1.0 Introduction
The
Sectional Properties Act, 2020 laws of Kenya (the “new law”) has
effectively repealed the Sectional Properties Act of 1987, laws of Kenya
(the “repealed law”).
The sectional properties law seeks to
sub-divide buildings into units to be owned by individual proprietors
and common property to be owned jointly by the proprietors as tenants in
common.
The new law seeks to simplify the process of
registration of sectional properties and create an enabling environment
for investors and property owners. It seeks to guarantee the rights of
property owners by conferring absolute rights to individual unit owners
over their units and vest in them the reversionary interests thereto.
This
will give the unit owners greater power and liberty to deal with their
units as they please and it is anticipated that their transactional
ability to access financing and dispose their units will be dramatically
expanded. This will also motivate lenders and financiers to offer
credit facilities to the individual unit owners as they may now charge
the individual units directly without requiring the consent of the
developer and or the manager.
We highlight the salient features of the Sectional Properties Act, 2020 as below: -
1.1. Leasehold Tenure
The
sectional properties law applies to land held on a freehold tenure or
on land held on leasehold tenure where the intention is to confer
ownership. The new law has reduced the leasehold period to twenty-one
years from the forty-five years required under the repealed law. This
enlarges the purview of the sectional properties laws to extend to
proprietors of all long term leaseholds which are defined in law as
leases for a period of twenty-one years and above.
1.2. Nexus Between The Sectional Properties Act 2020 And The Land Registration Act, 2012
The
efforts of the Ministry of Lands and Planning (the “Ministry”) in the
recent past have been geared towards phasing out the different land
registration regimes that have existed and give effect to the Land
Registration Act, 2012 (the “LRA”); such that all dealings in or
dispositions of land shall be registered under the LRA. The new law
makes express reference to this by providing that the title to a
sectional property shall be deemed to be issued under the LRA and all
dealings and dispositions regarding the sectional property shall be in
accordance with the LRA.
1.3. Registration And Mandate Of The Management Corporation
Upon
registration of a sectional property, the individual owners are
constituted in a Corporation which is responsible for management of the
common property. The new law provides that upon registration of the
sectional plan, the registrar shall issue a Certificate of Registration
in respect of the Corporation. This was not the case under the repealed
law.
The new law mandates the Corporation to do all things to
ensure the common property is well managed and may engage the services
of a property manager or any other person to this end. The new law
further mandates the Corporation to establish an internal dispute
resolution mechanism through the Committee established under the Act to
hear and determine any disputes. It also empowers the Corporation to
execute any of its duties by the use of technology. These provisions
were not in the repealed law and reflect the dynamics of the current
world.
The new law has repealed section 29 of the old law which
provided for the compulsory appointment of an institutional manager and
extensively set out the qualifications and duties of the said
institutional manager who would be responsible for management of the
units, any property of the Corporation as well as the common property.
As discussed above, section 20(1) of the new law provides that the
Corporation may, if it deems it necessary appoint a property manager to
manage the common property.
1.4. Conversion of Sub-Leases
The
new law further provides that all long term sub-leases intended to
confer ownership on a mansionette, apartment, flat, town house or office
that were registered before the new law shall be reviewed to conform
with section 54(5) of the LRA and the proprietors thereto shall be
issued with certificates of lease. The import of this provision is to
transition all buildings to sectional status and guarantee the absolute
rights of the owners of such units to deal with the same without being
subject to the power and direction of the developer and or the
management company.
This said review and transition of sub-leases
shall be done within a period of two years from the date of commencement
of the new law. This will not entail a transaction from scratch and an
owner who has already paid stamp duty in respect of the said sub-leases
shall not be required to pay stamp duty during the revision.
The
process of conversion may be commenced by the developers, the management
company or the individual unit owner. If the developer is unwilling to
surrender the mother title for purposes of the conversion, the registrar
may register a restriction against the title to prevent any further
dealings on it.
The review process anticipated in the new law
must be read and understood alongside the provisions of the Gazette
Notice Number 11348 of 31st December, 2020 providing for conversion of
land titles. It would appear that the efforts of the Ministry are geared
towards bringing all land dealings in Kenya under the purview of the
LRA as earlier discussed. The surrendered sub-leases would be subject to
the new land registration units established under the said Gazette
Notice depending on where the property is situated. Noting the timelines
set out for conversion of the land titles commencing from the month of
April, 2021, a diligent unit owner should peruse the Gazette Notice to
confirm whether the mother title is part of the phase one of the
conversion of land titles. It is not clear which of the two between the
conversion and the surrender and revision of the sub-leases should
precede the other or whether they can be undertaken at the same time.
1.5. Registration And Removal Of Caution In Respect Of Unpaid Amounts
The
Corporation may register a caution against the title to an owner’s unit
for any amounts due and unpaid by the owner, provided that upon payment
of the amounts due, the Corporation shall within thirty days of payment
withdraw the caution. The new law has prescribed the period within
which the caution should be withdrawn. The repealed law was silent on
this.
1.6. Renting Of Residential Units
Under the
repealed law, an owner renting out their unit was required to disclose
to the Corporation the amount of rent chargeable to the unit as well as
pay a deposit to the Corporation for maintenance, repair and or
replacement of the common property. This is not a requirement under the
new law which recognizes the autonomy of an individual unit owner to
deal with their individual unit as they please independent of the common
property and the mandate of the Corporation.
