Grounds for Court-Ordered Liquidation Under Section 424(1) of the Companies Act, 2015

Introduction

The liquidation of a company by order of the court is a significant legal remedy that may bring the company’s business and affairs to an end and trigger a formal process for the realisation and distribution of its assets. Under section 424(1) of the Companies Act, 2015, the court may order the liquidation of a company where one or more of the statutory grounds set out in the provision are established.

The provision recognises a number of circumstances in which court-supervised liquidation may be appropriate. These grounds range from a resolution by the company itself to insolvency and circumstances in which the court considers liquidation to be just and equitable.

1. Special Resolution by the Company

Under section 424(1)(a), a company may be liquidated by the court where the company has, by special resolution, resolved that it should be liquidated by the court.

This ground reflects a situation in which the members of the company have themselves determined that court-supervised liquidation is appropriate. A special resolution represents a formal decision of the members and provides the basis upon which an application for liquidation may be made to the court.

2. Failure of a Public Company to Obtain a Trading Certificate

Section 424(1)(b) applies to a public company that was registered as such upon its original incorporation. The court may order liquidation where:

• the company has not been issued with a trading certificate under the Companies Act, 2015; and
• more than twelve months have elapsed since the company was registered.

The provision is therefore concerned with public companies that fail to satisfy the statutory requirements necessary to commence or continue their operations as contemplated by the Companies Act.

3. Failure to Commence Business or Suspension of Business

Under section 424(1)(c), the court may order liquidation where the company:

• does not commence its business within twelve months of incorporation; or
• suspends its business for a whole year.

The purpose of this ground is to address companies that have effectively become dormant or have failed to commence meaningful commercial operations. Continued existence on the register, without the company commencing or maintaining its business, may in appropriate circumstances justify court intervention.

4. Reduction in the Number of Members

Section 424(1)(d) provides for liquidation where, except in the case of a private company limited by shares or by guarantee, the number of members has been reduced below two.

The provision recognises that certain companies are required to maintain a minimum number of members. Where that statutory requirement is no longer satisfied, liquidation may become available as a remedy.

5. Inability to Pay Debts

One of the most significant grounds for court-ordered liquidation is contained in section 424(1)(e): the company is unable to pay its debts.

This ground is particularly important in insolvency proceedings because liquidation may be necessary where a company cannot meet its financial obligations as they fall due or otherwise satisfies the statutory test for inability to pay its debts.

An application based on insolvency is not merely concerned with the existence of a debt. The applicant must establish the relevant statutory basis for concluding that the company is unable to pay its debts. The court will therefore consider the evidence presented concerning the company's financial position and its ability to satisfy its obligations.

6. Failure of a Voluntary Arrangement to Take Effect

Section 424(1)(f) addresses circumstances arising after the expiry of a moratorium under section 645. The court may order liquidation where, at the time the moratorium ends, a voluntary arrangement made under Part IX does not have effect in relation to the company.

This provision links the liquidation regime with the statutory mechanisms available for corporate restructuring and insolvency. It recognises that where a proposed arrangement does not take effect following the relevant moratorium, liquidation may become an appropriate alternative remedy.

7. The Just and Equitable Ground

Perhaps the most flexible ground is contained in section 424(1)(g), which permits liquidation where the court is of the opinion that it is just and equitable that the company should be liquidated.

The just and equitable ground gives the court a degree of discretion to address circumstances that may not fall neatly within the more specific statutory grounds. However, it is not an automatic remedy merely because a dispute exists between shareholders or directors.

Depending on the circumstances, matters such as a fundamental breakdown in the relationship between those responsible for managing the company, loss of the substratum of the company, or other circumstances affecting the basis upon which the company was established may potentially be relevant.

Importantly, whether liquidation is just and equitable is ultimately a matter for the court to determine based on the particular facts and the applicable legal principles.

Conclusion

Section 424(1) of the Companies Act, 2015 provides a comprehensive statutory framework for court-ordered liquidation. The grounds range from voluntary corporate decisions and regulatory non-compliance to inactivity, membership issues, insolvency, failed restructuring arrangements and circumstances in which liquidation is considered just and equitable.

Because liquidation can have significant consequences for a company's shareholders, directors, employees and creditors, an application under section 424 should be approached carefully and supported by appropriate evidence. The applicable statutory requirements and procedural rules should also be considered before commencing proceedings.

