Mitigating against leverage risks

Guest post by Samuel G. Njenga

The higher the leverage, the higher the risk but as we saw last time the higher the profit margin.

We all agree that in Kenya, a developer’s world only makes a lot of sense when the concept of OPM (Other Peoples’ Money) is utilized to the maximum. So then along the same line of thinking, developers in Kenya are clever enough to utilize the less risky of the OPM; off-plan sales.

The idea is of course to sell concepts on paper and expect that potential buyers will show up, pay deposits for yet to be built units. As the construction goes on, the buyer injects more cash and preferably by the time the construction is over, the buyer has fully paid for the unit. This is clever coz it essentially means the developer utilizes the cash from the would-be buyers and makes some coins. However, this arrangement works best when there is a show house and buyers can see how the end product will look like. In some cases even without the show house buyers could still trust the developer especially if they have a name…importance of a name?

The other very important idea that developers consider is to ensure that a loan is structured with several draw downs. Interest is normally charged on the amount drawn as opposed to the total loan amount. After the first few draw downs. A clever investor is able to gauge on the response from clients on the units. One can reasonably tell whether there is interest on the units once the ground breaking is done. Most buyers will be comfortable once they see progress on the site. And by the way, one might be very happy to see so many would be clients visiting the site and commenting on the good work done, but a seasoned investor knows that a lot of demand may not translate to effective demand.

Effective demand is quantity of a good or service that consumers are actually buying at the current market price.

Of course we also have latent demand when a customer/consumer is unable to satisfy their demand, mostly due to lack of money.

What if you already have the loan and the sales are not forthcoming? One option would be to re-negotiate the re-payment terms with the bank so that they extend the period where u service the loan interest without paying the principle and whenever a sale is done, the bank receives their cash. Kenyan banks are kinda flexible and are also alive to the market conditions.

Developers are also keen to change the prices as the construction continues. In other words, the buyer who buys off plan will always get a very good offer and the one who comes in when the unit is ready, then pays much more. Sometimes the increase would be as much as 10-15% so it is always wiser to buy off plan or at least when the ground is broken.

Next, let’s look at the importance of location when investing in real estate.

Leveraging in real estate

Guest post by Samuel G. Njenga

Leverage (debt) magnifies outcomes. What does this mean?

To illustrate how leverage works in a real estate investment, we'll take the following investment parameters (The figures are hypothetical but not so far from reality, just to put the points across):

•Construct 5 units for sale each at construction cost of 5M (inclusive of land)

•Financing at 14% interest (service interest during construction) and repay loan on sale of units

• Sale price of 7M per unit for total sales of 35M

Let's look now at the ROI (Return on Cash Invested) with different options:

25M utilized by the developer from his/her pocket for all the construction costs:

Profit of 10M on 25M invested = 40% (return on cash invested)

50% (12.5M) cash from developer and 50% (12.5m) construction loan:

•cash out will include interest on loan (say 1M) and full loan repayment (principal) 12.5M for a total cash out of 13.5M

•Return = 35M – cash out (13.5m) – developers cash (12.5m) = 9m

•9m/cash invested (12.5m) = 72% return

  

30% (7.5M) cash from developer and 70% (17.5M) construction loan

•cash out will include interest on loan (say 2M) and full loan repayment (principal) 17.5M for a total cash out of 19.5M

•Return = 35M – cash out (19.5m) – developers cash (7.5m) = 8m

•8m/cash invested (7.5m) = 106% return

  

As you can see, even though your risk increases with leverage, especially if the sales are not made fast enough it might be a wise choice when you can increase your ROI by as much as the margins above. A seasoned investor will actually use OPM (Other People’s Money) as much as possible. Now this is good debt.

Assuming you got the 25M and as opposed to just utilizing the same for the 5 units…and do without a loan, suppose you put the entire amount as 30% (read last option above). This means, you can now get a loan of around 60M. In other words, you can now construct 17 units.

Sell the 17 units @ 7M for total sales of 119M. If you manage to sell the units within 1 year, then you’ll have paid an interest of around 7M (coz you’ll not draw the cash all at a go).

