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New Municipalities in Town. What every Conveyancer and Property Purchaser Needs to Know about this Dawn.

2024-09-26

New Municipalities in Town. What every Conveyancer and Property Purchaser Needs to Know about this Dawn.

Municipalities in Kenya serve as urban centres that the government utilizes as key sources of revenue to advance its economic agenda. Recently, the government established several municipalities across the 47 Counties. Below, we examine the procedure for establishing a municipality and the impact of establishment of a municipality on Kenya’s real estate market.

Introduction

The Council of Governors published a list of newly established municipalities in a letter dated 4th April 2024. Following the publication, the Ministry of Lands, Public Works and Urban Development through the office of the Principal Secretary, released a directive to the effect that stamp duty in the newly listed municipalities will be payable at Four Percent (4%) in accordance with the Stamp Duty Act effective immediately. Notable affected areas include Kitengela, Limuru, Kajiado, Naivasha, Kericho, Ruiru, Kabete, Machakos and Narok[1].

 Stamp duty is a tax levied by the Government on a number of legal documents, including those relating to transfer of interest in property. Purchasers bear the obligation of paying stamp duty on the transfer of property in their favor. Currently, stamp duty is levied by the Government at a rate of 2% of the total value of property in rural areas and at 4% of the value of property in urban areas and municipalities.

Pursuant to the directive, any person found to have not complied shall be held personally liable and be “surcharged to the extent of the lost revenue[2].”  This drive is geared towards expanding the tax base for both the involved counties and the national government.

The municipalities establishment will have a three-pronged effect on land transactions in the affected areas. The first, which has already taken effect, is an increase in the rate of stamp duty from Two Percent (2%) to Four Percent (4%) pursuant to the Stamp Duty Act.

The second one is to do away with the requirement to obtain consent from the Land Control Board (LCB) for transfers involving land in the area since the land is no longer agricultural. The Land Control Act requires that an LCB consent be obtained for transfers involving agricultural land[3]. Land in the affected areas will cease to be agricultural land, thereby extinguishing the requirement to obtain an LCB consent.

Finally, the third would be the levying of rates for the areas within the municipalities which were not ratable before.

One of the questions that continually comes up is how will one know whether their property is within a municipality, in other words where are the boundaries for a municipality?

How is a Municipality established under the Kenyan Laws?

Prior to the promulgation of the Constitution in 2010 and the enactment of the Urban Areas and Cities Act in 2011, the management of urban areas and cities in Kenya was governed by the provisions of Local Government Act, Cap 265 Laws of Kenya (now repealed). Under the said legislation, urban areas and cities were categorized as Municipality, County or Township.

Article 184 of the Constitution of Kenya, 2010 provides that legislation shall provide for the governance and management of urban areas and cities, particularly on the establishment criteria, principles of governance and resident participation in the governance of urban areas and cities. Further, this contemplated legislation may also provide mechanisms for identifying different categories of urban areas and cities, and for their governance.

The Urban Areas and Cities Act, 2011 (the “Act”) was enacted to give effect to Article 184 of the Constitution; to provide for the classification, governance and management of urban areas and cities; to provide for the criteria of establishing urban areas, to provide for the principle of governance and participation of residents and for connected purposes.

Under the Urban Areas and Cities Act, urban areas are categorized into three categories as follows;

  • Cities;
  • Municipalities; and
  • Towns.

Section 4A of the Act provides that the delineation of boundaries of urban areas may be initiated by the Cabinet Secretary, or by the relevant County Government through a written request to the Cabinet Secretary.

To give effect to the provisions of the Act, the Urban Areas and Cities Act (General) Regulations, 2022 (The “Regulations”) were enacted to provide more detailed procedural guidelines on delineation of boundaries and other matters concerning Urban Areas and Cities.

This article shall focus on municipalities.

Steps followed in establishing a Municipality

  1. Enacting a resolution by the relevant town’s committee

The town committee of a town seeking to apply for conferment of municipal status from the County Executive Committee passes a resolution to that effect. The adoption of this resolution must be in accordance with the rules and regulations of the respective town committee[4].

Regulation 18 of the Regulations stipulates that upon passing the resolution, the town committee must submit a written application to the County Executive Member responsible for urban development. The application must also be accompanied by the resolution and details of the assessment on preparedness that led to the proposal to apply for conferment of municipal status.