Disclaimer: This article is provided for general information and educational purposes only and does not constitute legal advice. The application of section 424 may depend on the particular facts and circumstances of each case. Readers should obtain independent legal advice before taking action in relation to a company liquidation matter.

Spousal Consent in Land Transactions in Kenya: When Is It Required and When Can It Create Unintended Risks?

Introduction

Spousal consent has become an increasingly important consideration in land transactions in Kenya. Purchasers, advocates, lenders and other transaction parties routinely request evidence of spousal consent where a registered proprietor is married, particularly where the property may constitute matrimonial property.

While this approach is understandable from a risk-management perspective, the law does not make the mere fact of marriage a universal bar to dealing with land. The critical question is whether the property in question constitutes matrimonial property or whether the non-registered spouse has otherwise acquired a legally recognisable beneficial or proprietary interest in it.

This distinction is important. Requiring spousal consent where the law does not require it may introduce unnecessary complexity into a transaction and, in some circumstances, create an evidential trail suggesting that the spouse has an interest in the property. Conversely, failing to obtain consent where it is required can expose a transaction to significant legal challenges.

What Is Spousal Consent?

Spousal consent, in the context of land transactions, refers to the consent of a spouse to a disposition of property in circumstances where that spouse has rights or interests recognised by law in the property.

The principal statutory framework is found in the Matrimonial Property Act, 2013 and the Land Registration Act, 2012.

Section 12(1) of the Matrimonial Property Act provides that an estate or interest in matrimonial property shall not, during the subsistence of a monogamous marriage and without the consent of both spouses, be alienated in any form, including by sale, gift, lease, mortgage or otherwise. The Act further provides that the matrimonial home may not be mortgaged or leased without the written and informed consent of both spouses.

The statutory protection is therefore directed at matrimonial property, rather than at every parcel of land registered in the name of a married person.

What Constitutes Matrimonial Property?

Section 6 of the Matrimonial Property Act defines matrimonial property to include:

1.      the matrimonial home or homes;

2.      household goods and effects in the matrimonial home or homes; and

3.      other movable and immovable property jointly owned and acquired during the subsistence of the marriage.

The Act also recognises the distinction between matrimonial property and separate property. Section 13 expressly provides that marriage does not, by itself, affect the ownership of property other than matrimonial property to which either spouse may be entitled, nor does it affect either spouse's right to acquire, hold or dispose of such property.

Consequently, the fact that a registered proprietor is married does not, without more, mean that every property registered in that person's name is matrimonial property or that every transaction involving that property requires the consent of the spouse.

The Role of Beneficial Interests and Trusts

The position becomes more nuanced where the property is registered in the name of one spouse but the other spouse claims an equitable or beneficial interest.

Section 14 of the Matrimonial Property Act creates a rebuttable presumption that where matrimonial property is acquired during marriage in the name of one spouse, it is held in trust for the other spouse. Where matrimonial property is acquired in the joint names of the spouses, there is a rebuttable presumption that their beneficial interests are equal.

Section 9 further recognises that where property acquired by one spouse before or during marriage does not become matrimonial property, but the other spouse contributes towards its improvement, that spouse may acquire a beneficial interest corresponding to the contribution made.

The courts have similarly recognised that beneficial interests may arise from proven contribution. In Peter Mburu Echaria v Priscilla Njeri Echaria [2007] eKLR, the Court of Appeal considered the circumstances in which a spouse could establish a beneficial interest in property registered in the name of the other spouse. The Court emphasised that the determination of beneficial ownership depends on the evidence of contribution and the circumstances of each case.

Accordingly, registration in the name of one spouse is not necessarily conclusive where the other spouse can establish a legally recognised beneficial interest.

The Land Registration Act and the Duty to Inquire

The Land Registration Act provides an additional layer of protection.

Section 93 addresses co-ownership and other relationships between spouses. In particular, where land or a dwelling house is held in the name of one spouse and that spouse undertakes a disposition, section 93(3) requires the relevant transaction party to make an inquiry as to whether the other spouse has consented to the transaction.

For a transfer or assignment, the assignee or transferee is required to inquire from the transferor whether the spouse has consented. Where a spouse deliberately misleads the lender, assignee or transferee in response to the statutory inquiry, the resulting disposition may be void at the option of the spouse who did not consent.

This provision is particularly important from a conveyancing perspective. It means that a purchaser should not simply rely on the fact that the title is registered in the seller's sole name where there are circumstances suggesting that spousal rights may exist.

Spousal Rights as Overriding Interests

The Land Registration Act has also historically and jurisprudentially recognised the significance of spousal rights in registered land.