Cash out is now 7M (interest) + loan repayment (principal (60M))

Returns = 119M-67M = 52M/25M (cash invested) = 208% return……this one will drive someone crazy……or let’s say if I made this, then I’d be off to Benidorm for a month... and switch off my phone

The above figures paint a good picture about debt if well utilized. Take note that the above example(s) are purely driven by sales in good time. This is quite an assumption and a seasoned developer will tell you that without sales, then you are doomed. Notice how crazy it can turn out if you got a 60M loan and sales are not forthcoming…..you will cry in the toilet… But trust investors to take huge risks….after all what would be the worst case for this type of investments??? .....

Next post we shall think along this line.

Of minors and registration of land in trust

Guest post by Samuel G. Njenga

You probably don’t trust your wife/husband that much and you think it is wiser to register that property in the name of the kid. In the new act (Land Registration act 2012) the issue of minor’s registration is dealt with in section 47:

1.     “The name of a person under the age of eighteen years may be entered in the register to e n a b l e the minor’s interest to be held in trust and shall be registered under the name of the guardian either on first registration or as a transferee or on transmission.

2.     Nothing in this section enables a person under eighteen years of age to deal with land or any interest in land by virtue of such registration, and, if the Registrar knows a child has been registered, the Registrar shall enter a restriction accordingly.

3.     If a disposition by a minor whose minority has not been disclosed to the Registrar has been registered, that disposition may not be set aside only on the grounds of minority”

In simpler words the minor’s name will be entered in the register but the minor cannot transact in the land till they reach 18yrs of age. When the minor reaches 18 years of age, the trust lapses automatically.

The title is usually registered under the name of the guardian (s) as trustees of the minor as below:

Guardian 1 name and Guardian 2 name … as trustees of Child of Birth Cert no…

In the event that the guardian is more than 1 and the one of them expires (dies), then the other guardians cannot take charge of the entire trust, in fact the deceased guardian ought to be replaced. The details of the trust should basically deal with how the transmission will be done. In the event the details are not there, then laws on general trusts will prevail. If all the guardians expire, then an option of the public trustee taking charge may be explored.

So, how is a minor to be protected?

When a guardian or guardians registered in trust decide to transact with the land, then it must be in the interest of the minor. Suppose you are purchasing such a piece? Ideally, when you are in the know that the land is under a trustee then you may want to ensure that the money you pay goes into an account in the name of minor and if such an account does not exist then it is prudent to insist that one is opened by the guardian.

A good registrar should actually seek to understand why the land is being sold and should at least ensure the minor is protected. It may not be strictly in the law but the interests of the minor must come first. As a buyer never write cheques in the name of the guardian especially when you know that they are just but trustees. It actually means they don’t own the land but are just holding it on behalf of somebody else.

Did u know that welfare groups cannot own property including land? In fact, if such a group wants to own land it can only be registered in the names of some or all of the members in trust.

Next we look at leveraging on debt in real estate.

Joint property ownership

Guest post by Samuel G. Njenga

Joint ownership of property will come in two forms:

1.     Joint proprietors

2.     Proprietors in Common

When two or more people purchase land, they can be registered on the Title as either of the above.

Where two or more parties register as Joint Proprietors each registered owner does not have a specific share of the property - all owners have an undefined share in the whole of the land. The right of 'survivorship' applies when a joint proprietor dies, as the ownership automatically vests in the surviving joint proprietor/s. In other words, the deceased proprietor's interest simply evaporates by operation of law, and cannot be inherited by his heirs (which means you avoids going through probate / succession). Under this type of ownership, the last owner living takes all.

In the former registration acts which have since been repealed, it was possible for non-spouses to jointly own property as joint proprietors, not so in the new Land registration Act 2012. In fact any property which was jointly owned by people who are not spouses in the old law automatically transits into proprietors in common mode under the new law. How they’ll split the percentages am not sure; probably they’ll assume equal ownership. The new law only allows spouses as joint proprietors but others will have to be proprietors in common.

As for proprietors in common each registered owner has a separately defined share of the property which can be one undivided moiety or one third, or one quarter, depending on the number of registered proprietors as to the percentage holding. In this instance, when a proprietor in common dies, ‘survivorship' does not apply, and the deceased's share is transferred according to the terms of the will. However in the case of those who die intestate (without a will), then the share is transferred to the administrator of the estate. Simply put, when a proprietor in common dies, that owner's interest in the property will pass by way of inheritance to that owner's heirs, either by will, or by intestate succession.

