Case Analysis in landmark judgment in Dina Management Limited v County Government of Mombasa & 5 others (Petition No. 8 (E010) of 2021)

 The Supreme Court of Kenya recently delivered a landmark judgment in Dina Management Limited v County Government of Mombasa & 5 others (Petition No. 8 (E010) of 2021), which has significant implications for property investors and stakeholders in Kenya. The case involved the allocation of a parcel of land in Nyali Beach, Mombasa to H.E Daniel T. Arap Moi. Subsequent transfers of the property occurred, leading to its acquisition by Dina Management Limited. The County Government of Mombasa forcefully entered the property, claiming it was public land. Litigation ensued at the Environment and Land Court, followed by an appeal to the Court of Appeal and a petition to the Supreme Court resulting in the Supreme Court's decision in favor of the County Government.

The Supreme Court's ruling represents a considerable departure from the previous position based on the Torrens System, where a certificate of title issued by the Registrar was considered conclusive evidence of proprietorship. Irregularities or illegality in the initial allocation did not affect subsequent transfers if subsequent owners were not party to the illegality. The key points from the ruling are as follows:

1. No sanctity of title: The Supreme Court confirmed that registered title to property can be invalidated if the process followed prior to the issuance of the title did not comply with the law. This means that innocent buyers cannot rely on the principle of indefeasibility of title if the initial allocation of the land was illegal or unprocedural.

2. Increased caution and diligence: Property investors, lenders, and other stakeholders are now required to exercise even greater caution and diligence when dealing with properties in Kenya. It is crucial to thoroughly investigate the history of the title, from the first allocation to the current title, to ensure its legality and validity.

3. Burden of proof shifts to the buyer: The burden of proving the legality and validity of a title rests with the buyer. Merely possessing a registered lease or title is not enough. The entire allocation process must have been lawful and in compliance with the prescribed procedures for the title to be indefeasible.  

The implications and conclusion from this ruling are worrisome. The burden now falls on property buyers and other stakeholders to conduct thorough due diligence and establish the legality and validity of titles. This burden is particularly challenging given the parlous state of land records in Kenya and the ongoing digitisation process which has made it challenging to access historical property records. It is essential for the Government to take measures to safeguard accurate land records, both in paper and digital formats, to facilitate proper due diligence and protect investors' interests. This ruling emphasises the need for caution, diligence, and robust investigations when engaging in property transactions in Kenya. It is not clear what will happen to transactions that have already been concluded. Presumably we shall see more cases of County Governments invading homes and businesses in the name of recovering public land. Very worrying indeed.

DRAFTING A SPECIAL POWER OF ATTORNEY

 

  

DATED AT NAIROBI THIS                           DAY OF                                    2030 

XXXXXXXXXXXXXXXXXX

To

XXXXXXXXXXXXXXXXXXXXXX

 

SPECIAL POWER OF ATTORNEY

BY THIS SPECIAL POWER OF ATTORNEY given on the                           day of                                 2003.  I, XXXXXXXXXXXXX of Post Office Box Number 3210 - 00100 Nairobi in the Republic of Kenya HEREBY APPOINT XXXXXXXXXXXXXXX of Post Office Box Number 73178 - 00200 Nairobi in the Republic of Kenya to be my Attorney to act for me in every respect as fully and effectually as I could act in person concerning all my present and future affairs and all my present and future acts over all that piece of land known as Plot Number KRC 43 - KAHAWA WEST PHASE II which I place in the unfettered control and discretion of my said Attorney with authority to bind me in relation to the said property in any manner whatsoever including (but without prejudice to the generality of the foregoing authority) power to sell, lease or otherwise acquire and to sell, convey, let or otherwise dispose of and create mortgages of and charge on it of every description, and to invest any money received from the sale and/or lease or mortgage of the said property.

AND I HEREBY DECLARE THAT:

1.            I, purposely refrain from further particularizing the description of my affairs and my property, rights and interests and the powers conferred on the Attorney over plot Number KRC 43 - KAHAWA WEST PHASE II lest by doing so I should be deemed to limit the intended operation of this instrument as a full Special Power of Attorney.

2.            This Power of Attorney shall continue in force until notice of my death or of revocation hereof be actually received by the said Attorney or his substitutes for the time being acting in the exercise of the powers hereby conferred over Plot Number KRC 43 -KAHAWA WEST PHASE II.