Section 28 of the Land Registration Act concerns overriding interests. The statutory treatment of spousal rights has been affected by subsequent amendments, and practitioners should therefore exercise care when relying on older authorities or reproducing the pre-amendment text of the provision.

The broader principle remains important: registration of land does not necessarily extinguish proprietary or equitable interests recognised by law merely because those interests are not expressly reflected on the register. Courts have continued to consider spousal and trust interests in determining disputes concerning registered land.

Accordingly, due diligence should extend beyond simply examining the certificate of title.

The Risk of Seeking Spousal Consent Where It Is Not Required

It may appear prudent for a purchaser or conveyancing advocate to obtain spousal consent in every transaction involving a married proprietor. However, there are circumstances in which this approach may be unnecessary and potentially problematic.

Section 13 of the Matrimonial Property Act makes it clear that marriage does not affect a spouse's ownership of, or ability to deal with, property that is not matrimonial property.

For example, consider land acquired and held by two business partners for commercial purposes, where neither spouse has acquired a proprietary or beneficial interest in the land and the property does not constitute matrimonial property.

The mere fact that one of the business partners is married should not, by itself, convert the business property into matrimonial property.

Requiring the spouse to execute a consent in such circumstances may nevertheless create an evidential complication. The consent could subsequently be relied upon as evidence that the spouse was regarded by the parties as having an interest in the property or that the spouse was expected to participate in decisions concerning the property.

This does not mean that obtaining consent automatically creates a proprietary interest. Rather, it demonstrates why transaction documents should accurately reflect the legal and factual status of the property instead of adopting a blanket approach to spousal consent.

Is a Spousal Waiver an Alternative?

Where spousal consent is not legally required but the parties wish to eliminate uncertainty, they may consider obtaining a carefully drafted spousal declaration or waiver.

Such a document may state, among other things, that:

• the spouse has no legal or beneficial interest in the property;
• the spouse did not contribute towards its acquisition or improvement;
• the property is not matrimonial property;
• the spouse has been independently advised on the nature and effect of the declaration; and
• the spouse does not object to the proposed transaction.

However, it is important not to characterise such a waiver as equivalent to statutory spousal consent.

A waiver cannot necessarily defeat a proprietary or beneficial interest that has already arisen by operation of law. Its effectiveness will depend upon the facts, the wording of the document, the circumstances in which it was executed and the nature of the interest being asserted.

It is therefore preferable to regard a waiver as a risk-management and evidential instrument, rather than as a substitute for consent where the law expressly requires consent.

Beneficial Interest: Contribution Remains Critical

The question of beneficial ownership is often central where one spouse seeks to assert an interest in property registered in the name of the other.

Kenyan jurisprudence has traditionally placed considerable emphasis on contribution. In Peter Mburu Echaria v Priscilla Njeri Echaria [2007] eKLR, the Court of Appeal examined direct and indirect contribution in determining whether a beneficial interest had been established.

The concept of contribution is now expressly defined in the Matrimonial Property Act to include both monetary and non-monetary contribution. The statutory definition includes domestic work and management of the matrimonial home, child care, companionship, management of a family business or property and farm work.

This is an important development because beneficial interests cannot necessarily be assessed solely by looking at who paid the purchase price.

At the same time, the existence of a marriage does not automatically establish a beneficial interest in every asset acquired by one spouse. The nature of the property, the circumstances of acquisition, the parties' contributions and the use to which the property was put will all be relevant.

Income from Property Does Not Automatically Create an Interest in the Property

A related issue arises where property is used to generate income for a family.

The fact that income generated from business property is subsequently used to meet household expenses does not, by itself, necessarily mean that the non-registered spouse has acquired a proprietary interest in the underlying property.

However, the analysis may change where the evidence demonstrates that the spouse made direct or indirect contributions towards the acquisition, development, preservation or improvement of the property, or where the property otherwise falls within the statutory definition of matrimonial property.

The court will ultimately examine the facts and evidence rather than merely the source or destination of income.

Practical Considerations for Conveyancing Transactions

The issue of spousal consent should therefore be approached as a due diligence question, rather than as a routine administrative requirement.

Before requiring spousal consent, transaction parties should consider:

1. When was the property acquired?
Property acquired before marriage will generally require a different analysis from property acquired during marriage.

2. How was the property acquired?
The source of the purchase funds and the contributions made towards acquisition or development may be relevant.

