1.0 Introduction
The Sectional Properties Act 2020
("Act") was enacted in 2020 to align with the provisions of the
Constitution of Kenya, 2010 and the land laws enacted in 2012. Subsequently,
the Cabinet Secretary for the Ministry of Lands and Physical Planning gazetted
the Sectional Properties Regulations ("Regulations") on 16 November
2021. Please read the frequently asked questions (FAQs) on the Act and the
Regulations below.
2.0 What is the purpose of the
Sectional Properties Act, 2020 (Act) and Sectional Properties Regulations, 2021
(Regulations)?
The Act provides 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 and to provide for
the use and management of the units and common property.
The Regulations operationalise the
Act and outline the procedure for registration of sectional plans and
conversion of long-term leases registered under the Land Registration Act, no.
3 of 2012 (LRA) to sectional titles, among others.
3.0 What are the benefits of
the sectional regime of ownership?
I.
It simplifies sale transactions since individual sectional
titles can be transferred in the typical way that land is transferred. Lengthy
lease documents will no longer be required.
II.
Purchase of sectional units is less costly since the
Purchaser will not be responsible for the Vendor’s Advocates legal fees, unless
otherwise agreed. They will also not be required to incur costs for transfer of
reversionary interest.
III.
Administrative challenges surrounding transfer of
reversionary interest and issuance of share certificates are eliminated.
IV.
Land rates/rent to be paid per unit thus enhancing revenue
collection.
V.
The sectional regime increases access to financing. By
simplifying the process of obtaining title documents for the units, unit owners
can easily secure financing by charging the units in favour of the lenders.
VI.
It offers better protection to the unit owners. Sectional
developments are regulated by the comprehensive provisions of the Act and the
by-laws of the management corporation. The rules also prescribe disclosure
requirements which enable purchasers to be informed of the status of the
development including any existing encumbrances when purchasing a sectional
unit.
VII.
It promotes vertical development on land & therefore
optimizes the use of the limited land resources in Kenya. This increases the
number of units available for homeowners. It is, therefore, good for high
population density areas.
4.0 Which land interests does
the Act apply to?
I.
Freehold land
II.
Leasehold land with a minimum residual term of 21 years
5.0 What compliance
requirements must be met before creating a sectional development?
I.
The parcel of land (mother parcel) must be properly
geo-referenced and approved by the Survey Department. We are informed that the
Survey Department has georeferenced many properties, particularly within
Nairobi. Given this, the registration of sectional plans is ongoing
countrywide.
II.
More importantly, pursuant to section 13 (2) of the Act as
read with rule 18 of the Regulations, conversion of long-term leases to
sectional titles is ongoing. The Act requires the conversion process to be
undertaken by 28 December 2022.
6.0 How do you create a
sectional development?
I.
A sectional plan describing two or more units is prepared by
a surveyor from a building plan approved by the county government. This could
be a private surveyor. In preparing the sectional plan, the surveyor will
require a land search, construction permit and the floor plans. Further, the
physical structures must have been erected on the land.
II.
The application for registration of the sectional plan is
lodged at the land registry for registration. The Registry Index Map will be
amended upon registration.
III.
The application to register a sectional plan is accompanied
by an application to incorporate a management corporation. The management
corporation consists of the unit owners. A certificate of registration of the
management corporation will be issued to the applicant.
IV.
Once the sectional plan is registered, the land registrar is
required to submit the registered plan to the county government for
apportionment of rates within 21 days.
7.0 What are the consequences
of registration of a sectional plan?
I.
The register relating to the mother title is closed and its
title deed is surrendered to the land registry.
II.
A separate register is opened for every sectional unit.
III.
Certificates of title (for freehold land) or certificates of
lease (for leasehold land) are issued for each sectional unit at a fee.
IV.
The interests registered against the mother title (e.g.,
charges, easements etc.) are endorsed on the sectional title documents.
8.0 Will title documents be
issued for sectional units?