3.            I hereby ratify and confirm and promise at all time to allow, ratify and confirm all and whatsoever my Attorney shall lawfully do or cause to be done in and about Plot Number KRC 43 - KAHAWA WEST PHASE II aforesaid by virtue hereof including anything which shall be done between the revocation of this instrument by my death or in any other manner and notice of such revocation reaching my Attorney and that as against me and persons claiming under everything which my Attorney shall lawfully do or cause to be done in pursuance of Plot Number KRC 43 – KAHAWA WEST PHASE II after such revocation as aforesaid shall be valid and effectual in favour of any person claiming the benefit thereof and acting in good faith who before the doing thereof shall not have had express notice of such revocation and I hereby agree to indemnify my Attorney against all costs, charges, expenses and losses, which my Attorney may incur in the lawful execution of the powers hereby conferred any dealing on Plot Number KRC 43 – KAHAWA WEST PHASE II upon my Attorney and I hereby covenant with my Attorney that after I am deceased my personal representatives shall ratify and confirm all acts and things lawfully done or caused to be done by virtue of this instrument by my Attorney between the date of my death and the receipt by my Attorney a notice thereof.

4.            The exercise by me in person from time to time of any of the powers conferred on my Attorney shall not of itself be deemed to be a revocation of this Special Power of Attorney.

IN WITNESS WHEREOF I have hereunto set my hand this                         day of                                        2003.

SIGNED and DELIVERED by      )

XXXXXXXXXXXXXXXXXX     )

In the presence of:                   )

                                                )

                                                )

                                                )

HALF-BAKED GRADUATES: WHO IS TO BLAME?

 

“We are sorry we can’t take you in, we need graduates who can deliver”. This is the last statement that any graduate dreads to hear when he/she attends a job interview. Employers and the corporate world in the recent past have raised concern over the kind of graduates that are released into the job market. Their worry has been, despite these graduates having admirable academic achievements, the lack of the ability to deliver in their areas of profession. Therefore, this begs the question; whom do we blame for the existence of half-baked graduates in the job market today?

One of the major causes of this crisis is the current curriculum in our institutions of higher learning. Even in purely technical subjects like engineering, lecturers heavily dwell on the theoretical rather than the practical aspect which is vital especially in the corporate world.  “I wish we could be taught more on how to do it than be taught in theory since I still feel that I am not ready for

the media world out there. I can’t even distinguish between the types of

microphones because I haven’t interacted with them,” says Edwin, a finalist in the School of Information Sciences. Most courses offered usually require practical application in the field but most students end up spending the four years cramming huge chunks of notes. These students soon

graduate with a lot of theory in their minds.

Another reason is the age-old practice, common with most institutions of higher learning in Kenya – studying to pass exams. This is a notion that has been passed from one generation to another. Unfortunately, its effects are manifested in the job market with the existence of half-baked graduates.

“I only study to pass my exams. Any time you find me in the library, the exams are around the corner or I am studying for a CAT,” says Eugene, a sociology student. Many students, unlike old folks, have taken studying and doing personal research as a backdrop.

Using information from the internet and plagiarizing it into their take-away assignments and term papers has become the order of the day. Students no longer study to gain knowledge but rather, to pass exams and forget whatever they had studied as soon as they leave the exam room. This has

affected the performance of these students once they are absorbed into the job market.

Lastly, you will agree with me that the overstretched infrastructure especially in the public universities has negated the quality of education being offered in these institutions of higher learning. An example is Moi University where students have to carry their room chairs to class. To add salt to injury, the introduction of the double intake programme has congested universities. Students are forced to stand outside lecture halls during a class due to lack of space.

James, a B.A student questions “How do you expect me to perform when most of the time I find the class overcrowded so that I have to learn from outside?” In view this compromises the quality of education. Employees who are incompetent in their areas of study are produced.

We can play the blame game on the existence of half-baked graduates in the job market today but one fact stands out; we need to change the curriculum and education system.

Moreover, we need to change our mind sets if we are to end this half-baked graduate syndrome.

Disclaimer: Unknown Author

PAYMENT OF STAMP DUTY AND ITS SIGNIFICANCE IN THE KENYAN CONTEXT

  Stamp Duty payment is governed by the Stamp Duty Act cap 480 of the Laws of Kenya. The Act provides that every instrument specified under the Act which relates to property situated, or to any matter or thing done or to be done, in Kenya, shall be chargeable with the stamp duty.