3. What is the property's use?
A matrimonial home will attract different considerations from a commercial or investment property.

4. In whose name is the property registered?
Sole registration does not necessarily exclude a beneficial interest, but it remains an important part of the analysis.

5. Has the other spouse contributed?
Contribution may be monetary or non-monetary and may include matters expressly recognised under the Matrimonial Property Act.

6. Is there evidence of a trust or other beneficial interest?
A registered title should not be considered in isolation where facts indicate the existence of a trust or equitable interest.

7. Has the transferee made the necessary inquiries?
Section 93 of the Land Registration Act makes this particularly important in transactions involving land or a dwelling house held by one spouse.

Conclusion

Spousal consent is an important safeguard in Kenyan land transactions, but it is not a universal requirement simply because a proprietor is married.

The central consideration is whether the property is matrimonial property or whether the non-registered spouse has otherwise acquired a legally recognisable interest in it. Section 12 of the Matrimonial Property Act provides the principal statutory protection against alienation of matrimonial property without the requisite consent, while section 13 preserves the separate-property rights of spouses. Sections 14 of the Matrimonial Property Act and 93 of the Land Registration Act further demonstrate the importance of beneficial interests, contribution and due diligence.

For purchasers and their advocates, the appropriate approach is therefore neither to automatically demand spousal consent in every transaction nor to assume that sole registration eliminates spousal rights.

Instead, each transaction should be assessed on its facts, with appropriate inquiries undertaken to establish the nature of the property and any rights that may be held by a spouse.

Where consent is legally required, it should be obtained properly and documented. Where it is not required but there is a legitimate concern regarding a possible future claim, a carefully considered spousal declaration or waiver may assist in managing transactional risk.

Ultimately, good conveyancing practice requires a balance between protecting the interests of spouses and respecting the statutory right of each spouse to independently own and deal with property that does not constitute matrimonial property.

 

A legal review of Sectional Title in Kenya: Is a Share Certificate Required for Ownership or Transfer of an Apartment?

Assuming you are referring to Kenya’s Sectional Properties Act, 2020 (Cap. 286), the strongest legal basis is section 5, read together with section 17 of the Act and Regulation 18 of the Sectional Properties Regulations, 2021.

1. The key provision: Section 5(1)(b) and (c)

Section 5(1) provides that upon registration of a sectional plan:

• the Registrar opens a separate register for each unit; and
• the Registrar issues, for each unit, a certificate of title (for freehold property) or certificate of lease (for leasehold property), including the owner's proportionate share in the common property.

Further, section 5(5) provides that once the sectional plan is registered, the title to the unit is deemed to be issued under the Land Registration Act, while section 5(6) provides that subsequent dealings with the unit are undertaken in accordance with the Land Registration Act.

Accordingly, where the apartment has already been converted and registered as a sectional unit, the legally recognised evidence of ownership is the registered certificate of title/certificate of lease for the unit—not a share certificate.

2. The share in the common property is already attached to the unit

Section 6(1) is also important. It provides that the owner's share in the common property is included in the unit's register and on the title issued for the unit. Section 6(2) provides that the common property is held by the unit owners as tenants in common in shares proportional to their respective unit factors.

Therefore, the purchaser does not need a separate share certificate to evidence ownership of the common property. The relevant share is statutorily appurtenant to and reflected on the title to the sectional unit.

3. The Corporation is different from a conventional management company

There is an important distinction here. Under section 17, registration of a sectional plan automatically constitutes a Corporation comprising the owners of the units. The Corporation is therefore fundamentally an owners' body rather than a separate entity in which ownership of the apartment itself is represented by a share certificate.

The Regulations reinforce this position. Regulation 18 deals with the conversion of existing long-term leases into sectional units and expressly contemplates that, upon conversion, the respective owners will receive certificates of lease or title under the Sectional Properties Act. It also recognises the situation where shares in an existing management company have not yet been issued to owners.

The prescribed Forms SP 11–SP 14 similarly demonstrate that the statutory registration system is based on a unit register and certificate of title/certificate of lease, rather than a share certificate as evidence of title to the apartment.

Important qualification

I would not frame the legal position as an absolute proposition that "a purchaser of an apartment never requires a share certificate." That could be challenged depending on the age and structure of the development.

For older developments held under long-term leases through a management company, the sale agreement or the original structure of the development may have provided for the purchaser to receive shares in the management company. Indeed, Regulation 18(3) specifically refers to circumstances where shares in the management company have not been issued to the owners as per the agreement.