Lessons to learn:

1.     If you wish to protect your spouse from being harassed by your not so good relatives after you are gone to plant cassavas for those you leave behind, then ensure that the properties you wish her/him to have are registered in both your names. That way, the surviving spouse automatically takes over the ownership without being subjected to succession. The registrar actually will delete the name of the deceased from the title upon confirmation/proof of transition by way of registering the death certificate.

2.     In the case where several people contribute unequal amount towards the acquisition of a property then the % of ownership need to be clearly stipulated in the registration documents.

By the way, did you know that any transfer even in the case of a gift or inheritance attracts stamp duty? Next we shall look at registration of minors (below 18) and registration of properties in trust. I have at one point met someone who never really trusted their spouse and decided to register the property in the name of a minor.

Of Certificates and Ballots

Guest post by Samuel G. Njenga

Did u know that the Kenyan Government only recognizes title deeds and allotment letters as bona-fide documents to show proof of ownership of land? And by the way, from our previous lessons, the allotment letter is just an offer and the expectation after receiving the offer is to accept it by way of paying the charges therein.

So, when you purchase a plot from a land buying company and all you receive is a certificate from the said company, then please take note that the government does not recognize that you own the plot. In fact the agreement may only say that you own a plot excised from the mother title so and so.

The origin of these certificates and ballots was by land buying companies whereupon the company would buy a big chunk of land, or would be allotted by the government. The shareholders of the company would then buy shares and you’d find a share would mean one or several parcels of land. Ideally, the shareholders would ballot for the available pieces, hence the ballot card and numbers. Thereafter, they’d pay some charges to be shown the parcel (s) and process the titles via the buying / ranching company. We have heard of Embakasi, Githunguri, Kihiu Mwiri, Kiganjo, Dandora farmers, Mboi Kamiti, Nyakinyua etc, all ranching companies that would apply this concept. Till today, you’ll find members who never paid the requisite charges to acquire title deeds still holding on to original documents (very old receipts, ballots & certificates) as proof of ownership. I once saw a mzee who had framed a certificate and held it so dear it was kinda comical. But then, they are / were original owners and any sale would mean a transfer is executed at the company offices.

Fast forward to today. Some guys will buy huge chunks of land, subdivide physically and sell using certificates. My biggest question has always been why a serious investor in land would behave like that. But purchasers are also to blame; why do you buy a plot with a certificate worst of all from an individual? This is plainly lazy on the part of the guy selling.

In some cases, the concept is acceptable like the Mhasibu case where they sell a concept and members buy into the concept. When cash enough to commit to the deal has been received, the deposit is paid and the balance is paid upon completion by those interested. Title processing comes much later after members have fully paid and subdivision is completed. Notice the advantages of such a concept in the fact that members fully enjoy economies of scale because the bigger the land, the cheaper it becomes. Again, when well negotiated, the members acquire the plots at a cost which is way below the market prices.

For the former case where an individual just buys a huge chunk and sell plots with certificates, take note of the risks therein:

1. For the individual / company selling, if they decide to use the land as collateral, who would stop them? I have heard cases where dubious fellows use the land as collateral only for the purchasers to be left in a fix when the fellow defaults. You’ll end up lining up with a bank somewhere where the bank claims lenders interest and the purchasers claim purchasers’ interest.
2. For the purchaser, you can never use the land as collateral because no bank will accept those certificates. The ownership of that property only reaches the purchaser upon transfer of the title in their name.

I have also witnessed interesting cases especially in Ruiru (Murera Area) where guys subdivide land into tiny plots measuring 60ft by 40ft and sell using certificates. What purchasers should know is that you can never get a title with that size of a plot around that area. In fact the smallest piece you should buy must be a minimum 40ft by 80ft or equivalent area. My advice is that we avoid these certificates at all cost. However, whenever purchasing any land in those schemes, then it is wise to demand for those original documents as part of due diligence.

Next we’ll look at joint property ownership and the legal implications.

The crazy world of speculators

Guest post by Samuel G. Njenga

Sometimes back in November last year I received a call from a friend called Raphael. I have in the past sold him several plots in the outskirts of Nairobi. He wanted to see me and I quickly checked my diary and confirmed availability the day after in the afternoon. When we met he was very excited and I really wanted to hear what he was up to. He produced a check book and wrote me the final check for the purchase of the last of the many plots he bought from me. I gave him a heads up on what I had then. He is the type of guy who really trusts me and sometimes he’ll just pay me deposit for a plot before even doing his due diligence. This I have seen in several clients whom we've dealt with in the past whereupon the trust is built overtime.

