INTRODUCTION:
A real
estate contract is a legally binding document that outlines terms
agreed upon when two or more individuals negotiated a real estate
transaction. It contains information such as the parties involved, price
and terms, contingencies, acceptance date, expiring date, and homestead
classification. A real estate contract aims to clarify the home buying
process or renting while offering protection to both the buyer and
seller.
Real
estate contracts in Kenya, like in many other jurisdictions, play a
crucial role in defining the rights, obligations, and responsibilities
of parties involved in property transactions. Key elements of real
estate contracts in Kenya include purchase agreements, leases, and
property management agreements. To create enforceable contracts, certain
legal requirements must be met, and it is essential to be aware of
common clauses and potential pitfalls. Let's explore these elements in
more detail:
A. PURCHASE AGREEMENTS:
Legal
Requirements: A valid purchase agreement in Kenya must fulfill
essential elements such as mutual consent, lawful object, consideration
(price), capacity of parties, and compliance with formalities (e.g.,
written form, stamp duty).
Common
Clauses: Purchase agreements typically include clauses specifying the
property details (e.g., location, size), purchase price, payment terms,
conditions precedent (e.g., obtaining financing, obtaining clear title),
warranties, dispute resolution mechanisms, and timelines for
completion.
Potential
Pitfalls: Common pitfalls include unclear or ambiguous terms,
inadequate property descriptions, incomplete or incorrect information,
lack of proper title investigations, failure to comply with statutory
requirements, and inadequate remedies in case of breach.
B. PROPERTY MANAGEMENT AGREEMENTS:
Legal
Requirements: Property management agreements require mutual consent,
consideration, and compliance with contractual formalities. They should
clearly outline the scope of services to be provided by the property
manager and the compensation to be paid.
Common
Clauses: Property management agreements often include clauses
addressing the duties and responsibilities of the property manager, the
compensation structure (e.g., flat fee or percentage of rent), term and
termination provisions, liability and indemnification clauses, and
dispute resolution mechanisms.
Potential
Pitfalls: Pitfalls in property management agreements may include
unclear or overly broad scope of services, inadequate provisions
regarding liability and insurance, insufficient termination provisions,
and failure to address conflicts of interest.
C. LEASES:
Legal
Requirements: For a lease agreement to be enforceable, it must
generally meet the same legal requirements as any other contract. It
should include the identity of the landlord and tenant, clear property
description, lease term, rent amount and payment terms, and any
additional terms agreed upon.
Common
Clauses: Lease agreements commonly contain clauses related to the lease
term and renewals, rent payment and escalation, maintenance and repair
responsibilities, rights and restrictions on use, subletting or
assignment provisions, default and termination clauses, and dispute
resolution mechanisms.
Potential
Pitfalls: Potential pitfalls include inadequate property inspections,
failure to specify rights and obligations clearly, insufficient rent
escalation mechanisms, lack of clarity on repairs and maintenance
responsibilities, and failure to address default and termination
procedures.
Essential Elements of a Valid Lease
An occupier or lessee– Refers to the person who resides in the leased premises.
Exclusive
possession– The lessee must have an interest that entitles him to
exclude all other persons, including the lessor from the premises. The
exclusive possession must be transferred or granted by the proprietor,
this encompasses the obligation of the lessor to the lessee.
The period of
a lease must be certain – The Land Act, 2012 permits an owner to lease
land or part of it to any person for a definite term. It is advisable
not to create leases that have clauses for perpetual renewal. It can be
held to be void due to uncertainty of the period of the intended lease.
Obligations Implied on a Lessor
a) To give quiet and peaceful possession to the lessee.
b) Not
to derogate from the grant/lease as given to the lessee. There
shouldn’t be use of adjacent property in a manner that would otherwise
render the leased property unfit for purpose.
c) To ensure that the premises are fitting for habitation.
d) To
ensure the property is fit for purpose. Where it can no longer be used
for the purpose intended, one may terminate by giving one month’s
notice.
e) To pay all rates, taxes due, and outgoings except to the extent otherwise specified in the agreement.
Obligations Implied on a Lessee
A. To pay rent on time and in the manner specified.
B. To use the leased land in a sustainable manner and in accordance with the conditions in the lease.
C. To
yield up land and buildings in the same condition as they were when the
term began. Exemptions for deterioration caused by reasonable wear and
tear or natural disasters and acts of God.
D. To keep all buildings comprise in a reasonable state of repair.
D. SALE AGREEMENT IN RELATION TO LAND
Buying
land properly involves taking a number of processes, key among them is
ensuring you the purchase do proper due diligence. In most cases, this
will involve such things as going for the physical site visit, doing a
land search and a company search if buying from a registered company.
Once
you are done with the due diligence, you will proceed to negotiate on
the price and other terms of the purchase thus forming a contract that
can be enforced by the law that is where a sale agreement comes in.
A sale
agreement in relation to land is a contract for the sale of land is the
document prepared at the time of full payment made by the buyer and
preceeds the actual transfer of the property. The contract is drawn by
the vendor’s advocate who must confirm the vendor’s capacity to sell.
The
particulars of sale describes the particulars of the land as well as
the nature of estate being sold (i.e. freehold or leasehold). A
mis-description may entitle the buyer to rescind the contract and seek a
refund of the deposit purchase sum paid.
If
any chattels are to be included in the sale, it is good practice to
have a separate list of the same which can be attached to the final form
of contract as an annexture.
The
particulars of sale must state distinctly or by necessary implication
that which is the subject matter of the contract. The property must
never be described inaccurately. In Kenya the interest sold will either
be freehold or leasehold.
