How legal loopholes are hurting Kenya's property sector

Robert Kaniu Gitonga, a Senior Associate in the Real Estate Law, and Finance and Banking practice areas at Cliffe Dekker Hofmeyr (CDH). [Wainaina Wambu, Standard] Over the years, Kenya's real estate sector has experienced a significant boom to become one of the key drivers of economic growth. The vibrant sector accounted for 9.3 per cent of gross domestic product (GDP) in 2023, according to official data. Population growth, rapid urbanisation, government focus on affordable housing, and infrastructure improvement are some of the reasons that have made the property industry thrive. However, loopholes within the real estate regulatory framework have undermined its credibility and attracted unscrupulous individuals, leading to fraud and other malpractices. The industry has multiple professionals operating in it, hence the need for a robust legal framework to ensure their operations are smooth and Kenyans access quality services. However, experts note that there are regulatory gaps that are negatively impacting the sector and by acknowledging them and fostering collaboration among stakeholders, Kenya can lay a strong foundation for a flourishing real estate industry. Robert Kaniu, a Senior Associate in the Real Estate Law, and Finance and Banking practice areas at Cliffe Dekker Hofmeyr (CDH), explains that the State and all stakeholders must pull together to address these legal loopholes. This will help to improve transparency, standardise transactions and develop a comprehensive land registration system. "The land laws in Kenya are plagued by loopholes that undermine transparency and hinder sectoral growth. However, there are viable pathways to address these challenges. Additionally, addressing the loopholes within real estate regulations is crucial for Kenya's economic growth and stability," says Mr Kaniu. Kaniu explains that loopholes in Kenya's land legislation have seen crafty individuals take advantage to legally avoid "an unpleasant" responsibility through vagueness or ambiguity in the law. Since the colonial era, he notes, there have been numerous legislation over time as successive regimes sought to tackle the land question. "You're coming from a period when Kenya did not have any infrastructure including land registries at all, to a period where Kenya has different registries in different districts," says Kaniu. "The first problem that caused it is a multiplicity of land registration regimes, and that has always been a problem for us." In 2009, the National Land Policy underscored this, stating that the many legislations were affecting the delivery of land rights to Kenyans. This saw the 2010 Constitution adopt provisions of the National Land Policy with a bigger picture of creating a guideline for the principles of land policies in Kenya. This was in four aspects of land use and management - that it had to be efficient, sustainable, productive, and equitable. "One of the things the Constitution introduced is the consolidation of the laws to have one registration regime," says Kaniu. Procedural law In 2012, the Land Act and the Land Registration Act were enacted. The former is a substantive law providing the rights while the latter is a procedural law detailing the disposal of the interests in land. From here emerged the National Land Commission (NLC) which administers public land. However, implementation of a new law seeking to harmonise existing ones has been extremely difficult. "Remember, we are trying to reverse almost 100 years of legislation. There are already existing different land registration regimes," notes Kaniu. Below, Kaniu lists some of the legal loopholes. The indefeasibility of title, or the myth of sanctity of title as the infamous 2004 Ndung'u Land Report termed it, is one of the major legal loopholes when it comes to land legislation. Indefeasibility of title presumes that once a title is issued, it is considered conclusive evidence of ownership and can only be challenged in very limited circumstances. This principle of indefeasibility of title gives titleholders assurance over their claim over property. This has to do with the land registration system in the country. During the colonial period, Kenya didn't have adequate public service infrastructure so this limited the number of registries to Nairobi and Mombasa. And even after the exit of colonial authorities, the successive Kenyan regimes continued to allot land according to the laws that existed in pre-independence Kenya. This gave rise to issues of land grabbing as identified in the Ndung'u Land Report which demonstrated how Kenya's illegal land allocation is joined to the hip with politically connected persons. "The report found that people actually have titles to public land. Someone actually has a certificate of title and actually went through the allotment process," says Kaniu. "This brought about an issue of indefeasibility of title in the previous laws to something called first registration. When someone is actually allotted land, and it's registered under their name, there was an assumption that it cannot be challenged and that's an advantage people were taking. Get me on the register. That's enough for me." This has led to cases where when someone wants to buy land, they do their due diligence including an official search at the registry but later on, the Government claims that the land is grabbed public land. "Recently, the Supreme Court held that indefeasibility of title does not apply where the land was irregularly, or illegally acquired. There must be a process," adds Kaniu. Use of different companies Kaniu points out that some developers register and use different companies to conduct land transactions which has led to people being defrauded. Here, a firm will sell to many Kenyans and if the firm collapses, they even form a different company and continue doing transactions, and yet they are still within their legal rights. "In law, we have this concept of separate legal personalities where a company is looked at as a juristic person so the main aim is to protect you as an individual. We call it a veil," notes Kaniu. This makes it difficult for investors and purchasers to reclaim money paid to a seller company when they take the company to court for liquidation. Renewal and extension of leases In certain urban areas, there have been reports of houses being demolished yet the ones who live there have a claim to the property with their parents and grandparents having lived there. This has been common in upmarket areas of Nairobi including Westlands, Parklands, and Kilimani. If a lease term expires, without the owner applying for a renewal or extension of the lease, the land automatically reverts to the government and the government has its own ways of disposing of it. The process is legislated through guidelines by the National Land Commission, which were published in the Kenya Gazette in 2017. "The problem with these guidelines is that they tell you about the process, but they don't talk about the substantive right. It's about the process, and how you apply. And it's initiated by the NLC notifying you that, for example, in the next five years, your lease term is about to expire," explains Kaniu. "Who has the first right of refusal? Who goes to the government and says: I want to renew this? That gap has been exploited because the guidelines rely on the owner applying for a renewal and if they didn't, too bad." He notes maybe this person did not apply on time or the application was not attended to on time. But do they actually have a claim over this? "One of the things that the court says is first, you have to give that person who developed the land the first right of refusal," notes Kaniu. He adds that the courts further said that one needs to look at other aspects such as the condition that the property is in. "Let's say the property was allotted some time back and they were told they need to develop on it, how have they honored those conditions? Have they been paying land rent or land rates, you need to look at that?"

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