There is also recent Kenyan case law dealing with this distinction. In Kanyi & 3 Others v Nextgen Office Suites Ltd & 4 Others [2023], the Environment and Land Court observed that under the sectional property regime, unit owners become members/shareholders of the Corporation upon registration of their leases, and that the developer has a duty to undertake conversion where applicable.

If you are making this argument I would put it approximately as follows:

The requirement for production of a share certificate as evidence of ownership of the apartment is not supported where the property has been duly converted and registered under the Sectional Properties Act, 2020. Pursuant to section 5(1)(b) and (c) of the Act, a separate register is opened in respect of each sectional unit and the Registrar issues a certificate of title or certificate of lease in respect thereof. Further, section 6 provides that the proprietor's proportionate share in the common property is incorporated in and forms part of the title to the sectional unit. Accordingly, the certificate of title/certificate of lease issued in respect of the unit constitutes the relevant documentary evidence of ownership, and a separate share certificate is not required to establish title to the unit.

Sectional Title in Kenya: Is a Share Certificate Required for Ownership or Transfer of an Apartment?

By Z.O.G (Adv)

Introduction

A recurring issue in transactions involving apartments, particularly where a development was originally structured through a management company, is whether an apartment owner must produce a share certificate in the management company as evidence of ownership or as a prerequisite to transferring or dealing with the apartment.

Under Kenya's current sectional property regime, the answer depends principally on how the apartment is legally registered.

Where the apartment has been duly registered as a sectional unit under the Sectional Properties Act, 2020 (Cap. 286), the statutory evidence of ownership is the certificate of title or certificate of lease issued in respect of the unit. The Act does not prescribe a separate share certificate as evidence of ownership of the sectional unit.

This distinction is particularly important where a bank, purchaser, advocate or management entity requests a share certificate before accepting or completing a transaction involving a sectional unit.

 

1. The statutory framework

The starting point is section 3 of the Sectional Properties Act, 2020, which defines an "owner" as a person registered as the proprietor of a unit in a freehold or leasehold interest. The Act therefore places emphasis on registration of the unit and the proprietor's interest in the unit, rather than ownership of shares in a management company.

The Act establishes a specific registration regime for sectional units.

Section 5 — Separate registration of each unit

Section 5(1) provides that, upon registration of a sectional plan, the Registrar shall:

• close the register of the parcel;
• open a separate register for each unit; and
• issue, for each unit, a certificate of title where the property is freehold or a certificate of lease where the property is leasehold.

Importantly, the certificate includes the unit's proportionate share in the common property.

Section 5(3) further provides that no more than one unit may be referred to in a register, save for the share in the common property apportioned to that unit.

Section 5(5) goes further by providing that, upon registration of the sectional plan, the title to a unit is deemed to be issued under the Land Registration Act.

Accordingly, the statutory scheme treats the sectional unit as a separately registered proprietary interest.

 

2. The share in the common property is attached to the unit

Section 6 of the Act is particularly relevant when considering the argument that a separate "share certificate" is necessary.

Section 6(1) requires the Registrar to include in the register of the unit the share in the common property apportioned to the owner and to include that share on the title deed issued for the sectional property.

Section 6(2) provides that the common property is held by the owners of the units as tenants in common in shares proportional to the unit factors of their respective units.

The effect is significant.

The owner's interest in the common property is not treated as a separate asset requiring a separate share certificate. Rather, that interest is statutorily attached to, and reflected through, ownership of the sectional unit.

Thus, where a purchaser is registered as proprietor of Unit X, the purchaser's corresponding interest in the common property follows the unit in accordance with the Act.

 

3. The Corporation is not the same as the sectional unit

Another source of confusion arises from the use of the terms "management company", "Corporation", "shareholder" and "share certificate."

Section 17 of the Act provides that upon registration of a sectional plan, there is constituted a Corporation known as:

"The Owners, Sectional Plan No. …"

The Corporation consists of the owners of the units in the parcel.

More importantly, section 17(6) expressly provides that the Companies Act does not apply to the Corporation established under the Sectional Properties Act.

The statutory Corporation is therefore fundamentally different from an ordinary private company whose members hold shares evidenced by share certificates.

The legal architecture is essentially:

Sectional unit → registered proprietor → certificate of title/certificate of lease → membership of the Corporation

rather than:

Apartment → shares in a company → share certificate → ownership of apartment.

That distinction is central to analysing whether a share certificate is legally necessary.

 

4. What does this mean for a purchaser?

The Act itself is instructive.

