Unpaid land duty a turn off to investors

By Harold Ayodo

Many prospective investors suffer damaging consequences because they are not aware of the required government procedures before purchasing property.

In the transfer of property from a seller to buyer one must ensure that two types of duties have been cleared. These are land rents, paid to the Ministry of Lands, and rates, remitted to local authorities, which issue clearance certificates.

Property owners are required to pay land rates as provided for in the Valuation for Rating Act. They are paid through banker’s cheques addressed to the Commissioner of Lands and deposited at either Kenya Commercial Bank or National Bank of Kenya.

Owners are supposed to pay the rates annually to avoid complications when selling property but majority default, attracting huge interests.

An eighth of an acre in industrial area, for example, attracts levy of Sh49,000 annually and defaulting for four years attracts a debt of Sh500,000.

On the other hand, an owner of a quarter acre in Runda is required to pay Sh21,000 annually as land rates while defaulting for nine years on an eighth of an acre in Upper Hill, which requires Sh32,000 annually, attracts a debt of Sh1.5 million.

Applications for rates payment request forms are made to local authorities, which have details of registered owners, property number and outstanding dues. If records show that the property owner is in debt, municipalities can seek legal redress and auction the property to recover revenue.

Exemptions

There are instances where the debts surpass the market price of the property and are a turn off to prospective buyers, which in turn negatively affects the real estate industry.

Schools, hospitals, churches, morgues, cemeteries, national parks, charitable institutions and game parks are exempted from land rates.

Land rent, on the other hand, is only paid on leasehold property following a written agreement with the Government.

Land rent and rates differ depending on locality and size of the property. They are higher in Nairobi compared to other areas.

Land rates and rent may be revised during change of user, especially where the land use changes from agricultural land to one for construction of apartments and other commercial buildings.

The Commissioner of Lands cannot issue consent to transfer property without the clearance certificates, but unfortunately, a section of investors seek shortcuts to pay the levies through brokers and end up with fake receipts and clearance certificates.

Conveyancers (registered property lawyers) should, therefore, exercise due diligence in property transactions.

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