The Sectional Properties Act 2020 ("Act") was enacted in 2020 to align with the provisions of the Constitution of Kenya, 2010 and the land laws enacted in 2012. Subsequently, the Cabinet Secretary for the Ministry of Lands and Physical Planning gazetted the Sectional Properties Regulations ("Regulations") on 16 November 2021. Please read the frequently asked questions (FAQs) on the Act and the Regulations below.
- What is the purpose of the Sectional Properties Act, 2020 (Act) and Sectional Properties Regulations, 2021 (Regulations)?
The Act provides for the division of buildings into units to be owned by individual proprietors and common property to be owned by proprietors of the units as tenants in common and to provide for the use and management of the units and common property.
The Regulations operationalise the Act and outline the procedure for registration of sectional plans and conversion of long-term leases registered under the Land Registration Act, no. 3 of 2012 (LRA) to sectional titles, among others.
- What are the benefits of the sectional regime of ownership?
- It simplifies sale transactions since individual sectional titles can be transferred in the typical way that land is transferred. Lengthy lease documents will no longer be required.
- Purchase of sectional units is less costly since the Purchaser will not be responsible for the Vendor’s Advocates legal fees, unless otherwise agreed. They will also not be required to incur costs for transfer of reversionary interest.
- Administrative challenges surrounding transfer of reversionary interest and issuance of share certificates are eliminated.
- Land rates/rent to be paid per unit thus enhancing revenue collection.
- The sectional regime increases access to financing. By simplifying the process of obtaining title documents for the units, unit owners can easily secure financing by charging the units in favour of the lenders.
- It offers better protection to the unit owners. Sectional developments are regulated by the comprehensive provisions of the Act and the by-laws of the management corporation. The rules also prescribe disclosure requirements which enable purchasers to be informed of the status of the development including any existing encumbrances when purchasing a sectional unit.
- It promotes vertical development on land & therefore optimizes the use of the limited land resources in Kenya. This increases the number of units available for homeowners. It is, therefore, good for high population density areas.
- Which land interests does the Act apply to?
- Freehold land
- Leasehold land with a minimum residual term of 21 years
- What compliance requirements must be met before creating a sectional development?
The parcel of land (mother parcel) must be properly geo-referenced and approved by the Survey Department. We are informed that the Survey Department has georeferenced many properties, particularly within Nairobi. Given this, the registration of sectional plans is ongoing countrywide.
More importantly, pursuant to section 13 (2) of the Act as read with rule 18 of the Regulations, conversion of long-term leases to sectional titles is ongoing. The Act requires the conversion process to be undertaken by 28 December 2022.
- How do you create a sectional development?
- A sectional plan describing two or more units is prepared by a surveyor from a building plan approved by the county government. This could be a private surveyor. In preparing the sectional plan, the surveyor will require a land search, construction permit and the floor plans. Further, the physical structures must have been erected on the land.
- The application for registration of the sectional plan is lodged at the land registry for registration. The Registry Index Map will be amended upon registration.
- The application to register a sectional plan is accompanied by an application to incorporate a management corporation. The management corporation consists of the unit owners. A certificate of registration of the management corporation will be issued to the applicant.
- Once the sectional plan is registered, the land registrar is required to submit the registered plan to the county government for apportionment of rates within 21 days.
- What are the consequences of registration of a sectional plan?
- The register relating to the mother title is closed and its title deed is surrendered to the land registry.
- A separate register is opened for every sectional unit.
- Certificates of title (for freehold land) or certificates of lease (for leasehold land) are issued for each sectional unit at a fee.
- The interests registered against the mother title (e.g charges, easements etc.) are endorsed on the sectional title documents.
- Will title documents be issued for sectional units?
- Where the mother parcel is freehold, the sectional unit owners will be given certificates of title
- Where the mother parcel is leasehold, the sectional unit owners will be given certificates of lease
- Will I need a share certificate for my share in the common areas?
No. Share certificates will not be required. A sectional unit owner’s interest in the common areas is endorsed on their certificate of title or certificate of lease (as applicable).
- Who pays land rent and land rates in a sectional development?
Each sectional unit owner will be responsible for payment of land rent and rates for their individual unit. This will no longer be the responsibility of the management entity.
- Who owns and manages the common areas of a sectional development?
- The common areas are owned by the sectional unit owners as tenants in common in shares proportionate of the units.
- The management corporation manages the common areas on behalf of the unit owners in accordance with the provisions of the Act and by-laws adopted by the members.
- What happens to an existing management company once a management corporation is registered?
The management company is required to transfer all its assets and liabilities to the management corporation within 1 year of registration of the management corporation. The management company will then be wound up in accordance with the Insolvency Act.
- Which long-term leases registered under LRA are required to be converted into sectional units under the Act?
Conversion applies only to long term leases of a period of 21 years and above and which confer ownership of building units.
Section 13 (2) of the Act as read with rule 18 of the Regulations requires all registered long-term leases (except those exempted under rule 22 of the Regulations) to be converted to sectional units where:
- all units in a development have been transferred to the respective owners and reversionary interest has been transferred to the management company to hold in trust for the owners as noted on the title. In this case, the application for conversion is to be made by the management company;
- all units in a development have been transferred to the respective owners and the reversionary interest is by written agreement intended to be transferred to the management company to hold in trust for the owners. In this case, the application for conversion is to be made by the developer or management company; or
- part of the units have been transferred to respective owners and the reversionary interest is by written agreement intended to be transferred to the management company. In this case, the application for conversion is to be made by the developer or management company.