Then he told me of some land he had bought somewhere between Namanga and Kajiado. He loves adventure and in his many drives to Namanga he was shown several tracks of land by some broker I had referred him to. It was an interesting case of a Masaai who wanted to dispose his land due to some financial crisis and the offer was too good to resist. So he ended up buying 120 acres each at 10k. 6 months later the same broker he had dealt with when acquiring the land called him and informed him that there are rumours that a CEO of a blue chip company (name with-held) is planning to do a golf course on the land bordering Raphael’s land. The said rumours meant that the prices had immediately shot up to 50k per acre and the broker already had a serious client interested in Raphael’s land. The reason why Raphael was calling me was to hear my opinion on the matter. A quick calculation meant that his land was now worth 6M from 1.2M. Welcome to the crazy world of speculation in land.

If you were in my shoes, what would you have advised Raphael?

In Kenya, we got very interesting stories around. I once went deep inside Juja farm and the broker who was showing me the land was really insisting that the bypass will pass next to that land he was showing me. Well, if you are not careful, this is a ploy used to get you into the deal. We all agree that ignorance is very expensive. I am usually very unforgiving when am given wrong information. So I called an Engineer who works at KURA just to confirm where that Greater Eastern Bypass passes through. Of course I confronted the broker and informed him that he was distorting the truth.

Back to the Raphael’s story. Here is a guy who buys land and before he even knows what to do with it, another dude wants to pay for it at 5 times the purchase price all within 6 months. Who is clever here? Raphael never added any value to the land, the rumours did. The rumours keep persisting and Raphael keeps holding his land awaiting it to reach 100k per acre when another not so clever fellow will show up and give him that ridiculous offer.

"Speculation in land is basically buying on the basis of the future potential selling price rather than on the basis of its actual value. This results in rise of the prices over and above the underlying value of the land"

In most cases speculators take above average financial risk in anticipation of higher returns over short periods of time, resulting in upward price spirals than actual values. This normally happens when panic buying is witnessed in areas where infrastructure is being developed or expected to be developed.

Realtor's have christened the concept and called it land banking. Kitengela, Mavoko and Thika Road areas are examples of places where this concept has been applied.

Notice how this affects the economy. Whereas the prices keep getting higher by the day, disposable income cannot keep pace with the rise in property prices. The properties get less affordable with time and soon majority of the middle class will not afford these properties any more  You can imagine looking for a house worth 5M near Nairobi and its outskirts. After all for most guys, that is the mortgage they’d qualify for. Developers are seriously struggling and the biggest issue is rise of cost of land.

Do we try capital gain tax? Ideally, this would be charged on profit realized on sale of land purchased at a lower price and appreciated in value without the owner's participation in creating added value. In Rwanda they do this (30% tax on capital gain).

What about taxing vacant excessively large parcels not fully utilized?

Another interesting outlook is the fact that speculation will most likely withdraw capital from productive economic activities and transfers to unproductive assets lying idle somewhere. Is this good for the economy?

A valuer’s nightmare is when you value a property like that one Raphael bought and before the transaction is complete, the value changes drastically, you’d think the valuation is a joke. Over to the policy makers. In the meantime who will blame you if made hay while the sun shines? Seriously, I got no apologies for being a speculator. What about you?

Next we will look at the murky world of land buying companies which issue you with certificates, ballots etc. as opposed to titles. What is the implication?

Change of use and controlling developments

Guest post by Samuel G. Njenga

Physical Planning Act (Cap 286) change of use: “The owner of Plot LR NO. AAA/AA located wherever is proposing to change the use from agricultural to residential (multi-dwelling) subject to approval by AAAA Council. Individuals, institutions etc. with objections to the proposal are requested to forward them in writing within fourteen days of this notice to The Town clerk…."

You see them mostly on Standard’s Digger Classifieds. Most people do not even notice them, others see them and fail to understand what they mean, and others simply do not care. You may never know their implication until a block of flats (5 storey) pops up next to your nice residential home. Then the guys at 5th floor have a very nice aerial view of your compound. Worse still, a church or a mosque pops up next to you and when they hold a kesha (overnight prayers) every other weekend, you start complaining and cursing.