Contents to include in a Sale Agreement
A land sale agreement should include but not limited to:
Identity
of both the buyer and the purchaser. This will include full names,
Identity card number, phone numbers, and the address code. In most
cases, these are also the details to be included in the title deed after
the transfer
The
cost of purchase, this defines the agreed amount to be paid, how it is
to be paid (Instalment/cash), and when the amount is to be paid.
The
description of the property being sold. This will include the size of
the land, the title number, where the land is located, and the condition
of the land.
Distribution
of costs involved. This define who pays for the different cost involved
in the process of transferring the land to the purchaser from the
vendor. Some of the common costs will include stamp duty, legal fees,
and title transfer costs.
The
obligation of each party involved in the transaction. This will help
outline all that is to be done by both the purchaser and the vendor.
Remedies
for breach of the contract. To help ensure that the interest of each
party is protected a sale agreement will also outline how
non-performance of the agreed terms of the agreement are to be handled.
A sale agreement unlike any other contract must provide the following to be valid:
1. The contract must provide that the vendor is vested with capacity to sell as the beneficial owner of the property;
2. The price at which the property is sold at is very important and must be stated;
3. The deposit payable at the signing of the contract i.e. 10% of the purchase price for most contracts;
4. In some contracts the deposit payable may be higher i.e. 20% or more;
5. That the deposit will be held by the vendor’s advocate pending completion as a stakeholder pending completion;
6. The
contract completion date i.e. when the completion documents change
hands vis a vis payment of the balance of the purchase price;
7. The
contract completion clause may also stipulate how the balance of the
purchase sum will paid. Is it by banker’s cheque or by means of
professional undertaking by the purchaser’s financiers directed at the
vendor’s advocates;
8. If
interest is payable on the balance of the purchase sum should there be
delay in completion and the rate of such interest this should also be
stipulated in the contract;
9. The rate of interest should be specified;
The
conditions of sale must be included. Most contracts for the sale of
land in Kenya are subject to the Law Society Conditions of Sale (1989)
Edition so long as the conditions do not contradict the terms of the
contract. Alternatively if necessary the conditions may be varied
accordingly to be in conformity with the terms of the contract.
Completion of Sale of Land
Completion documents must be included in the completion clause of the sale agreement and it includes the following:
1. The Original Title documents;
2. Transfer duly signed by the vendor
3. Land Rent Clearance Certificate; (For leasehold Titles only)
4. Land
Rates Clearance Certificate; (For Municipal / urban properties of both a
leasehold and freehold nature provided a local government authority has
levied land rates on the property);
5. Relevant consents applicable to the Transfer. i.e
6. Consent of the Commissioner of Lands to leasehold interests;
7. Consent
of the Land Control Boards for Agricultural land obtained in pursuance
of the Land Control Act Cap 302 of the Laws of Kenya;
8. Consent of any chargee or Mortgagee having an interest in the land;
9. Consent of any statutory authority having an interest in neighbouring property (e.g KPC, KAA, KCAA,) etc;
10. Notice of withdrawal of caveat or caution if there are any third parties having an interest in the property;
11. Original Land Rent payment Receipts;
12. Original Land Rates payment Receipts;
13. PIN of the vendor;
14. 3 coloured photographs of the vendor or vendor’s directors
15. Copy of the Vendor’s ID
Special Conditions to be Included in The Agreement
- Capacity of the vendor
- Payment of deposit
- Payment of balance and interest on unpaid purchase price
- Payment for chattels and fixtures
- Possession before execution
- Time and schedule within which the matters affecting the title must be dealt with
- Date of completion
- Exceptions and reservations
- The risk and liability for insurance pending completion
- Power of vendor to rescind the contract
- Power of either party to serve Completion Notice
- Make sale subject to mortgage, consents,
Common clauses to include in sale agreements in Kenya include:
1. Date and Parties to the contract
2. Recital of the property
3. Definitions and Interpretation
4. Law Society Conditions of Sale 1989 (General Conditions)
5. Agreement for Sale and interest sold
6. Purchase Price and Deposit
7. Interest on late payment
8. Completion
9. Encumbrance
10. Special Condition(s)
11. Capacity
12. Possession and Movables
13. Matters affecting the Property
14. Outgoings and Income of the property
15. Warranty
16. Survival
17. Time is of the essence
18. Assignment
19. Default
20. Non-merger
21. Stamp duty and related costs
22. Disclaimer
23. Guarantee of title
24. Arbitration
25. Termination
26. Legal and other costs
27. General
28. Intention to be bound
29. Schedules
30. Execution
CONCLUSION:
In
conclusion, it is of importance for Real Estate Companies to ensure
strict adherence to the Law of contract. Agreements must be authentic
and should address all key elements so that they are easily enforceable.
This is important because:-
a) The
agreement acts to protect both of the purchaser and seller’s interests
and to ensure that both get what they rightfully deserve without getting
duped. The sales agreement fully protects the rights and interests of
the buyer and the seller because if one party fails to adhere to the
contract the other party can take legal action to recover the damages
caused.
b) The
sales agreement is filled in triplicate one for the vendor, one for the
purchaser, one for the lawyer/ legal advisor overseeing the
transaction.
c) Having
a sale agreement also conforms to The Law of Contract that provides for
written agreements in disposition of land hence it ensures legal
compliance and validity to bind the parties.
d) It
ensures enforceability in the event of fraud, default in payment, and
breach of terms among other reasons for failure of an agreement. Without
having a written sale agreement it would be difficult to prove to the
court that an agreement regarding the sale of land existed or took
place.
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