Section 43(1), dealing with the sale of units, requires a developer to provide the purchaser with specified documents, including the purchase agreement, by-laws, management agreement where applicable, the relevant lease or title, charges affecting the unit and the sectional plan.

Significantly, section 43 does not prescribe a share certificate as one of the statutory documents that must be delivered to the purchaser as evidence of title to the sectional unit.

The statutory focus is instead on the title/lease and sectional plan.

This provides strong support for the position that, once a unit has been properly registered under the sectional title regime, a separate share certificate should not ordinarily be treated as the document evidencing title to the apartment.

 

5. What about developments that originally had a management company?

This is where caution is required.

It would be incorrect to say that no apartment transaction in Kenya can ever require a share certificate.

Some older developments were structured through long-term leases and management companies before the current sectional title regime was implemented. In such developments, the contractual documentation may have provided for purchasers to receive shares in the management company.

The Sectional Properties Regulations, 2021 specifically recognise this transitional situation.

Regulation 18 deals with conversion of long-term leases into sectional units. Regulation 18(3) expressly contemplates circumstances where shares in the management company have not been issued to the owners in accordance with the agreement.

This is important because it demonstrates that the existence of management-company shares may arise from the historical or contractual structure of a development, rather than from a statutory requirement that every sectional-unit owner must possess a share certificate.

Therefore, the proper legal question is not simply:

"Does the purchaser have a share certificate?"

but rather:

"What is the registered legal structure of the property, and does the underlying documentation create an independent contractual requirement concerning shares in a management company?"

 

6. Conversion under the 2021 Regulations

Regulation 18 provides for the conversion of qualifying long-term leases into sectional units.

It contemplates circumstances where all or some of the units have been transferred to their respective owners and the reversionary interest is held, or intended to be held, by the management company for the owners.

The Regulation also expressly provides mechanisms for dealing with situations where the management company has failed to apply for conversion.

Of particular relevance, Regulation 18(7) provides for issuance of a new certificate of lease or certificate of title, as applicable, upon conversion where the property is charged or otherwise encumbered.

Again, the statutory conversion mechanism culminates in the issuance of a certificate of title/certificate of lease for the sectional unit, rather than a share certificate constituting title to the unit.

 

7. Is a share certificate therefore legally unnecessary?

The better legal position

Where:

1. the property has been duly converted into a sectional property;
2. the sectional plan has been registered;
3. a separate register has been opened for the unit; and
4. the purchaser/owner is registered as proprietor of the unit,

the certificate of title or certificate of lease is the primary statutory evidence of ownership of that unit.

There is no provision in the Sectional Properties Act requiring the owner to hold a separate share certificate as evidence of ownership of the apartment.

The statutory position is reinforced by:

• section 3 — definition of "owner";
• section 5(1) — separate register and title/lease for each unit;
• section 5(5) — title to the unit is deemed issued under the Land Registration Act;
• section 6 — the owner's share in common property is incorporated into the unit's title;
• section 17 — establishment and membership of the Corporation; and
• section 43 — statutory documentation relevant to the sale of a unit.

 

8. Important distinction: evidence of title vs. evidence of membership

A share certificate may still have evidentiary or administrative relevance in an older development, particularly where the management-company structure predates conversion to sectional title.

However, that is different from saying that the share certificate is the document conferring title to the apartment.

The distinction can be summarised as follows:

Issue	Relevant document
Ownership of sectional unit	Certificate of title/certificate of lease
Registration of unit	Individual sectional-unit register
Proportionate interest in common property	Incorporated in the unit's title
Membership of statutory Corporation	Arises from ownership of the unit
Historical shares in management company	May arise from prior contractual/company structure
Evidence of title to the apartment	Title/lease, not ordinarily a share certificate

The distinction is particularly important when a bank or other institution is undertaking due diligence on an apartment offered as security.

 

9. Implications for banks and conveyancing transactions

A bank undertaking security due diligence should therefore distinguish between title perfection and corporate/administrative documentation.

If the borrower produces a duly registered sectional title/certificate of lease in their name, the bank should ordinarily be able to establish the borrower's proprietary interest from the land registration records.

A demand for a share certificate may nevertheless be justified where the bank's concern relates to:

• an unconverted development;
• an historical management-company structure;
• an express provision in the original lease or sale agreement;
• contractual rights attached to shares in the management company;
• transfer restrictions contained in the development documentation; or
• uncertainty as to whether the sectional conversion has been properly completed.