  • Determination of the application by the County Executive Committee

Upon receiving the application together with the enclosures from a town committee for the grant of a municipality status regarding the subject town, the County Executive Committee considers the same and may either approve or reject the application.

A town is eligible for conferment of a municipality status if it meets the following criteria[5]:

  1. Has a population of at least between seventy thousand and two hundred and forty-nine thousand residents according to the final gazetted results of the last population census carried out by an institution authorized under any written law, preceding the grant;
  2. Has an integrated development plan in accordance with the Act;    
  3. Demonstrable revenue collection or revenue collection potential;   
  4. Demonstrable capacity to generate sufficient revenue to sustain its operations;      
  5. Capacity to effectively and efficiently deliver essential services to its residents as provided in the First Schedule;       
  6. Institutionalised active participation by its residents in the management of its affairs;        
  7. Sufficient space for expansion;          
  8. Infrastructural facilities, including but not limited to street lighting, markets and fire stations; and
  9. capacity for functional and effective waste disposal.

Where the County Executive Committee, after considering the application, approves the resolution by the town committee, it makes a recommendation for the conferment of a municipal status on the concerned town[6].

When the County Executive Committee proposes granting municipality status to a qualifying town, the County Governor will form an ad hoc committee to review the recommendation and provide appropriate advice.[7]

The composition of this ad hoc committee, established by the County Governor, is defined by the Act. It includes qualified professionals nominated by various institutions, ensuring representation across regional, ethnic, gender, and disability dimensions[8]:

  • Institution of Surveyors Kenya;
  • The Kenya Institute of Planners;
  • The Architectural Association of Kenya;
  • The Law Society of Kenya;
  • The Association of Urban Areas and Cities;
  • The Institute of Certified Public Accountants of Kenya; and
  • The business community.

The ad hoc committee evaluates whether the town meets the criteria specified in Section 9 of the Act for municipality status. If the committee finds that the town satisfies these criteria, the County Governor will submit the recommendation to the County Assembly for approval[9].

Upon receiving a recommendation from the County Governor to grant municipality status to a town, the County Assembly will debate the proposal and decide whether to approve or reject it, in accordance with its standing orders.

When the County Assembly approves the proposal, the speaker prepares a resolution and sends it to the County Governor, requesting that the Governor grants the town municipal status by issuing a municipality charter in the prescribed form.  The Governor shall thereafter within Thirty (30) days of approval by the County Assembly confer the municipal status.

The County Executive Member in charge of Urban Development shall prepare and submit the Charter in the format prescribed in the Second Schedule of the Regulations.

We note that although the Act is silent on the boundaries of the resultant municipality, Section 9(1) concerns “upgrading” of a town into a municipality. It is therefore our view that the boundaries of the subject town shall be the ones used during delimitation of the municipality.

Conclusion

It is evident that the function of establishing new municipalities is a preserve of the relevant County Government, in consultation with the members of the affected area, whose participation and input is channeled through the Town Council.

Given the recent gazettement of new municipalities, every conveyancer and property purchaser must be aware of this development for the following key reasons:

  1. To enable timely understanding as to whether the relevant land transaction will require an LCB consent especially where such a transaction is time bound;
  2. Determine the rate for charging stamp duty in a relevant land transaction upon valuation; and
  3. To avoid penalties pursuant to the Ministry’s directive.

[1] The full list of the municipalities can be accessed from the Council of Governors vide their letter Reference No. COG/2/13 Volume 33 (129) dated 4th April 2024 or the Ministry’s Letter Reference No. CLR/ADM/Vol./200 dated 5th April 2024.

[2] See the directive by the Principal Secretary, State Department for Lands and Physical Planning in the Ministry of Lands, Public Works, Housing and Urban Development of 5th April 2024.

[3] See Section 8 of the Land Control Act, CAP 302.

[4] Section 9 as read together with Section 8 (1) of the Act

[5] Section 9 (3) of the Act

[6] Section 9 as complemented by Section 8 (2) of the Act

[7] Ibid

[8] Section 9 as jointly read with Section 8 (3) of the Act

[9] Section 9 as read together with Section 8 (4) of the Urban Areas and Cities Act

For More insights Contact Jessica Mwenje – [email protected] and Cyprian Masika – [email protected]

Jessica Mwenje , Cyprian Masika