Difference between a Lease and a License Agreement

A license agreement is not considered a lease; while both involve using someone else's property, a license grants a limited, revocable permission to use the property, while a lease conveys exclusive possession of the property for a set period, giving the tenant more substantial rights and security of tenure.


Key differences:
Exclusive possession:
A lease grants exclusive possession of the property to the tenant, while a license does not.

Revocability:
A license can be revoked at any time by the property owner, while a lease generally cannot be terminated without specific legal grounds.

Transferability:
A lease can usually be assigned to another party, whereas a license is typically not transferable.

The Legal Process For Buying Land in Kenya

 

1.0 Conducting a Search at Ministry of Lands

Search with the Ministry of Lands at district or county headquarters to ascertain the true land owners and establish the presence of brokers and if the title has been charged or has a caveat, for instance, when it has been used to secure a loan, or there is a court order barring any transaction on the land.

A search costs depending on the registry gazetted fees and should be ready within a few days. A valid search should be no more than six months old.

2.0 Payment of Land rates

Visit the Local Council (municipal or county) to confirm any unpaid land rates which you will need to factor in when deciding the purchase price. Cost varies from county to county. In Nairobi, you will be required to have a certificate of clearance from the Nairobi City County, and should be ready normally within a few days.

If there are prevailing unpaid land rates you would need to agree with the seller on who will settle them as the land cannot be sold (transferred) with outstanding land rates.

3.0 Land Map/Survey

Visit the local surveyor and purchase maps of the place, normally two, one drawn to scale (informally known as tracing or mutation) and another showing the neighboring farms, costing Ksh300 per map. You can buy these at the Lands Ministry but a surveyor is better and faster.

4.0 Verification of the Land

Armed with the map, the surveyor and the seller visit the land on the ground. Have a tape measure to confirm the dimension from the map drawn to scale. Make sure you see the beacons or replace the lost ones. Surveyors charge about Ksh1,000 per beacon. Make sure the bordering neighbors are in agreement with the boundaries.

5.0 Drafting a Land sale Agreement 

The law requires any land transaction to be in writing. It is very advisable to have a lawyer (though not a must). According to the tariff provided by the Law Society of Kenya, the lawyer should charge based on the ARO rates if the land cost a certain value as provided. A lawyer’s cost may normally shared equally between buyer and seller.

Ensure that the spouse to the seller is present at this stage or at least the spouse is aware and agrees with the transaction to avoid later complications.

6.0 Post Agreement Transaction

According to the agreement, you may be pay in cash or installment. Ensure by the time you make the initial payment the title deed and other legal documents are in the custody of the lawyers. This is because the seller still owns the piece of land and may involve other transactions using the title deed, which may harm you financially.

7.0 Land Control Board

Book the Land Control Board (LCB) meeting. The LCB is a forum made of the Assistant County Commissioners (Previously called DOs) and the local village elders which meets once a month. They are the ones who give the final consent for the land to be sold. Their role is to protect the seller from self-destruction e.g. where a man is selling land without wife’s knowledge and they don’t have anywhere else to go or the land being sold is clan/community land. LCB costs are set based on the gazetted registry costs.

However, there is a special Land Control Bond (SCLB), which involves only the Assistant County Commissioner and the two transacting parties instead of waiting for the main LCB that meets once per month. SCLB costs based on the registry gazetted rates and may take a few days depending on the availability of the Deputy County Commissioner.

8.0 Land Transfer Process 

After all payments, the seller signs Land Transfer Forms which together with Consent from LCB, land search, clearance from county/ municipal council, passport photos, KRA PIN, agreement and old title deed are taken to the Ministry of Lands to change ownership. It costs Ksh5,000 to process new title which should be ready within a few days to two weeks.

9.0 Stamp Duty and Transfer Fees

You will need to pay stamp duty based on the value of land, i.e four percent (4%) for municipalities and two percent (2%) for reserves.

10.0Conclusion

After one week, the buyer should do another search with the Ministry of Lands to confirm that the land now reads his/her details.

 

The Legal Process of Buying Land or Property in Kenya

Introduction

In Kenya, locals and foreigners are permitted to buy commercial and residential real estate/lands located within a town or municipality without any restrictions whatsoever provided that comply with the laid down procedures.

