Defaulting means forfeiting deposit, installments

By Harold Ayodo

As long as you can prove employment or a steady income, securing a deal to buy property or a bank loan is not difficult. However, before appending your signature, you better be sure you have understood all the terms in the agreement and the repercussions of breaching it.

An important component that property buyers should understand is the forfeiture clause. It is the worst nightmare for defaulting buyers because it requires them to give up the deposit and installments paid before defaulting and the seller takes back the property.

Unfortunately, not all buyers read and understand the fine print in sale agreements and most of them are in a hurry to secure the deal.

Others who have lawyers don’t take it seriously when advised of the repercussions of defaulting on mutually-agreed installments.

Take the case of Joseph Mwamburi, who wrote to us to complain that a seller had defrauded him of Sh2 million deposit and installments, which he had paid for a plot in Ngong.

Forfeiture clause

According to Mwamburi, he defaulted in the monthly payments for five consecutive months after losing his job.

"I was trying to get finances from commercial banks and other institutions, but failed because I didn’t have the required payslips," he said.

Last month, Mwamburi received a demand letter from the lawyers of the seller informing him that he had given up his earlier payments by defaulting. The letter also said the transaction has been stopped and their client had repossessed the plot, citing the forfeiture clause.

"My lawyers warned me about the repercussions of failing to pay the installments as agreed, but I never thought it would be this harsh," he said.

Mwamburi says his lawyer even wrote them a letter asking for a grace period, which has elapsed. He is now considering taking the matter to court.

Sale agreement

Unfortunately, the law, which protects the right to private property, will favour the seller’s because he kept his part of the bargain.

Before passing judgment, the court will refer to clauses in the sale agreement, which was signed by both parties without duress.

In most sale agreements, provisions on forfeiture of deposits and installments are often spelt out as: "This agreement and everything herein contained shall be null and void for all purposes and the deposit paid hereunder shall be forfeited together with interest accrued to the vendor should the purchaser fail to comply herein before stated."

The writer is an advocate of the High Court of Kenya.