It is therefore preferable for an advocate advising a bank not to state categorically that a share certificate can never be required.

The stronger position is that a share certificate is not the statutory evidence of ownership of a duly registered sectional unit, and its production should therefore be justified by reference to the particular legal or contractual structure of the development.

 

10. Practical legal advisory

Where a bank insists on production of a share certificate notwithstanding the existence of a registered sectional title, the advocate may appropriately request the bank to identify the specific statutory, contractual or title requirement upon which the request is based.

A suitable position would be:

The requirement for production of a share certificate as evidence of ownership of the subject apartment does not arise under the Sectional Properties Act, 2020 where the apartment has been duly registered as a sectional unit. Pursuant to section 5(1) of the Act, a separate register is opened in respect of each sectional unit and the Registrar issues a certificate of title or certificate of lease in respect thereof. Further, pursuant to section 6, the proprietor's proportionate interest in the common property is incorporated in the register and title relating to the unit. The proprietor's ownership is therefore evidenced by the registered title/certificate of lease rather than by a separate share certificate.

While a share certificate may have been relevant under a previous management-company structure or may be required pursuant to specific contractual arrangements applicable to a particular development, it is not, in itself, the statutory instrument evidencing ownership of a duly registered sectional unit under the Sectional Properties Act.

This formulation is safer and legally stronger than simply asserting that "a share certificate is not required under the Sectional Properties Act."

Conclusion

The Sectional Properties Act, 2020 fundamentally changed the legal architecture for ownership of apartments in Kenya by providing for separate registration of individual units.

The strongest statutory provisions are sections 3, 5, 6 and 17, supplemented by section 43 and Regulation 18 of the Sectional Properties Regulations, 2021.

The central principle is:

Ownership of a duly registered sectional unit is evidenced by the registered certificate of title or certificate of lease. The proprietor's proportionate interest in the common property is appurtenant to the unit. A separate share certificate is therefore not, by the Act, the instrument of title to the apartment.

That said, historical management-company arrangements and contractual obligations must be examined separately, particularly for developments that have undergone or are undergoing conversion from long-term leases to sectional titles.

Disclaimer: This article is intended for general legal education and does not constitute a formal legal opinion on any particular property or transaction. For a live conveyancing or financing transaction, the registered title, sectional plan, original lease, sale agreement, management-company documents and conversion documents should be reviewed together.

 

Stamp Duty on Gifts Inter Vivos and Trust Property in Kenya: Understanding Section 52 of the Stamp Duty Act

The transfer of property without conventional monetary consideration raises important stamp duty considerations in Kenya, particularly where the transfer is structured as a gift, voluntary disposition or trust arrangement. Section 52 of the Stamp Duty Act, Cap. 480 provides the statutory framework governing stamp duty on gifts inter vivos and certain voluntary dispositions of property.

The provision is particularly relevant to individuals undertaking estate planning, families establishing trusts, charitable organisations and practitioners advising on transfers of land and other assets.

The General Rule: Voluntary Dispositions Are Chargeable to Stamp Duty

Section 52(1) provides that a conveyance or transfer operating as a voluntary disposition inter vivos is chargeable with stamp duty in the same manner as a conveyance or transfer on sale. The significant distinction, however, is that the value of the property conveyed or transferred is substituted for the consideration that would ordinarily apply to a sale transaction.

In practical terms, the fact that property is transferred as a gift does not, by itself, mean that the transaction is outside the stamp duty regime. A gratuitous transfer may still attract ad valorem stamp duty, with the value of the property forming the basis for determining the duty payable.

This treatment is important because parties cannot necessarily avoid stamp duty merely by characterising a transaction as a gift or by assigning a nominal consideration to the transfer.

Transfers for Inadequate Consideration

Section 52 also addresses transactions in which the stated consideration may not reflect the true economic substance of the transaction.

Under section 52(5), a conveyance or transfer that is not made to a purchaser, encumbrancer or other person acting in good faith for valuable consideration may be treated as a voluntary disposition. The provision further recognises that consideration may not qualify as valuable consideration where, in the Collector's opinion, the amount paid is inadequate or the circumstances of the transaction confer a substantial benefit upon the transferee.

The provision therefore gives the Collector an important role in determining whether a transaction that appears to involve consideration is, in substance, a voluntary disposition.

For practitioners, this underscores the importance of properly documenting the commercial substance and consideration underlying a property transfer.