However, for the agricultural land, foreigners or privately-owned companies whose shareholders are not all Kenyan citizens are not permitted to buy such land unless where such transaction has been exempted from the provisions of the Land Control Act by the president pursuant to section 24 thereof. The land control boards, which are established under the said Act, are prohibited from granting consent to transfer in respect of persons or companies that do not qualify to hold agricultural land.

Under the new Kenyan Constitution 2010, persons who are not a citizen of Kenya as well as companies whose shareholders are not Kenyan citizens can only own land on a leasehold basis for a term not exceeding 99 years. In other words, such persons cannot own land on freehold tenure.

In summary, the procedure for buying land in Kenya is as detailed hereinbelow.

N/B: Buyers need to use professional and reputable lawyers whenever they are buying land in Kenya to receive proper legal advice and representation in the entire sale process and thus avoid unnecessary pitfalls and dealing with cons. Equally important, the purchaser should avoid making any payment directly to the vendor or his agent, and such monies are better channeled through his lawyer so that he can take the requisite precautions.

1. Identification of the Land

The process of land purchase starts with the buyer identifying suitable land for purchase. One can enlist the services of a reputable real estate agency firm to assist him in identifying suitable land for purchase and connect him to the seller. Once the land has been identified, the buyer should endeavor to visit the site and satisfy himself or herself that the land meets the desired criteria including its physical location and boundaries.

2. Conducting the requisite searches and preliminary investigations

Land in Kenya is registered under three registration regimes

The previous land registration laws (that is, The Government Lands Act, the Registration of Titles Act, and the Registered Lands Act) have now been repealed and replaced by the Land Act, the National Land Commission Land, and the Land Registration Act. The Land Registration Act provides for a registration unit in every district and the land registries established under the repealed laws are still operational.  

 The buyer or his lawyer should get a copy of the title and National Identity Card of the seller and conduct the requisite searches both for the land at the relevant lands office and also of the person named in the title as the registered owner at the Registration of Persons Bureau. The latter will help to confirm that the purported owner of the land is the real owner of the land an impostor. 

To conduct a search, one is required to file a search application form and attached a copy of the title deed. The search is then required to be lodged at the registry and the requisite search fees (current at KShs. 500/- paid. It takes 2-3 days to get search results from the Lands registry. The search result should be able to reveal the following details:-

(i) the registered owner of the property;

(ii) its size;

(iii) any encumbrances registered against the titles like prohibitions, court orders, cautions, and caveats;

If the search results are satisfactory, one should also check whether the land is included in the Report by the Commission of Inquiry on the Illegal and Irregularly Allocated Land, commonly known as the Ndung’u Land Report.

Moreover, it is usually prudent for the owner to enlist the services of a registered surveyor who shall be able to confirm the beacons on the land and conduct further preliminary checks at the Survey Department. 

3. Price and terms negotiation and the sale Agreement 

If the proposed buyer is satisfied by the preliminary investigation and check highlighted in 2 above, he should, together with his advocates, or alone, engage the vendor or his agent for purposes of discussion and agreeing on the terms of sale including the price and the terms of payment. Usually, the buyer is required to pay a 10% deposit and the balance of the purchase price upon completion of the sale transaction. 

Once the parties have agreed on the terms of sale, the Vendor's advocates should prepare the sale agreement and send the same to the vendor for his approval.

The sale agreement will set out the terms of sale including the name of the parties, the purchase price and mode of payment, the completion period (which is usually 90 days) and the completion documents to be furnished by the seller/ vendor to enable registration of the transfer of property in favor of the purchaser. Invariably, the sale agreement will incorporate the Law Society Conditions of Sale (1989 Version), which is a codification of the customary terms of sale adopted by the Law Society of Kenya, and these terms will apply, by reference, to the agreement of the parties unless otherwise excluded or varied by the parties in their agreement. It is also common for the sale agreement to incorporate a suitable arbitration clause, which provides for a mechanism of ease dispute resolution.  

Where the balance of the purchase price is being financed by a bank or financier, the same should be stated in the sale agreement. In such a case, the transfer of land in favor of the purchaser and the charge over the property in favor of the financier are registered concomitantly, and once the original title and security documents have been forwarded to the financier by the financier's advocates, the financier shall settle the financed balance of the purchase price to the Vendor or his advocates.

