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:
- the property has been duly converted into a sectional property;
- the sectional plan has been registered;
- a separate register has been opened for the unit; and
- 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.
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