The requirements of the law is that whenever you want to set up flats, church/ mosque, factory etc., you must apply for change of use if the current ‘use’ is not in conformity with your proposed development. What ideally should happen as the notice reads is that anyone who objects to the development proposal should raise their objection in writing to the relevant authority failure to which you should forever hold your peace. As a pre-requisite to approval of the aforementioned type of developments, the change of use approval must be sought before the plans are approved.

Most councils have failed in as far as controlling development is concerned. It is no wonder you find flats in the middle of residential developments. Equally, you find churches in the middle of estates; some are next to each other. Generally there is a serious gap in physical planning. Some Councils do not even have a Physical Planner.

Due to the existing gap, most owners of residential homes / plots in many estates have formed welfare groups to attempt to enforce planning. We know of famous and very strong resident’s welfare Associations (read Karengata, Runda, Kahawa Sukari etc). These welfare groups have largely assisted by ensuring that plans are approved by them before they are forwarded to the respective councils. They basically have a working arrangement with the council to ensure that any plans that get to the council are first approved by the association.

I always advise that wherever and whenever possible, your residential home ought to be in an area with controlled development. With demand for housing at an all-time high around Nairobi and its environs, the pressure to developers to build flats gets overwhelming and the same leads to those developments coming up even in areas initially designated for other developments.

There is a concept called zoning that most land buying companies used to embrace back then but we seem to have lost it all together. Back then, the companies (mostly ranching companies) used to acquire huge tracks of land. They’d then subdivide the land in zones where one zone would be 1 or 2 acre pieces for farming and the other zone would have ¼ acres for the members to build residential homes. This in essence meant that the residents would farm in the larger contiguous tracks and live in smaller contiguous section. This mainly protected the agricultural relevance of the shambas and also promoted living together of the residents where common services like water and electricity would be easier to supply.

Fast forward to today where agricultural land has been subdivided into tiny portions to an extent that it never makes sense to farm the portions. Back in my village which is barely 20 km from Nairobi CBD, what was formerly agricultural land has been rendered useless due to subdivision into small plots and sale of the same. The government has in a big way failed to deal with this matter. Why does it allow coffee farms to be converted in residential estates when we all know we have large tracks of semi-arid land which ordinarily would be better off for residential developments? If this goes unchecked, the same will reach the bread basket of Kenya and land especially in North Rift might suffer the same fate that Central Kenya and to a large extent Western Kenya has suffered.

Sometimes back I stumbled onto some paper call it proposal by some NGO touching on the animal migratory corridor in Kitengela. The area to the South of Nairobi National Park (which is unfenced) opens up to Athi Kapiti Plains and Kaputiei, what they were calling Athi-Kaputiei ecosystem. It is wildlife-rich pastoral grasslands which is under threat from rapid construction of fences, infrastructure and residential areas. If unchecked, this unplanned growth will destroy Nairobi National Park because the animals move in the rainy season is search of pasture. The area is owned by private ranchers and unless the government acquires the land and compensates for the developments therein, there is no other way of recovering the corridor. This is poor planning on the part of government because it is the one that approved the developments in the first place.

One time I was selling a plot to a gentleman some place in Kitengela and he asked me whether the land is part of the migratory corridor. He was afraid of buying because he thought one day one time the government will take up the land. I told him that what is clear is that the land is not even owned by the government and if at all the government wanted to set aside the land for that purpose, it’d definitely compulsorily acquire the land by way of compensation to the private developers there but it’s not like they grabbed the land.

Interestingly, the Physical Planning Act is adequate in its content. The biggest challenge is actually enforcement by the relevant authorities. We see serious developments cropping up in riparian reserves, sometimes rivers are diverted and other times we even see building is swamps. A classic case is some house I heard about in Githurai 45 that started sinking as it was on top of a swamp. Somebody somewhere needs to get serious.

Next lesson will be on the crazy world of speculators in Kenya’s real estate.

Plot sizes and tenancy

Guest post by Samuel G. Njenga

If you look at a title deed, you’ll notice that the approximate area of the plot/land is normally in hectares.

1 Ha = 2.47105381 Acres = 10,000 Square Meters

1 Acre = 0.404685 Ha

1 Meter = 3.2808399 feet

Having understood the above, what is a 50 * 100? This is usually in feet. If you look at a plot that is 50*100 (exact measurements), then the same would translate to 15.24M*30.48M = 464.5sqm = 0.0464 Ha

In real life, it is very hard to find a plot whose exact measurements are 50ft by 100ft so the most important thing to look at is the area as long as the width of the plot is not too narrow for your purposes, of course you will not even be able to subdivide a strip which is 10ft by 500ft.