 It is important to note that where the purchase is being financed in the payment of any part of the purchase price, any part of the purchase price that is not being financed must be paid to the vendor's advocates and the purchase's advocates or the advocates acting for the financier must furnish the vendor's advocates with a suitable professional undertaking to secure the payment of the financed balance of the purchase price. If such undertaking is satisfactory to the vendor's advocates, he should forward the requisite completion documents to the financier's advocates to undertake the stamping and registration formalities.

Once the terms of the sale agreement have been agreed between the parties, the agreement is engrossed and executed by the parties or their power of attorney. The purchaser should be the first to sign the sale agreement, which should be forwarded to the vendor's advocates for the vendor's execution accompanied by the deposit cheque or evidence of the payment of the same.  

Once the vendor has executed, the vendor's advocates should note to present it for stamping with duty (currently KShs. 200 for the original and KShs. 20 for each counterpart) at the land's office. This is important because of the rule that unstamped documents cannot be accepted by a court of law as evidence in the event of a dispute.

It is important to note that the deposit monies should be held on stakeholders' terms (as trustee) by the Vendor's advocates pending the completion of the sale and should not be released to the vendor unless otherwise agreed by the parties. Moreover, where the purchase price is paid in full, the same should be held on stakeholder's terms by the vendor's advocates until completion of the sale transaction, which is signified by the registration of the transfer at the lands office in favor of the purchaser. For this reason, the purchaser must insist on the vendor's advocates being a reputable firm of advocates, and where the vendor's advocates cannot be trusted, the monies should be held in a joint account in the name of the vendor's and the purchaser's advocates or an independent escrow agent.  

4. Preparation of the Transfer and Getting the Completion Documents

The transfer is usually prepared by the purchaser’s advocate and approved by the vendor’s advocate. The documents should also be signed by both parties. 

Unless otherwise stated in the sale agreement between the parties, the vendor usually has to obtain all the requisite completion documents, which are required to effect the registration of the property in favor of the purchaser) at his own costs. These documents include:-

(a) The original title for the property

(b) The transfer of property duly executed by the vendor/ seller (in triplicate);

(c) Identity Card/ Certificate of Registration of the vendor/ seller and Pin Certificate;

(d) Three(3) passport-sized photographs of the seller/vendor. If the seller is a company, photographs of two of its director or a director and company secretary and their Pin Certificate will also be required; 

(e) Land Rent Clearance Certificate for the Property, where the land is a leasehold from the Government;

(f) Rates Clearance Certificate for the Property issued by the relevant local authority (if applicable);

(g) original receipts evidencing the payment of rates and rates;  

(h)(h) Consent to transfer the property issued by the Commissioner of land, the relevant land control board, or where the land is a leasehold from a local authority, the consent is issued by the Town Clerk of the relevant local authority.

(i)Valuation form duly completed by the Vendor or his advocate;

 If the property is a flat/apartment or office space and comprised the of a lease, additional completion documents will include:

(a) the original lease for the property and the transfer of lease duly executed by the parties, as appropriate; 

(b) the consent by the lessor and/or the management company, incorporated in the transfer of lease,  

(c) the letter from the management company confirming that the seller has paid all the outgoings;

(d) the original share certificate in the management company;

(e) the transfer of share form duly executed by the parties;

(f) Form D in respect of the share transfer duly signed by the company's auditors; 

5. Stamping and Registration Formalities

The purchaser is usually responsible to cater to the costs of the stamp duty on the transfer of property and registration charges. The stamp duty on the transfer of property is collected by the Kenya Revenue Authority and is payable pursuant to the provisions of the Stamp Duty Act, chapter 480 of the laws of Kenya. Before duty is determined, the vendor's advocates must apply for the valuation of the property at the Land Office, which is undertaken by the government valuers, who are required to determine the market value of the property. This application is done by lodging the duly signed transfer of property and the valuation for stamp duty form duly signed by the vendor or his advocates (referred to above).

Once the valuation has been completed, the market value of the property (not necessarily the value indicated by the transfer) will be indicated on the original transfer of property by the collector of duties. Thereafter, the vendor's advocates will need to present the documents to the lands office for assessment of the duty payable. This is done by filling a form known as the stamp duty Declaration, Assessment, and Pay-in Slip, which is complicated in quadruplicate.