1.7. Termination Of The Sectional Status Of A Building
Under
the new law, the sectional status of a building may be terminated by
unanimous resolution of the unit owners, the substantial all total
destruction of the building or pursuant to an order for compulsory
acquisition and the Corporation shall stand dissolved upon the
termination of the said sectional property status. Under the repealed
law, the sectional status would only be terminated by unanimous
resolution or by an order of the Court. The Corporation was also
required to apply to court for an order winding up the affairs of the
Corporation.1.8. Dispute Resolution
Under
the repealed law, any disputes relating to the contravention of the
by-laws of the Corporation were referred to a tribunal established under
the Landlords and Tenants Act which was mandated to recover from an
errant owner or tenant a penalty not exceeding Kenya shillings
twenty-five thousands. Under the new law, disputes in relation to
contravention of the by-laws are referred to the Committee which is an
internal dispute resolution mechanism of the Corporation and without any
prescribed limit as to the penalties to be levied.
Under the new
law, in the event of non-compliance with an order of the Committee or
if a party is disgruntled with the decision of the Committee, both may
apply to the Environment and Land Court for enforcement of the order or
in the case of an appeal from the decision of the Committee as the case
may be. The repealed law provided that enforcement of an order of the
tribunal in the event of non-compliance would lie with the Resident
Magistrate Court and any right of appeal would be exercised at the High
Court of Kenya.
The Sectional Properties Regulations, 2021
Introduction
The
Cabinet Secretary for Lands and Physical Planning has gazetted the
Sectional Properties Regulations, 2021 (“the Regulations”). Their
objective is to operationalise the Sectional Properties Act, 2020 (“the
Act”). The Act covers ownership of units in a building such as offices,
apartments, flats, and townhouses. We summarize below the key provisions
of the Regulations.
Salient features of the Regulations
A
key aspect of the Act is that ownership of the unit is devolved to the
unit owners and held exclusively by them. This is illustrated by the
below:
Sub-division and Consolidation
Owner may sub-divide or consolidate their unit by registering a sectional plan of sub-division, or consolidation respectively.
Where
the subdivision or consolidation is likely to affect the incidental
rights of other unit owners, their consent will be required. If the
property is charged, the chargee’s consent will be required, as well.
Apportionment of Rent and Rates
The obligations to pay rent and rates is now on the unit owners.
Rates Apportionment is determined by the County Government of the area the parcel is located.
The
Unit factor attributable to the unit, as computed below is one of the
factors taken into account in determining rates or rent payable.
Unit factors
Each
registered unit shall be allocated a unit factor/unit entitlement. The
unit factor is critical in determining the ownership of Common Property
held by all the unit owners as tenants in common and the number of votes
that a person may cast in a poll.
The unit factor may be determined in reference to any of these 3 factors or a combination:
❖ by the unit floor area; or
❖ by the selling/ value of the unit; or
❖ by location/position of the unit e.g. a penthouse or a riverfront unit as opposed to the other units.
The
recommended basis under the Regulations is the use of unit floor area,
which is the simplest. The total of the unit factors for all units in
the parcel is assumed to be 10,000, for ease in determining unit factors
in whole numbers.
Note: The size of the Common area is not factored in when determining the total area.
Conversion
Documents
supporting a conversion application are the: sectional plan, sub-lease/
long term lease and the Title or a Copy of the Title of the parcel.
Where the original title is unavailable, the applicant shall apply for a
replacement title.
After conversion, the Registrar shall issue the unitowner with a Certificate of Title/Lease.
Upon
conversion, the management company should transfer all its assets and
liabilities to the corporation within a period of one year from the date
of registration of the corporation.
If
the property is charged, the application for conversion may be prepared
by the developer, Management Company or unit owners but submitted by
the chargee or its appointed representative for processing at the Lands
Registry. Failure to make an application for conversion shall not
invalidate a charge over a Unit meant to secure the unit owner’s
obligations to a chargee. A charge may as well exercise its statutory
power of sale and the Registrar shall issue a new sectional title in the
name of the transferee upon registration of transfer by the chargee.
Conclusion
The
Regulations are a positive step towards the implementation of the Act,
which seems to have a lot of confidence from the end purchasers.
The
Act requires conversion of long term leases within 2 years from its
commencement i.e. December 28, 2020. With almost a year having lapsed
before the publishing of the Regulations and considering any operational
delays, it may be prudent that the Act is amended to allow the CS by
gazette notice provide for the period within which conversion must be
complete.
Additionally,
conversion where the Property is charged as security may be problematic
for example where only a portion of the units have been sold. There
would need to be co-operation between the developer and the buyers who
were issued with long term leases, pursuant to a Partial Discharge. If
these individual buyers had then used their units as security to other
financial institutions, it presents another hurdle. Even where transfer
of all units is complete to individual buyers, noting that securities
are noted against the individual leases and not the Head Title, the
accuracy of data to ensure no gaps in transition should be ensured.
More
so, a transparent and phased approach such as the one for Conversion of
Land parcels, where a gazette notice is published identifying parcels
that will be converted may be of some utility, as well as any records by
Management Companies for any consents to charge also presented with the
application.