The instrument should be duly stamped with the proper duty before the expiration of thirty (30) days after it is first executed, or after it has been first received in Kenya in case it is first executed at any place out of Kenya, if not done within the time frame it shall attract a penalty for late payment.

Instruments executed out of Kenya not being a bill of exchange or a promissory note, should prior to being used, brought into force or registered, within Kenya, be stamped according to the rate of duty chargeable and within the time frame provided for stamping.

In the case of Transfer of property, the purchaser/buyer is responsible for payment of stamp duty. The Payment of Stamp duty is made against the value of the property as determined by the Government valuer.

The Stamp duty rate in respect of a transfer of property within a municipality is 4% while for property located outside a municipality is 2%. So where a property x is valued as kenya shillings One Million (Kshs. 1,000,000/-) and it is located within a municipality e.g Nairobi the stamp duty payment shall be 4% of 1,000,000/- which is Kshs. 40,000/-. On the other hand the stamp duty rate in respect of Charges is 0.1%.


There are instances where instruments are exempted from payment of Stamp duty being the following:

• Transfer of property to family owned Company.
• Transfer between associated companies.
• Transfer between spouses i.e husband and wife.
• Transfer in favor of any body of persons established for charitable purposes.
• Transfer by transmission etc.

In certain instances stamp duty exemption can be allowed by one making an application to the Collector of Stamp Duty attaching the necessary supporting documents, transfer, affidavit and the Legal Notice giving effect to exemption. If the application is complete and satisfactory one will be exempted from payment of stamp duty.

Value Added Tax (VAT) Is Not Payable On Sale of Commercial Property

1.0 Introduction 

Value Added Tax (“VAT”), which is a Consumption Tax that is ultimately paid by the Consumer, is generally the easiest form of Tax that is collectable. However, due to the domineering influence of the informal sector of the economy, most of whose transactions are not documented, collecting VAT in developing countries remains challenging, encouraging Tax Evasion.

2.0 Analysis

Case : David Mwangi Ndegwa v Kenya Revenue Authority [2018] eKLR

The High Court’s Commercial and Admiralty Division issued a judgment on 29th November, 2018 declaring that Value Added Tax (VAT) is not payable on transactions for the sale or purchase of land regardless of whether or not the buildings on the property are residential or commercial.

Leases and Rental of Residential Accommodation by Individual Persons only is now added to the List of Services exempted from VAT invoicing and remittances.

Some of the issues in contention were the determination of whether there is a legal distinction between the treatment of land vis-à-vis buildings and whether the law exempts sale of land from tax. The argument in this instance was whether the law exempts a sale of land from tax, and only tax a sale of the property standing on the said land. This would then beg the question; would it be possible to sell a building without selling the land?

This dispute arose when the taxpayer bought a parcel of land on 11th December 2013 from Standard Chartered Bank Kenya but the Seller’s advocate was unwilling to complete the transaction unless the taxpayer paid VAT of Kshs 11 Million. The taxpayer was of the opinion that VAT is not payable on transactions for the sale or purchase of land, irrespective of the type of buildings standing thereon (residential or commercial). He however paid the VAT in order to complete the transaction and went on to seek a refund from KRA unsuccessfully. He then filed a suit seeking judgement from the High Court on whether he was obligated to pay VAT on the transaction. This would necessitate a refund from KRA for the VAT he paid together with interest at court rates.

3.0 Holding:

"38. In the end I grand the following orders: 

a) A declaration is hereby made that Value Added Tax is not payable on transaction for the sale or purchase of land whether or not the building thereon are residential or commercial buildings. "

4.0 Conclusion

VAT on Commercial Property is not applicable.

 
High Court declared VAT not applicable on the sale or purchase of land irrespective of the nature of buildings situated thereon.

The Value Added Tax (VAT) is not applicable to transactions for the sale or purchase of land. The Court further noted that for VAT purposes, it is immaterial whether the buildings situated on the land are residential or commercial.

The Court agreed with the Plaintiff’s argument that the definition of land in the Constitution applies to what is on the surface of the earth and the airspace above it and therefore the exemption in the VAT Act applies to all land, both with commercial and residential properties. The Defendant, KRA was also directed to refund the sums that the Plaintiff had paid as VAT.

This judgement means that moving forward, KRA can no longer charge VAT on the sale or purchase of commercial properties. The learned Judge also urged KRA to clarify from the legislature on which supplies were exempt from VAT in order to remove the ambiguity which had led to this suit.