As stated before, the stamp duty is collected by Kenya Revenue Authority and should be paid to the Commissioner of Domestic Taxes through various banks which have been appointed as collecting agents. Currently, these banks include Kenya Commercial bank Limited (KCB), and National Bank of Kenya Limited (NBK).

 Once the duty has been paid over the counter through the collecting either of the collecting agent banks, the documents are then lodged at the lands office for stamping with duty. The collector of stamp duties will normally stamp the documents once he is satisfied that the collective amount of stamp duty has been paid. 

The following are the rates applicable on the transfer of land:-

Where land is in a municipality- the duty is 4% of the market value of the land as determined by the Government valuer. The market value may be higher than the value indicated by the parties in the transfer documents.

Where land is agricultural or outside a municipality- the duty is 2% of the market value of the land as determined by the Government valuer. 

In respect of a charge or mortgage – the duty payable is 0.1% of the mortgage amount. 

Once the transfer of land or charge over the property has been stamp duty with duty, the transfer documents accompanied by the original titles, land rent and rates clearance certificate, consent to transfer, the duly completed valuation for stamp duty form, and the stamp duty declaration, assessment and pay-in-slip should be booked of registration.

Where the purchaser is being financed, the charge over the property and consent to charge must also be booked or lodged for registration together with the transfer.

6. Registration 

The final process of land purchase is the registration of the transfer in favor of the purchaser, or the transfer of property/lease and the charge in favor of the purchaser and the financier, as the case may be.

Once the duly registered transfer has been released to the purchaser or his advocate, it is important to verify registration by conducting a search of the property.

Where the purchaser is being financed, the duly registered documents including the original title for the property, transfer, and the charge are forwarded to the financier to enable it to settle the balance of the purchase price. These will be held by the bank/financier until the loan has been repaid in full.

7. Development Permission 

Where the property is intended for use in the construction or erection of a building, after the purchase, the owner will be required to obtain the requisite development permissions from the relevant local authority.

If the proposed development is likely to have any adverse impact on the environment, the owner will also be required to commission an environmental impact assessment report and obtain an environmental license from the NEMA before undertaking any development on his property.

The Sale Agreement and the Transactional Costs involved in Transfer of Property

1.0 Sale Agreement and Deposit
Once the search has been conducted, the Vendors advocates prepare the sale agreement. Upon execution by both parties, the agreed deposit is paid by the purchaser through their advocate to the seller’s advocate account. Standard sale transactions in Kenya take 90 days and the standard deposit is 10%.

2.0 Property transactional costs

Buyers will incur certain transactional costs when buying either residential or commercial property in Kenya.

          i.            Stamp Duty/Land Tax: This levy is centered on the property value and the State relies on the amount returned by the Government Valuer or the purchase price agreed upon, whichever is higher.

            o     4% for land/property within a municipality

            o     2% for agricultural land or property outside a municipality

            o     1% if a property is registered as a company and transfer is by way of shares rather than title Legal fees:

Each party pays for their own legal fees based on a percentage of the purchase price on a scale stipulated in the Advocates Remuneration Amendment Order, 2014. The only exception which appears to be a common practice, is where buyers are required to pay legal fees for both parties when buying an apartment. The argument for this is based on the fact that the seller’s lawyer is the one who does registration for all the leases on behalf of the buyer.

Commercial properties attract VAT and the current prevailing rate is 16% of the purchase price.

         ii.            Agency fees: The agent is paid by the party who instructs them; either by the seller who instructs the agent to market their property or the buyer who instructs the agent for a property acquisition. The fee is on a scale capped at a maximum of 3% of the property’s value.

        iii.            Registration and disbursement fees: Buyers are generally responsible for the cost of registration of titles in their name(s) together with other disbursement costs as may be advised by the seller’s advocate.

 

Essential Clauses of a Commercial Lease to Protect the Landlord

 Introduction

A Lease Agreement (the “Lease”) sets out the rules to govern the relationship between the Landlord and the Tenant. It is a legal contract, as well as an immensely practical document full of crucial business details and deep legal implications. As a landlord, it is important to have a Lease that includes essential clauses that protect your rights and interests.
Failure to include these clauses may result in loss of income, liability for damages or lengthy and costly legal disputes in Court. This legal alert highlights some of the essential clauses of a lease protecting the landlord and provides a rationale for each clause.