- How do I convert leases registered under LRA to sectional titles?
Conversion may be initiated by a developer, the management company or an owner of any unit of a development. If the parties indicated above who are responsible for making the applications for conversion do not do so, any owner of any unit in the development can apply for conversion.
Where the parcel of land is encumbered, the application is submitted by the chargee or its representative.
Conversion is effected by submitting to the land registry an application for conversion (form SP 16) and an application for registration of the management corporation (form SP7). The applications will be accompanied by:
- the sectional plan;
- the leases;
- the certificates of lease (where applicable); and
- the original or copy of the mother title (or if not available, an indemnity).
Upon registration, certificates of title or certificates of lease (as applicable) will be issued for the individual units.
- Will stamp duty be required for conversion of existing registered leases to sectional titles?
Unit owners will not be required to pay stamp duty if it was paid on the existing lease. Stamp duty will only be required where this was not paid.
- Is there a deadline for conversion?
Yes. The deadline is 28 December 2022.
The Ministry of Lands and Physical Planning may need to procure the amendment of the Act to extend this deadline to allow owners sufficient time to comply with the requirement for conversion.
- What are the consequences of failing to convert long term leases to sectional titles before 28 December 2022?
The land registrar is required to register a restriction against the mother parcel to prevent any further dealings from 28 December 2022. Although the interests of the owner and the chargees (if any) will not be extinguished, a chargee may face challenges when seeking to enforce their security against a mother parcel since they will need to procure that the conversion is done before realizing its security.
This requirement for registration of a restriction by the land registrar does not apply to leases relating to the individual units. We expect the land registry to progressively undertake the conversion of the leases as dealings continue. Given this, in the event that a chargee seeks to exercise statutory power of sale against individual units, the land registrar will issue certificate of lease in the name of the transferee upon the registration of the transfer by the chargee.
However, it is likely that in due time, the land registry will issue directives restricting dealings thereon until conversion is effected.
- Which long-term leases registered under LRA are exempted from the requirement of conversion to sectional titles?
Rule 22 of the Regulation exempts the following LRA leases from the requirement for conversion:
- where it is expressly provided for by agreement that the reversionary interest belongs to the developer or lessor or management company as legal owner and not as trustee. The Act does not define “trustee”.
- leases relating to large mixed-use developments and phased developments where it is by agreement provided that the reversion shall be retained by the developer or to be otherwise held by a management company; or
- leases relating to projects of strategic national importance, substantial transactions and special economic zones, which by their nature, renders it impractical to relinquish reversionary interest.
The Act does not define what constitutes a “large” mixed-use development or “substantial transaction”. The land registry and/or Survey Department should issue directives on this for clarity.
Notwithstanding the exemption, rule 76 (2) (f) of the Land Registration Act (General) Regulations, 2017 (LRA Regulations) requires that sectional plans will be prepared to accompany the lease documents (in place of the architectural drawings). Under rule 76 (3) of the LRA Regulations, the sectional plans are required to conform with the Act with necessary amendments.
- Can the sectional status be terminated and if so, how?
Yes, sectional status can be terminated by:
- a unanimous resolution of the corporation;
- substantial or total damage to the building; or
- compulsory acquisition.
- Which documents must a developer deliver to a prospective buyer of a sectional unit?
- the sale agreement;
- by-laws for the development;
- the management agreement (in relation to management of common areas);
- the recreational agreement (in relation to management of recreational facilities) (if any are in place);
- the mother title or the sectional title for the unit;
- the sectional plan or proposed sectional plan; and
- the charge registered against the mother title or the sectional title (if any); and
- where there is a charge or proposed charge, a notice indicating:
- the principal amount secured by the Charge;
- monthly instalments payable under the Charge by the developer;
- the amortization period;
- the term of the loan;
- the rate of interest payable on the loan;
- any privileges on pre-payment of the loan.
A developer who contravenes this requirement commits an offence and on conviction is liable to pay a fine of Kshs. 20 million or imprisonment for 1 year.
- Can a unit owner rent their unit? What is the procedure for doing so?
Yes they can. However, the unit owner is required to give to the management corporation:
- prior written notice of the intention to rent out the unit and setting out the unit owner’s address for purposes of service of notices by the management corporation
- a prior written undertaking to be liable for any damage caused by the tenant;
- written notice of the name of the tenant within 20 days of commencement of the tenancy; and
- written notice within 20 days of the tenant vacating the unit to the effect that the unit is no longer rented out.
Where a tenant contravenes the estate by-laws and the unit owner fails to take necessary action, the management corporation is entitled to give the tenant notice to vacate the unit.
- Proposals for redress or reform
While the Act is progressive, we propose the following reforms:
- The Act should allow for sectional ownership of land. It currently applies to division of buildings only;
- The Act should provide for multi-tier management corporations to cater for complex developments and phased developments;
- Section 13 (2) of the Act should be amended to extent the deadline for conversion of long-term leases to sectional units;
- The Land Registry should issue practice guidelines:
- clarifying the process on conversion of LRA leases to sectional titles where the mother parcel is listed for conversion of the parcel number;
- clarifying the meaning of holding reversionary interest “in trust” and as “legal owner” under rules 18 and 22 of the Regulations; and
- defining “large” mixed use developments and “substantial transactions” under rule 22 of the Regulations.