their nature, renders it impractical to relinquish reversionary interest.
  1. Recommendations and Conclusion

Noting that the provisions of the Act allude to its applicability being mandatory, it is important for the developers of units in buildings who intend to sell the units to ensure that they comply with the Act.

The Act requires the conversion of long-term leases registered before the enactment of the Act within two years of the commencement of the Act. Noting that the Act commenced its operation on 28th December 2020, developers and owners of units have only one month to undertake the conversion failure to which a restriction will be registered against their titles by the registrar

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