Essential Clauses of a Lease Agreement

i) Essential Clauses of a Lease Agreement

A permitted user clause is an important provision in leases that specify the type of business activity or use that is allowed on the leased premises. This clause restricts the tenant from using the property for purposes that are not permitted in the lease. The rationale for the inclusion of the permitted user clause is;

Zoning and planning regulations:

Protection of the Landlord’s Investment:

Compliance with insurance requirements:

Compliance with Lender requirements:

In summary, the clause is necessary to protect the landlord’s investment, comply with planning regulations, insurance and lender requirements and avoid potential legal issues.

ii) Security Deposit Clause

The Security Deposit Clause acts as a form of insurance for the Landlord, protecting them from losses in case the tenant fails to fulfill their obligations. The security deposit clause must specify that the deposit shall not be used as rent for the months leading up to the lapse of term of lease. This clause must also specify how the deposit will be utilized before refunding after the lapse of lease.
The clause must specify the order of utilization of deposit as follows;

·      1

To settle all outstanding bills with respect to water, electricity, telephone, insurance, etc.;

·      2

To conduct repairs and maintenance of the rented premises;

·      3

. To settle all penalties and/or interests accrued from outstanding rent and service charge bills;

·      4

To settle the outstanding service charge bills; and finally

·      5

To offset any outstanding rent charges.

iii.) Dispute Resolution Clause

A dispute resolution clause outlines the process to be followed in the event of a disagreement between the landlord and tenant. The clause provides alternative ways of resolving disputes aside from resorting to court processes, often characterized by exorbitant costs and prolonged timelines.
By offering avenues for dispute resolution, e.g., negotiation, mediation or arbitration, the clause fosters the preservation of the landlord- tenant relationship by departing from the confrontational nature of litigation.
The underlying rationale for the dispute resolution clause is to provide lucidity and predictability. By articulating a well- defined process, it obviates confusion and misunderstandings that may arise during court process.

iv.) Notice Clause

A proper notice clause is essential for protecting the landlord’s rights. The provision should clearly specify the requisite procedures and protocols for delivering notices. The law requires the landlord to adhere to specific notice requirements before making any amendments to the terms of the lease.
It is imperative that this clause be included in the lease which recognizes notice by newspaper. This enables the landlord to serve statutory notices in a national newspaper without first obtaining leave of court. Such inclusion will save time and litigation costs that may otherwise be incurred if the landlord were to obtain permission from the court before service.

v.) Severability Clause

The severability clause establishes that in the event a court invalidates a provision within the lease, the remaining terms of the lease remain enforceable. This provision ensures that the lease remains valid, notwithstanding any unenforceable provision. The landlord retains the benefit of the lease despite any attempt by the tenant to terminate the lease due to the invalidation of a single clause by a court. The severability clause permits cancellation of only unenforceable provisions while preserving the effectiveness of other enforceable clauses in the lease.

v.) Termination and Right of Re-Entry Clause

The Landlord and Tenant (Shops, Hotels & Catering Establishments) Act introduces the concept of a controlled tenant. A controlled tenancy is one that restrict the landlord’s ability to increase rent or terminate the lease without prior clearance from the Business Premises Rent Tribunal. To avoid  this, the Lease ought to satisfy the following requirements;

·      a

The term of lease must be more than 5 years;

·      b

The lease must not have a termination clause allowing the Tenant to terminate the lease before lapse of 5 years;

Commercial Leases typically do not have termination clauses. However, the re- entry clause allows the Landlord to terminate the lease by re- entering the rented premises before lapse of term in the following circumstances;

·      a

Non- payment of rent and other rent service even after receiving demand;

·      b

Non- performance or breach by the tenant of any covenants to the Lease;

·      c

Liquidation, placement under receivership or administration or voluntary arrangements with creditors of the tenant.

Conclusion

It is important to note that these clauses are not exhaustive and may vary depending on the specific circumstances of each Lease. Our legal team is well-equipped to provide personalized professional advice and assistance in drafting, reviewing and registering Lease Agreements that secures your rights and interests as a Landlord.