Registration Of Sectional Units Under The Sectional Properties ACT (NO 21 OF 2020)
On 11th December 2020, President Uhuru Kenyatta enacted the Sectional Properties Act, 2020 (the “New Act”) into law repealing the Sectional Properties Act, 1987. This alert shall provide an analysis of the provisions of the new law and how it will affect developers, banking and financial institutions and current holders of registered long-term leases.
Brief introduction
The New Act was formulated with the intention of being a transitional law in line with Kenya’s affordable housing scheme which was launched in December 2017, as one of the national government’s foundations of growth in President Kenyatta’s Big Four Agenda. This is also in line with Kenya’s Vision 2030 economic pillar on affordable housing schemes. The basic principles of the New Act remain considerably similar to the Repealed Act but introduces some substantive changes which we have discussed below.
Under the New Act, sectional titles confer distinct rights to owners of multi-level developments such as apartments, flats, maisonettes, town houses, villas, go downs and office spaces. The main objective of the new law is to provide for the division of buildings into units to be owned by individual proprietors with common spaces owned by owners of the units as tenants in common and managed by a corporation established under the provisions of the new Act. Individual unit owners will now have individual titles for their respective units and can consolidate and subdivide the units.
Key provisions of the New Act
The Repealed Act suffered inadequacies which the new law sought to cure, for instance, the Repealed Act was only applicable to titles that were issued under the old land law regime being the Registered Land Act Cap 300, which has since been repealed by the provisions of the Land Act No 6 of 2012 and the Land Registration Act No 3 of 2012. The New Act now aligns with the Constitution of Kenya, 2010 and the revised and consolidated Land Laws of 2012. Some of the key provisions are:
- Unlike the old regime which was primarily focused on registration of sectional titles against leasehold titles only, sectional plans can now be registered against a freehold or leasehold titles. The New Act shall apply in respect of leasehold titles where the unexpired residue of the term is not less than 21 years. The previous regime provided for a threshold of 45 years;
- Owners of sectional properties will now be issued with a certificate of title for freehold property or certificate of lease for leasehold property. This is a deviation from the provisions of the Repealed Act which provided for issuance of title deeds for sectional property in respect of each unit. The respective title will include the unit’s proportionate share in the common property. The common property will be managed by a corporation incorporated as per the provisions of the New Act, and the corporation will not subject to the Companies Act, 2015. The corporation will be automatically dissolved on termination of the sectional property status.
- The New Act requires that all sectional plans (prepared by a surveyor approved by the County Government and the Director of Survey) submitted for registration by the Land Registrar be georeferenced.
- All long-term leases (leases for more than 21 years) intended to confer ownership of apartments, flats, maisonettes, townhouses or offices and which were registered before 28 December 2020 (the Commencement Date of the New Act) must conform to the New Act within 2 years from Commencement Date to conform to the geo-referencing provisions of the Land Registration Act. Unit owners will not incur stamp duty costs upon revision if the requisite Stamp Duty fees was paid when registering their sub-lease. If this is not done within the 2-year period, the Registrar shall register a restriction against the title of the parcel to prevent any further dealings on it.
- The New Act also allows for internal dispute resolution mechanisms for individual unit owners in a development by a dispute resolution committee which will handle all disputes relating to enforcement of by-laws. Previously, such disputes were referred to the tribunal appointed under the Landlord and Tenant (Shops, Hotels and Catering Establishments) Act.
Procedure for registration of Sectional Units under the New Act
The Ministry of Lands and Physical planning issued a public notice on 10th May 2021 stating that all sectional plans submitted for registration should be:
- Geo-referenced;
- Indicate parcel numbers;
- Indicate unit numbers;
- Indicate approximate floor area for each unit;
- Be signed by the proprietor;
- Be signed and sealed by the Director of Survey; and
- Indicate the user of the unit.
The notice also indicated that the Land’s Registry shall no longer register long-terms leases supported by architectural drawings at the Registry of Documents with effect from 10th May 2021 as that system is being phased out Once the sectional plan is registered the registrar will close the original register and open a new register with respect to each unit described in the sectional plan.
The Ministry of Lands and Physical Planning conversion manual of April 2021 provides a comprehensive procedure for replacement and issuance of new titles to apply to the conversion of titles in respect of Sectional Properties.
We however must point out that the regulations and prescribed format for all instruments under the New Act are still at the draft stage and have not been enacted.
What does this mean for you?
- Among other advantages, individual titles under the New Act will afford unit owners increased ability to obtain financing from banks and financial institutions as the individual titles will give banks the comfort to lend since security can be taken over the individual titles and proportionate shares over the common areas.