From the above, 100ft by 100ft should be 0.0928 Ha.

Then what is 1/8th of an acre. In terms of the area then, it must be 0.404685/8 = 0.5058 Ha.

People in Kenya loosely refer to 1/8th acre as 50*100. Of course there is a slight difference in terms of the area but not so much hence the confusion.

Tenancy

In Kenya, we got two types of tenancy i.e. if we are to look at it largely (absolute ownership and leases).

Absolute ownership which we normally refer to as freehold which essentially means you own the land absolutely and there is no time limit pegged on the ownership.

Leased tenancy is where you own the land for a limited time but subject to renewal of the tenancy/lease. Ordinarily, this one attracts land rent payable to ministry of land and rates payable to the municipal council. However, even freehold titles sometimes attract rates especially when located within municipalities. We got 99 year leases (most of them), and of course the infamous 999 year leases given to those British settlers. All of these will revert to 99 years.

Someday I came across a lease whose land rent is peppercorn. This means a rent that is very low or nominal and the reason they put it there is to avoid removing it entirely for legal purposes because returning the rent would be a problem. By the way, land rent is revisable. You’ll find amounts like Kshs 100 per annum which may have been set at the time of issuance of the title many years ago. Back then it could have been a lot of money but the current value is too little.

We got another form of tenancy they call sectional titles which is derived from the Leased tenancy.

Sectional titles under the Sectional Titles Act (No. 21 of 1987 confers title to owners of sectional properties such as apartments which is an offshoot of the bigger lease. In such a case, a Management Company will be formed by the head- lessor to manage the common areas such as stair cases, pavements, driveways, swimming pool, gym, club house, lifts, etc. The company will also purchase the reversionary interest from the head- lessor and hold it for the members for ease of renewal of lease when the term on head lease from the Government expires. Each lessee will be required to subscribe to the management company and should receive a share certificate for each unit owned. If they later desire to sell their apartment/ townhouse, both the lease and share certificate must be transferred to the new purchaser.

Next we shall look at the concept of change of user and controlling development.

The subdivision process

Guest post by Samuel G. Njenga

We shall base the info herein on a subdivision of a freehold title.

Before you subdivide any land, you must get the consent to do so from the Land Control Board. Ideally the consent is issued upon the proprietor appearing before the Board. Notice that all land transactions are controlled. However, we all know that in Kenya, we may not necessarily appear before the board, but we can get what they call ‘Special Board’. I have put it in quotes because the concept is illegal. In fact what happens is that the consent date is backdated to the last Board sitting.

I once attended that board when I wanted to sell a plot in Ruiru. Those wazees really harassed my madam and I. “Kijana, kwa nini unauza shamba na wewe ni mdogo sana?”, they asked. I told them that I have other plots and I sell plots as a business. “Wapi bibi”, one retorted. I was with my significant other so I pointed at her. “Huyu sio msichana umeokota mahali?”. I produced the marriage cert and she produced her ID. They asked her “Na wewe unakubali mzee auze shamba mkae wapi?” She said she is OK with it and that is when they accepted. I swore never to return there. The wazees are famed at dismissing would be sellers unceremoniously. By the way, the idea behind the Land Control Board is noble especially to protect families from wazees who just sell land and leave their families desolate. Back in the village it is a common problem where fellows are selling inherited land and run away with young girls to squander the money only to return once the cash is over.

Once the consent is granted, the surveyor prepares the development plan on paper. The plots and access roads are earmarked and drawn to scale. Once the planning on paper is complete, the rest is to be done on the ground i.e. placing the beacons. Of course there are requirements that guide surveying including the width of the access road, minimum sizes and others.

Ideally, the proprietor is supposed to be present when the beacons are being put on the ground. Once the beacons are in place, a mutation form is filled in triplicate. The content of the form are as below:

1.     Title number (mother title) and approximate area. (page 1)

2.     Registered proprietor instructions to the surveyor on how they wish the land to be surveyed. (page 1).

3.     Sketch or development plan which ideally should be filled by the proprietor(page 2)

4.     Field diagram and observation on site with measurements to scale. This is normally filled by a licensed surveyor.

Once the mutation is filled and the proprietor has signed the 3 copies, they are presented to the district surveyor whose role is to approve the subdivision and allocate Land Reference numbers (new numbers to the new plots). The numbers are normally allocated serially based on a particular block of land. So the District Surveyor will just check from their records the last number issued for that particular block and allocate the new plots the numbers that follow.

