Investor loss fears as land registries closed indefinitely

For close to two months now, the national land registries have remained shut, effectively freezing multibillion-shilling transactions amid rising disquiet by interest groups.

Land Cabinet Secretary (CS) Farida Karoney announced that in compliance with the Presidential directive on the management and mitigation of Covid-19, the ministry would scale down its operations from March 17.

But a few days before the directive, the ministry had published a notice intending to close registries at Ardhi House for purposes of conducting an audit. The move forced the Law Society of Kenya (LSK) to rush to court, seeking orders to compel the CS to rescind the decision.

Through lawyer Duncan Anzala, LSK said it was concerned that the closure will affect transactions worth millions of shillings.

The lawyers’ umbrella body argued that the operations at the Nairobi district and central registries would be stifled for the three-week period, the registries will remain closed.

While the closure on March 17 was necessary as the government announced measures to stop the spread of the pandemic and to protect employees, it was not the first time, having been a regular phenomenon for the last seven years.

Former Land CS Charity Ngilu, now Kitui County Governor, tried during her tenure and there was an uproar although many Kenyans agree that the registries had been plagued by corruption including hiding of files for gain, interference with information and fraudulent creation of multiple records for same parcels of land.

The digitisation of land records in Nairobi registry started in 2014. The goal was to have all the records stored in a document management system (DMS). This would facilitate electronic document archival, access and retrieval in a secure, verifiable, transparent and timely manner, according to the ministry.

Since then a number of officials from the Lands office have been charged with either bribery, issuing fake title deeds or aiding and abetting fraud.

Other than the audit, the ministry intends to digitise its records to weed out double allocations of land, overlaps, among other ills that have plagued the registry, at the click of the bottom.

The ministry has always argued that digitisation is an internal administrative process which seeks to imbue a culture of efficiency, accountability and transparency in the administration and management of land.

But in moving to court, LSK said some documents which have already been assessed by the collector of stamp duty might attract penalties due to delay in payment. The lawyers also feared for loss or misplacement of records during the audit.

The lawyers further argued that transactions where advocates or financiers have issued undertakings for performance of various obligations would be jeopardised due to the delay in completion of the transactions and the closure would also affect operations at the companies’ registry, especially where documents have to be franked before lodging them for registration.

The closure, according to LSK will also frustrate contracts where obligations or parties are tied to timelines dependent on functions of the land registries. “This will also have cost implications where certain payments to parties in transactions are pegged on certain milestones such as stamping or registration of instruments,” LSK said.

Public participation

Further, lawyers faulted the move stating that there should have been public participation before the CS published the notice in the local dailies.

And after obtaining an order asking the CS to reopen the registry at Ardhi House, LSK president Nelson Havi stormed the building after it emerged that the officials were yet to comply with the directive.

Speaking to the Business Daily on phone, Mr Havi said he went to Ardhi House because of two issues- one the matter of capital gains tax, which he said the CS was yet to comply with a court order obtained by LSK three years ago and secondly, to find out why the registry was yet to be reopened.

“We demanded the opening of the banking hall and suspension of online regulations, which has crippled services,” he said.

Mr Havi said whereas the government’s move to digitise the processes at the land registry is noble, the public and lawyers had not been appraised on the matter.

“We want to support the government in a process that will ease services to Kenyans. We therefore asked for a small meeting with officials of the ministry to allow stakeholders to evaluate and review the status so far,” he said.

Mr Havi said they want the CS to open the registry to allow critical transactions to go on, without exposing the officials to risk of contracting coronavirus, as they explore a long-term solution on the matter.

A few days later, LSK held a meeting with CS Karoney over the matter and Mr Havi said, “two communique will be issued in due course. We look forward to a harmonious working relationship between the ministry.”

The LSK president said the meeting was productive because they addressed concerns arising out of closure of the registries due to the Covid-19 pandemic and ongoing digitisation.

In documents filed in court, lawyers alleged that they petitioned the National Assembly on January 21 to investigate the massive failure of land management system.

Two years ago, the ministry indicated that Kenya was exploring ways of moving its land registry to a blockchain platform- a ledger of digital transactions that make records secure and easily verifiable.

The initiative, according to the inistry, is aimed at eliminating graft at the land registries and also allows more people to secure their land rights.

But lawyers who usually benefit by conducting land transactions at a fee, expressed fears that the new system will still be corrupted.

On capital gain tax, LSK had in 2017 successfully argued for the quashing of paragraph 11A of the eighth schedule of the Income Tax Act, which the court ruled unfairly imposes a tax burden on the public on or before presenting the transfer instrument for registration, instead of upon registration to the transferee.

With the decision, Kenya Revenue Authority (KRA) was barred from demanding capital gains tax payments from investors before completion of asset sales.

The advocates’ lobby argued that it is difficult to ascertain the amount of capital gains tax due before completion of a sale transaction.

The regulations required investors to remit capital gains tax upon presentation of the asset at the centre of a sale deal, rather than after completion of the transfer process.

“It is common knowledge that where the sale agreement provides that payment shall be made upon transfer, then a vendor who is not financially able will not be able to sell his property and a willing buyer may also not be able to proceed with the transaction.

“To me, this infringes on both the vendors’ and purchasers’ right to property hence it is unconstitutional,” the court ruled.

KRA had argued that the disputed regulation was only added to make clear when capital gains tax is due, and that it neither contradicted other sections of the Income Tax Act nor the Constitution.