- The titles will also allow the owners easier disposal, consolidation and subdivision of their units. Closure of the mother title will vest absolute rights on the individual unit owners and they can deal in the property however they wish to as opposed to being at the mercy of developers.
- The titles will vest the reversionary interest on individual unit owners who will be at liberty to apply for renewal of their leases upon expiry. This will definitely expedite the process of extension and renewal of the leases as the management companies will no longer be involved.
- Under the New Act, the owner of a unit shall only be liable in respect of an interest endorsed on the sectional plan in proportion to the unit factor for his unit.
- A person who fails to comply with the provision of conversion will be guilty of an offence and shall be liable on conviction to a fine not exceeding KShs.250,000/=. If a Corporation (as defined in the New Act) fails to comply with the New Act, each member of the board who is knowingly a party to the failure is guilty of an offence and shall be liable to a fine not exceeding KShs.250,000/=.
- We anticipate that there will a boost in revenue collection for the various county governments as each unit will be assessed separately for purposes of payment of ground rent and rates. Under the Repealed Act, ground rent and rates were payable to the management company as service charge and apportioned to all other unit holders. Under the New Act, the increased revenue collection will benefit the various county governments and also make it easier to apprehend individual defaulters.
- Concerns have been raised as to the manner in which the management of the individual units in a development will be carried out. Previously, long term leases were used to stipulate the rights and obligations of each party to the lease and were enforceable by each. With the collapsing of the long term lease method of registration, the individual owners will have much more liberty to do as they please with the units making way for chaos in terms of management of the developments.
- For banks and financial institutions with secured interests, the secured titled will have to surrendered to the Land’s Registry for the secured interest to be partially discharged and a new sectional title to be issued. Subsequently the security will be registered against the new title.
The registered owner shall make an application and the encumbrancer or appointed representative shall present the application for issuance of a new title. In the event of the chargee exercising its statutory power of sale, the Registrar shall issue a new title in the name of the transferee upon registration of transfer by chargee.
It is prudent for the secured creditors to examine all long-term leases that they are holding as security in order to ensure that the registered proprietors are in compliance with the New Act. This will also assist the secured creditors to regularize their security to be in compliance with the New Act.
Conclusion
As we mentioned previously, the regulations and prescribed forms for all instruments under the New Act are still at the draft stage and have not been enacted to aid the operation of the New Act. Owing to the various issues that are anticipated to arise with the implementation of the New Act, various stakeholders in consultation with the Ministry of Lands and Physical Planning (the “Ministry”) met
on 11 May, 2021 to chart a way forward. The following are the resolutions that were made at the meeting between the Law Society of Kenya (Nairobi Branch) and the Ministry:
- All instruments presented for registration relating to existing long term leases in Nairobi that were registered under the repealed Registered Land Act will be handled by the Ministry as follows:
Geo-referencing will be carried out at the Government’s cost on priority basis; b. the Ministry will register the sectional plans and open respective registers for the units; c. the Ministry will then upload the property register for each unit on the National Land Information Management System and proceed with registration. - For all instruments presented for registration relating to the existing long term leases in Nairobi and the County Registries out of Nairobi that were registered under the repealed Registration of Titles Act and the Government Lands Act, transactions and dealings with these titles will proceed under the current practice but the owners will be required to commence the regularization process and complete the process set out under Section 13(2) of the New Act. The Government will cater for the cost of geo-referencing.
- With respect to ongoing transactions including for documents in the registry pending registration, documents for which Stamp Duty is already paid and pending presentation and for leases submitted for assessment of Stamp Duty, the Ministry will proceed as follows:
transactions and dealings with these titles should be finalized under the current practice. b. documents to be allowed for presentation and processed as per (a) above; and c. Collector of Stamp Duty will be allowed to assess for Stamp Duty, payment made and registration finalized as per (a) above provided the transaction is not in respect of a new development. - For Partially registered developments where plans have already been registered under Registration of Documents Act and where some leases have been registered, the leases presented for registration shall be finalized following the process under (1) above.
- All New developments for which no lease has been registered have to comply with the provisions of the New Act and the Land Registration Act, 2012.
We are following the matter keenly and will alert you of any developments as they arise.
This alert is for information purposes only. Should you have any questions or need legal advice, please contact Mwangi Kibicho at mwangi@jkkibicho.co.ke, Leah Muchiri at wmuchiri@jkkibicho.co.ke or Antony Miti at miti@jkkibicho.co.ke.