You can lose deposit, house if you default

I resolved to buy a house from a Government institution six years ago following its pocket friendly cost. The sale agreement stipulated that I pay a deposit then settle the balance in installments before I am furnished with the legal ownership documents.

However, I defaulted for some years after my wife fell sick and I was not in a position to pay the installments over a certain period. Recently, my name was among some that were published in a mainstream newspaper for defaulting and were threatened with repossession should we not settle our dues within a specific time frame. The reality is that I am still spending a lot of money on paying medical bills for my wife and may not settle the dues as instructed. Is it legal for the house I bought to be repossessed?
Tito, Nairobi.

Legally, a seller can repossess property when a buyer defaults payment as mutually agreed in a binding sale agreement. In such cases, sellers can legally repossess their land or homes as provided in the recently passed Land Act 2012. It would be easier for the seller to reclaim the property when there was a written sale agreement with detailed clauses to guide the transaction.

According to Section 39 of the Land Act, sellers can invoke their right to cancel the written agreement over breach of contract by the purchaser. The seller can either resume possession of the property on mutual agreement or obtain a court order before moving in.

Before regaining possession, the seller must give a notice informing the purchaser of the nature and extent of the breach. The seller also has the option of seeking financial compensation for default as stipulated in the sale agreement.

However, there are legal requirements that must have been fulfilled before the seller reclaims the property.
For instance, the sale agreement must not only have been in writing but signed by both parties and the signatures attested to by a witness who was present during the signing.

There are also some clauses in the agreements stipulating that the seller can repossesses the property and not refund the money earlier paid as deposit/down payment – especially if there is a forfeiture clause.

Majority of forfeiture clauses in property sale agreements stipulate that the purchaser lose the money paid as deposit if they default in payment.Several prospective investors have lost fortunes over failure to abide by written contracts over various reasons.

For instance, most sellers of property require that buyer pays a deposit of at least 10 per cent of the purchase price and the balance settled in installments within 90 days. Traditionally, most courts abide by the written contracts signed by both parties when property transactions turn sour.

A precedent was set in a recent case where South African farmer Stephanus Kruger won a Sh800 million land dispute in Uasin Gishu at the High Court, sitting in Eldoret. According to court records, Kalenjin Investment Trust, EMO paid Kruger Sh112 million deposit for a Sh800 million tract of land in the area.

EMO, which has 400 shareholders, moved to court seeking to block Kruger from selling to third parties his controversial 5,000 acres of land and properties in it.

The buyers told Lady Justice Philomena Mwilu that Kruger breached the sale agreement after sub dividing the land for sale to third parties after pocketing Sh112 million deposit. The intention of EMO was to stop Kruger from sub dividing and selling parcels LR 21792/3, 2179/4, 9127 and 8522 and movable property within.

However, Kruger – in his defence – argued that the contract stipulated that EMO were to pay a deposit of Sh252 million, which they failed. Therefore, Kruger placed an advertisement in a local daily on the sale of the 5,000 acres of land located in Uasin Gishu County which prompted the suit.

Furthermore, the sale agreement stipulated that Kruger was at liberty to sell the property after issuing notice in cases of a breach. Lady Justice Philomena Mwilu (currently Deputy Chief Justice) concurred with Kruger that EMO was in breach of a requirement to pay in full either the deposit or purchase price.

According to Justice Mwilu, dealings of the two parties after the expiry of the date of payment were outside the sale agreement. The court ruled that it could not be involved to re-write the contract between EMO and Kruger.

Consequently, Lady Justice Mwilu found EMO guilty of breach of contract by failing to abide by the clause on payment of deposit or sale price.

— The writer is an Advocate of the High Court