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Key changes in land business that investors ought to know

Land Development and Governance Institute executive director Mwenda Makathimo speaking on stalled land digitisation last year. PHOTO | FILE
Land Development and Governance Institute executive director Mwenda Makathimo speaking on stalled land digitisation last year. PHOTO | FILE 

People in real estate will bear me witness that land transactions have changed due to a number of regulatory and operational shifts that have taken place lately.

Prior to the recent changes this year, land laws as at 2012 were repealed and replaced by central statutes that govern land management.

These statutes guide transactions. A directive had been issued on how title documentation, including transfers, leases and charges were to be drawn up by advocates, taking into account the transition period.

In Kenya only advocates can draw up land documentation. Under the Contracts Act, land sale must be in writing.

The 2012 laws introduced new provisions in the drawing up of land documentation.

One example is that before matrimonial property can be used as security, spousal consent was necessary. This has changed the way banks and other lenders draw up their securities.

The spousal consent requires an affidavit for efficacy. Advocates had to get creative in how they draft land documentation after the 2012 laws came into place, for example, they had to remove references to the repealed laws in the title documentation and instead insert the new provisions.

An operative change has taken place at the Land registry, which might change the way transactions are registered. It is now possible to do online due diligence before buying in Nairobi.

Due diligence ascertains if the property is clear for sale as it deals with ownership and third party interests in the parcel.

Online searches were a long time coming but it is still too early to tell if the system will work. It is also possible to pay for land rent online.

One of the documentation required to complete a leasehold transaction is the land rent clearance certificate. That it can now be done online is a welcome development.

Records digitisation at Nairobi registry may mean that land brokers will be done away with to a large extent and cut incidents of forged searches and forged clearance documents. We wait to see how the system will work out.

Another possibly new development that will affect drafting of documents is the proposed Law Society of Kenya conditions of sale.

The LSK sales conditions are a benchmark through which land transactions are done unless provided for in individual Acts. The LSK proposals are a 43-page document. The current LSK sale conditions do not reflect the modern trends adequately.

Taxable amount

Therefore, when starting a land transaction have a copy of the LSK sales conditions to ascertain which ones can be contracted for in the individual contracts.

Many agreements drafted by advocates state that the LSK sales conditions are binding except where expressly omitted.

This means that in most land transactions LSK sales conditions apply. It is prudent to know what the conditions provide because in the event of a dispute the provisions will be referred to.

A final development that has affected land transactions in Kenya this year is the entry of the capital gains tax. The tax burden falls on the seller, therefore, buyers do not have to bear this cost.

The tax considers the cost that the seller spent in acquiring the property as such costs paid in acquiring the property are considered in determining the taxable amount.

Keep all records such as receipts well as evidence of acquisition cost.

Mputhia is the founder of C M Advocates. cmputhia@cmadvocates.co.ke. @cm_advocates; www.cmadvocates.co.ke.

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