Yes.
I.
Where the mother parcel is freehold, the sectional unit
owners will be given certificates of title.
II.
Where the mother parcel is leasehold, the sectional unit
owners will be given certificates of lease.
9.0 Will I need a share
certificate for my share in the common areas?
No. Share certificates will not be
required. A sectional unit owner’s interest in the common areas is endorsed on
their certificate of title or certificate of lease (as applicable).
10.0 Who pays land rent and
land rates in a sectional development?
Each sectional unit owner will be
responsible for payment of land rent and rates for their individual unit. This
will no longer be the responsibility of the management entity.
11.0 Who owns and manages the
common areas of a sectional development?
I.
The common areas are owned by the sectional unit owners as
tenants in common in shares proportionate of the units.
II.
The management corporation manages the common areas on behalf
of the unit owners in accordance with the provisions of the Act and by-laws
adopted by the members.
12.0 What happens to an
existing management company once a management corporation is registered?
The management company is required to
transfer all its assets and liabilities to the management corporation within 1
year of registration of the management corporation. The management company will
then be wound up in accordance with the Insolvency Act.
13.0 Which long-term leases
registered under LRA are required to be converted into sectional units under
the Act?
Ø Conversion applies only to
long term leases of a period of 21 years and above and which confer ownership
of building units.
Ø Section 13 (2) of the Act
as read with rule 18 of the Regulations requires all registered long-term
leases (except those exempted under rule 22 of the Regulations) to be converted
to sectional units where:
I.
all units in a development have been transferred to the
respective owners and reversionary interest has been transferred to the
management company to hold in trust for the owners as noted on the title. In
this case, the application for conversion is to be made by the management
company;
II.
all units in a development 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. In this case, the application for conversion is to be made by the
developer or management company; or
III.
part of the units have been transferred to respective owners
and the reversionary interest is by written agreement intended to be
transferred to the management company. In this case, the application for
conversion is to be made by the developer or management company.
14.0 How do I convert leases
registered under LRA to sectional titles?
v Conversion may be
initiated by a developer, the management company or an owner of any unit of a
development. If the parties indicated above who are responsible for making the
applications for conversion do not do so, any owner of any unit in the development
can apply for conversion.
v Where the parcel of land
is encumbered, the application is submitted by the chargee or its
representative.
v Conversion is effected by
submitting to the land registry an application for conversion (form SP 16) and
an application for registration of the management corporation (form SP7). The
applications will be accompanied by:
I.
the sectional plan;
II.
the leases;
III.
the certificates of lease (where applicable); and
IV.
the original or copy of the mother title (or if not
available, an indemnity).
V.
Upon registration, certificates of title or certificates of
lease (as applicable) will be issued for the individual units.
15.0 Will stamp duty be
required for conversion of existing registered leases to sectional titles?
Unit owners will not be required to
pay stamp duty if it was paid on the existing lease. Stamp duty will only be
required where this was not paid.
16.0 Is there a deadline for
conversion?
v Yes. The deadline is 28
December 2022.
v The Ministry of Lands and
Physical Planning may need to procure the amendment of the Act to extend this
deadline to allow owners sufficient time to comply with the requirement for
conversion.
17.0 Consequences for failing to convert long
term leases to sectional titles before 28 December 2022
v The land registrar is
required to register a restriction against the mother parcel to prevent any
further dealings from 28 December 2022. Although the interests of the owner and
the chargees (if any) will not be extinguished, a chargee may face challenges
when seeking to enforce their security against a mother parcel since they will
need to procure that the conversion is done before realizing its security.
v This requirement for
registration of a restriction by the land registrar does not apply to leases
relating to the individual units. We expect the land registry to progressively
undertake the conversion of the leases as dealings continue. Given this, in the
event that a chargee seeks to exercise statutory power of sale against
individual units, the land registrar will issue certificate of lease in the
name of the transferee upon the registration of the transfer by the chargee.
v However, it is likely that
in due time, the land registry will issue directives restricting dealings
thereon until conversion is effected.