Statutory Exemptions for Certain Transfers

Section 52(2) creates specific exceptions to the general charging rule in section 52(1).

A voluntary disposition of property is not chargeable with duty where the conveyance or transfer falls within the categories specified in section 52(2). These include certain bodies incorporated by special Act and meeting the statutory requirements relating to the holding of property for open-space or preservation purposes.

More significantly for estate and succession planning, section 52(2)(b) covers a conveyance or transfer in favour of a body established, or a registered family trust, for charitable purposes only, or the trustees of such a trust.

The wording of the statute is important. The exemption is not a blanket exemption for every transfer involving a family trust. The statutory conditions must be satisfied, including the requirement relating to the nature and registration of the family trust and, in the relevant circumstances, the charitable-purpose requirement.

Accordingly, parties contemplating the transfer of property into a trust should carefully examine the legal structure and purpose of the trust before assuming that the transaction qualifies for the statutory relief.

The Role of the Collector

Section 52(3) introduces an important procedural safeguard in relation to transactions falling under the section.

The Collector is required, without a fee, to express an opinion under section 17 on a conveyance, transfer or agreement falling within the provisions of section 52. The instrument is not regarded as duly stamped until the Collector has expressed the requisite opinion and the instrument has been stamped accordingly.

This requirement means that the availability of an exemption should not simply be assumed by the parties. The transaction should be presented for the appropriate determination and stamping process.

Valuation of Gifted Property

Valuation becomes particularly important where land or other valuable property is transferred as a gift.

The Stamp Duty Regulations contemplate specific documentation for conveyances or transfers operating as voluntary dispositions inter vivos. In relation to land, the relevant information is to include a full description of the property, improvements, sub-leases and tenancies, among other particulars. The question of value may be referred to the Government Valuer.

This valuation mechanism reflects the underlying principle in section 52(1): stamp duty is determined by reference to the value of the property rather than simply the consideration stated in the instrument.

Consequently, parties should not assume that a transfer for a nominal consideration will result in stamp duty being calculated on that nominal amount.

Transfers by Trustees to Beneficiaries

Section 52(6) contains another important provision for trust structures.

The provisions of section 52 do not apply to specified categories of conveyances or transfers, including certain transfers made for the appointment or retirement of trustees, transfers under which no beneficial interest passes, and a conveyance or transfer made to a beneficiary by a trustee or another person acting in a fiduciary capacity under a trust, whether express or implied.

This distinction is significant.

The provision should not be understood as creating a general exemption applicable to every transaction involving a trust. Rather, it excludes specified transactions from the operation of section 52. Whether a particular transfer falls within section 52(6) will therefore depend on the nature of the transaction, the capacity in which the transferor acts and whether the statutory requirements are met.

Implications for Estate Planning and Family Trusts

Section 52 is particularly relevant to modern estate-planning structures involving family trusts.

A family may, for example, establish a trust and subsequently transfer property into the trust. Depending on the precise structure and purpose of the trust, the transfer may fall within one of the statutory provisions dealing with voluntary dispositions. Equally, a subsequent transfer by a trustee to a beneficiary may fall within section 52(6), subject to the requirements of that subsection.

The tax consequences should therefore be considered at each stage of the transaction, rather than treating the trust structure as automatically exempt from stamp duty.

This is especially important where substantial immovable property is involved, because valuation and stamping requirements can have significant financial and procedural consequences.

Conclusion

Section 52 of the Stamp Duty Act establishes a nuanced regime for gifts inter vivos and voluntary dispositions. The starting position is that a voluntary disposition is chargeable with stamp duty as though it were a conveyance or transfer on sale, with the value of the property substituted for the consideration.

At the same time, Parliament has created specific statutory exceptions, including certain transfers involving qualifying charitable bodies and registered family trusts, as well as specified transfers undertaken by trustees in fiduciary capacities.

The practical lesson is that the legal characterisation of the transaction, the capacity of the parties, the purpose and status of the trust, the consideration involved and the value of the property are all material in determining the applicable stamp duty treatment.

Parties contemplating gifts, trust settlements or transfers of property should therefore obtain appropriate legal and tax advice before executing the relevant instruments. Proper structuring at the outset can be critical to ensuring compliance with the Stamp Duty Act and avoiding unexpected duty assessments, delays in stamping or difficulties in registration.

Disclaimer: This article is intended for general legal information and does not constitute legal or tax advice. The application of section 52 will depend on the facts and structure of each transaction, as well as the law in force at the relevant time.

 

By Z.O.G