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.
Credits: IKM Advocates/DLA Piper
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