18.0 Which long-term leases
registered under LRA are exempted from the requirement of conversion to
sectional titles?
v Rule 22 of the Regulation
exempts the following LRA leases from the requirement for conversion:
I.
where it is expressly provided for by agreement that the
reversionary interest belongs to the developer or lessor or management company
as legal owner and not as trustee. The Act does not define “trustee”.
II.
leases relating to large mixed-use developments and phased
developments where it is by agreement provided that the reversion shall be
retained by the developer or to be otherwise held by a management company; or
III.
leases relating to projects of strategic national importance,
substantial transactions and special economic zones, which by their nature,
renders it impractical to relinquish reversionary interest.
· The Act does not define
what constitutes a “large” mixed-use development or “substantial transaction”.
The land registry and/or Survey Department should issue directives on this for
clarity.
· Notwithstanding the
exemption, rule 76 (2) (f) of the Land Registration Act (General) Regulations,
2017 (LRA Regulations) requires that sectional plans will be prepared to
accompany the lease documents (in place of the architectural drawings). Under
rule 76 (3) of the LRA Regulations, the sectional plans are required to conform
with the Act with necessary amendments.
19.0 Can the sectional status
be terminated and if so, how?
Yes, sectional status can be
terminated by:
I.
a unanimous resolution of the corporation;
II.
substantial or total damage to the building; or
III.
compulsory acquisition.
20.0 Which documents must a
developer deliver to a prospective buyer of a sectional unit?
I.
the sale agreement;
II.
by-laws for the development;
III.
the management agreement (in relation to management of common
areas);
IV.
the recreational agreement (in relation to management of
recreational facilities) (if any are in place);
V.
the mother title or the sectional title for the unit;
VI.
the sectional plan or proposed sectional plan; and
VII.
the charge registered against the mother title or the
sectional title (if any); and
VIII.
where there is a charge or proposed charge, a notice
indicating:
a. the principal amount
secured by the Charge;
b. monthly instalments
payable under the Charge by the developer;
c.
the amortization period;
d. the term of the loan;
e. the rate of interest
payable on the loan;
f.
any privileges on pre-payment of the loan.
A developer who contravenes this
requirement commits an offence and on conviction is liable to pay a fine of
Kshs. 20 million or imprisonment for 1 year.
21.0 Can a unit owner rent
their unit? What is the procedure for doing so?
Yes they can. However, the unit owner
is required to give to the management corporation:
I.
prior written notice of the intention to rent out the unit
and setting out the unit owner’s address for purposes of service of notices by
the management corporation
II.
a prior written undertaking to be liable for any damage
caused by the tenant;
III.
written notice of the name of the tenant within 20 days of
commencement of the tenancy; and
IV.
written notice within 20 days of the tenant vacating the unit
to the effect that the unit is no longer rented out.
V.
Where a tenant contravenes the estate by-laws and the unit
owner fails to take necessary action, the management corporation is entitled to
give the tenant notice to vacate the unit.
22.0 Proposals for redress or
reform
While the Act is progressive, we
propose the following reforms:
I.
The Act should allow for sectional ownership of land. It
currently applies to division of buildings only;
II.
The Act should provide for multi-tier management corporations
to cater for complex developments and phased developments;
III.
Section 13 (2) of the Act should be amended to extent the
deadline for conversion of long-term leases to sectional units;
IV.
The Land Registry should issue practice guidelines:
V.
clarifying the process on conversion of LRA leases to
sectional titles where the mother parcel is listed for conversion of the parcel
number;
VI.
clarifying the meaning of holding reversionary interest “in
trust” and as “legal owner” under rules 18 and 22 of the Regulations; and
VII.
defining “large” mixed use developments and “substantial
transactions” under rule 22 of the Regulations.
Courtesy of IKM
Advocates/DLA Piper