The District surveyor then forwards a copy of the mutation to the registrar confirming that the survey work has been carried out and therefore the registrar can issue title deeds based on the LR Numbers already allocated by the DS. The DS also forwards a copy of mutation to survey of Kenya for purposes of amending the RIM (Registry Index Map).

Once the registrar receives the mutation, they open a green card for each of the new titles, issue a title for each of the new plots and then file the green-cards in the respective binders. The Proprietor then receives the new titles.

The Process gets is far more complex and trickier and expensive when subdividing leased land.

By the way, when someone tell you that they have subdivided their land and all they are showing you are beacons on the ground, 'ati titles ziko njiani,' please take note that they may just have done the easiest part of the process.

What is astounding is how land buying and selling companies take forever to process titles and ordinarily it is a process that takes 4-6 weeks. Land buyers need to be more careful and insist on buying land whose titles are ready.

Next lesson we will try and explain the sizes of plots. Someone once asked me what 1/8th acre is? Is it 50 by 100? What is this hectare thing? We can also look at land tenancy

Understand that Agreement before you sign it: Part 2

Continued from Part 1

“The sale is subject to the Law Society Conditions of Sale (1989 Edition) in so far as they are not inconsistent with the conditions in this agreement.”

The LSK Conditions of sale (1989 Edition) are boiler plate set of conditions to aid in drafting of agreements and guide the sales and conveyancing process. They outline how critical matters are to be dealt with including:

•          Deposits

•          Completion

•          Possession

•          Apportionment

•          Interest on purchase money

•          Objections and requisitions

•          Rescission

•          Easement, Liabilities

•          Consents

•          Subdivision

•          Notices

•          etc

Default clauses

These are meant to protect the parties in case of default. In the event the vendor defaults, common practice is to return the deposit paid by the purchaser mostly with some interests guided by the market rates.

In the event of a default by the purchaser, the vendor is entitled to serve the purchaser with a 14 day notice and when the same expires, the Vendor at his sole discretion has the option of either extending the completion period or rescinding the agreement in writing.

Rescinding of an agreement: It basically means to declare a contract void—of no legal force or binding effect—from its inception and thereby restore the parties to the positions they would have occupied had no contract ever been made. In the event this happens due to failure of the purchaser to comply, then the purchaser loses the 10% deposit.

Completion

This is usually done by way of exchange of completion docs and balance between Vendor and purchaser respectively or upon successful registration of the transfer in the name of the purchaser.

Another common practice of late is signing on every page for the vendor and the purchaser just to make sure that a malicious party does not pluck out unsigned pages and replace them with unfavorable conditions or different content.

For the agreement to be valid, a Certificate to identify the vendor and purchaser, must be done by an advocate.

Another condition of late relates to simply stating who drew the agreement. “Drawn by”

Is an agreement which has not been witnessed by an advocate legal? Yes if there is a witness. However, the transfer documents must be certified by an advocate licensed to practice. Also certification of the other docs as true copies of the origin must be done by an advocate /notaries public.

Who is this notaries public? A person legally empowered to witness and certify the validity of documents and to take affidavits and depositions. Wow..and what is an affidavit? A written statement of facts voluntarily made by a person under an oath or affirmation administered by a person authorized to do so by law.

Arbitration of disputes

In the event there is a dispute between the parties over the agreement, they should issue a notice of 7 days to each other with a copy to their witnessing advocate who shall within 7 days invite both parties to a joint meeting and may arbitrate any disputes and his decision is binding and can only be reviewed by an arbitrator appointed by the two parties but in the event they cannot agree, then an arbitrator will be appointed by the Chartered institute of Arbitrators to arbitrate the dispute.

And what is power of attorney: A written document in which one person (the principal) appoints another person to act as an agent on his or her behalf, thus conferring authority on the agent to perform certain acts or functions on behalf of the principal. This means you can grant a person authority to act on your behalf and that includes the sales process. A power of attorney generally is terminated when the principal dies or becomes incompetent, but the principal can revoke the power of attorney at any time.

Enough of the agreement and the legal jargon. Next we will look at the subdivisionprocess…