6 Common Property Due Diligence Issues and How to Solve Them

Due diligence is an important step in property purchase, yet one of the most difficult. Here are some of the issues you may face when conducting due diligence

property due diligence

When purchasing property, due diligence is one the most important steps, yet one that many investors and home buyers find difficult. It is especially stressful if doing it for the first time. One may not know where to start, where, or even how to acquire information. This is the second of a two-part series on how to conduct due diligence in Kenya. Part one covered the key steps of conducting property due diligence and issues to look out for when investigating property.

READ ALSO: Why Due Diligence is Essential in Property Transactions

This week’s blog centers on the specific issues that arise during property due diligence and how to tackle them. Here are some of the issues that may arise:

1. Agricultural Land

The Land Control Act is a statute in Kenya that regulates transactions relating to agricultural land. Under the Land Control Act, dealings in agricultural land require the approval of the Land Control Board (LCB) of the district where the property is.

Where a property is considered agricultural land, it can only be transferred to a Kenyan citizen or body corporate all of whose members are Kenyan citizens. For foreigners to acquire this type of land, it has to be changed to either residential or commercial depending on the use or which the buyer wishes to utilize the property. Alternatively, an exemption has to be obtained from the President to exempt the transfer from the provision of the Land Control Act.

Foreign nationals may buy agricultural land, especially in the coastal areas without obtaining consent or are issued with consent improperly.  It is important for buyers to note, the transfer of agricultural land that doesn’t conform with the Land Control Act is void.

Dealings in agricultural land require the approval of the Land Control Board (LCB)

2. Rates and Rent Payment

Before purchasing property, buyers should ensure that they sight complete and up-to-date land rent and/or land rates receipts.  

Property should not be transferred until rent and rates are paid. In such scenarios, the recommendation is the current rates/rent receipts and clearance certificates are made prior to the transaction. An indemnity for outstanding rates/rents provided by the seller may also be made.

Buyers should note that the Rating Act (Cap 267, Laws of Kenya) makes any rate due, together with interest on the rates a charge against the land on which the rate is levied and the charge takes priority in accordance with such law. This means a rating authority can sell the land to satisfy any unpaid rates.

3. Renewal of Leases

When purchasing a leasehold property, should the buyer notice that the lease is nearing expiry, they should request the seller to initiate the process for renewal. The length of time remaining in the lease should is also a consideration in determining amounts payable for a property.

Under section 13 of the Land Act, the NLC is obligated within five (5) years of the date of expiry of the lease to notify and inform the lessee of its pre-emptive right to allocation of the land. Upon application, provided that such lessee is a Kenyan citizen and that the land is not required by the national or county government for public purposes.

Gazette Notice on 9 June 2017, the Cabinet Secretary for Lands published guidelines for the renewal and extension of leases.  

  • A buyer should satisfy himself that the correct steps have been followed in the renewal of the lease.
  • A buyer should also note that failure to renew a lease can result in forfeiture and reversion of the land back to the head lessor.
Failure to renew a lease can result in reversion of the land back to the lessor.

4. Probate and Succession Issues

In instances where the proprietor of the land dies, there has to be a probate process for any dealings in the land to be valid. Under section 82 of the Succession Act, the sale of immovable property of the estate before confirmation of grant is prohibited. Therefore, no person has any legal authority, to sell the immovable property of the deceased before confirmation of the grant.

Before proceeding with a sale where the registered owner is deceased, a buyer should ask for certified copies of letters of administration. The seller should also posses the confirmed grants that entitle them to sell the property.

Buyers should note that any dealing with the assets of a deceased person without proper authority is a criminal offense. This is referred to as intermeddling.

Any dealing with the assets of a deceased person without proper authority is a criminal offense

5. Planning Permission

In 2018, the country was shocked by the demolition of high-profile buildings which had been developed in catchment areas. The situation once again highlighted the importance of due diligence. It is important to understand that breach of any previously registered proprietor can be visited by the current owner. If a person irregularly acquires title to land and it is sold later, the last buyer assumes all is well. This is because the previous owners have been owning it without incident. However, this is not prudent. It is important to check the chain of title and confirm that the land was lawfully transferred. For any buildings put up, it is important to confirm that they conform to the user and zoning regulations. The building permits and NEMA authorizations should be duly issued.

6. Squatters

Squatters are illegal trespassers who occupy a property. Ideally, a land owner should lawfully evict or eject such a person from his or her property. There are however situations where a squatter can get a valid title. This is where a squatter can show his possession of a particular property was not permitted, was open, and was with the knowledge of the true owner for a continuous period of 12 years.

Before the purchase of a property, it is important to ensure there are no squatters. Where there are squatters, it should be a precondition that the seller compensates the squatters before the transfer of property. 

This is a general overview of core issues. There are several other issues not discussed such as easements, environmental matters, and community land to name a few. It is important that a buyer gets comprehensive advice on any such matters arising before concluding a sale.

READ ALSO: How to Identify and Avoid Real Estate Scams in Kenya

If you are looking to purchase a property in Kenya, please reach out to Divinah Ongaki (d.ongaki@agema-analysts.com) or Elizabeth Omol (e.omol@agema-analysts.com) for more specific advice.

The author is  Divinah Ongaki, Managing Partner at Agema Analysts-Mombasa Office. Divinah is an Advocate of the High Court of Kenya, and has been practicing law for over seven years. She has worked for the best firms and as an in-house counsel for some of the best companies in Kenya. Her expertise span various practice groups under Kenyan law such as real estate and finance, corporate law & M&A, IP law, and Labour Law. 

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