The City Council of Nairobi is preparing for a bruising showdown with thousands of rate defaulters who will not have paid up by tomorrow’s close of the month-long grace period.
Town Clerk Roba Duba says that the end of the grace period, which spared the defaulters punitive interest and penalties charged on such debts, will pave the way for a new phase that may see thousands of property owners lose them.
Mr Duba said City Hall would make good its promise to recover the debts by auctioning the defaulters’ properties, revealing that the campaign had collected only Sh1.3 billion by Friday last week.
“The auctioneers’ hammer will certainly fall on these properties,” he said.
City Hall had planned to collect Sh3.5 billion from thousands of defaulters taking advantage of the waiver period to settle their debts, but has only realised one third of the amount.
Mr Duba said on Friday that City Hall would invoke the Rating Act – the law he claims empowers it to collect rent from the affected properties until its dues are fully paid or auction the indebted property to recover the debt.
“We have set up a team to prepare a revised list of defaulters for further action beginning Tuesday (tomorrow),” Mr Duba said.
“As far as we are concerned, we have served the defaulters with the 14-days’ notice as is required by law and can now take further action undeterred,” he said. City Hall has been running a month-long campaign to recover the billions of shillings that individuals, private companies and government agencies owe it in unpaid rates, warning that it would ‘‘clamp’’ any property in default after the grace period.
It has not been clear what the ‘‘clamping’’ of a building would mean in real life – but Mr Duba now says City Hall will seek legal authority to collect rents from the properties in default or seek orders to auction the properties altogether.
The Rating Act requires the rating authority (in this case City Hall) to take the defaulter to court and prove that they have not only failed to pay their rates and/or penalties, but that adequate notice has been given to them to do so.
It is only when the court grants the council’s prayers in such a suit that it can move in to sell a defaulter’s property.
“A decree granted by a subordinate court in favour of the rating authority (plaintiff) under this section may be enforced by any mode of execution authorised by any rules made under the Civil Procedure Act and...,” the Rating Act says in part.
“The decree-holder may apply to the High Court by originating summons to order the sale of such land in enforcement of such charge, and the High Court may make an order directing the sale of such land....,” the law says.
This leaves City Hall with the unenviable task of filing thousands of suits against rate defaulters, a move that would not only add to the Judiciary’s heavy litigation burden but also cost millions of shillings and many years to resolve.
The law also gives the rating authority (City Hall) the power to start collecting rent from the affected properties until the total amount – actual accrued rates and penalties - is recovered.
“The rating authority may serve upon any person paying rent in respect of any land on which such rate was levied...a written notice stating the amount of such arrears and requiring all future payments of rent (whether the same have already accrued due or not) by the person paying the rent to be made directly to the rating authority until such arrears and interest have been duly paid...,” the law says.
Mr Duba said that City Hall will seek to collect rent only in cases where the value of the property in question is “very high, meaning it would take considerable amount of time to get a buyer.”
Evans Monari, a partner at Daly and Figgis law firm, warned City Hall to tread carefully in the mission, insisting that failure to obtain the necessary court orders would leave it in a swamp of legal suits.
“City Hall has been spreading alarmist warnings over this matter by purporting that it has powers to repossess or sell people’s property,” said Mr Monari, adding that “any attempt to do so without court orders would be futile.
“Such a reckless move would definitely be challenged in court and the courts will lean towards safeguarding the individual’s right to property as spelt out in the Constitution.”
Article 40 of the Constitution bars Parliament from enacting “a law that permits the State or any person to arbitrarily deprive a person of property of any description of any interest, or right over, any property of any description.”But Mr Duba remained adamant in his planned pursuit of the defaulters, arguing that the law only requires City Hall to prove in court that it is owed money and that it gave the defaulter ample notice.
Prior to the recovery campaign, City Hall had published a notice of intention to forward the details of about 74 “notorious rate defaulters’’ to the credit reference bureaus for blacklisting.
The list of top defaulters includes Kenya Broadcasting Corporation, which owes Sh247 million, Kenya Culture Centre (Sh275 million), Kenya Railways (Sh41 million) and the Kenya National Assembly with Sh26 million,
Out of the total Sh50 billion that City Hall says it is owed by defaulters, government departments and State agencies account for Sh3 billion with the balance of Sh47 billion held by individuals and private companies.
Road Master Carriers with a Sh47 million debt and Jandu Investments (Sh31 million) top the list of corporate defaulters.
“We fell shy of our targets and it is disappointing to note that government institutions are the ones that showed least interest in paying up,” said Mr Duba.
Two months ago, City Hall officers took over the management of the Comesa parking grounds at the Kenyatta International Conference Centre (KICC), claiming that the landmark building had not submitted the parking fees for two years over and above outstanding land rates of Sh26 million.
Motorists who had parked at the site were caught unawares by the abrupt management coup that forced some to pay afresh for the parking lots.
City Hall is itself indebted to the tune of Sh13 billion. This amount comprises Sh8 billion owed to the Local Authorities Pension Trust (Laptrust) and the controversial Sh5 billion it borrowed from Equity Bank last year without the authority of the Ministry of Local Government.
The council has since indicated that it intends to sell some of its property to settle the debts.
City Hall’s strained cash flow situation has seen it default on the Sh212 million loan it borrowed from the United States Agency for International Development (USAid) to develop a residential estate in the 1980s, forcing taxpayers into a multi-million shilling bail-out.
The Treasury, the guarantor of the loan, has since made a payment of Sh120 million towards servicing this loan.