Every day is an opportunity to learn something new and the question of today is; what is a sectional Title deed in Kenya? We often mention Freehold and Leasehold Title deeds, but most people are not familiar with Sectional title deeds.
Perhaps because the first two are common when buying land, but what do you get when you want to buy an apartment that is on the fifth floor of a development? Let us shed light on what a Sectional Title deed is and everything you should know when buying an apartment.
Sectional Properties Act, 2020
The 2020 Sectional Properties Act shed light on the questions raised by real estate developers Financiers and buyers which were centered on how to obtain and process sectional title deeds for developments in Kenya. The 2020 Act Differs in bits from the previous framework which is important for you to understand. Let us delve into the topic of the day.
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What is a Sectional Title?
In the simplest words, a sectional title deed is a property tenure or document that shows an individual has ownership of a unit within a development. Sectional title deeds are commonly used when selling Apartments, Flats, Mansionettes, Offices blocks, and townhouses.
It is important to note that if one owns a unit in the development, they also co-own all the shared common property with other people also own units in the development. For example, if you own a two-bedroom unit in a residential flat, you are entitled and granted exclusive ownership of not only your house but also jointly own the compound or driveways in the estate with other homeowners in undivided shares. I hope that is clear enough to that point.
Can you own a Sectional Title Deed in Kenya?
Individuals or homeowners are allowed by the Sectional Properties Act of Kenya to own units in a development and therefore own a Sectional Title. The legislation also provides for ownership of common areas and the use and management of common areas.
With the passing of the Sectional Properties Regulations, 2021, it is now possible to process a sectional title and hold it in your name. The Sectional Properties Act applies similarly for both foreign nationals and Kenyan citizens.
NOTE: Foreign nationals can only hold leasehold sectional titles for up to 99 years. Kenyan citizens can hold both leasehold sectional titles and freehold sectional titles. The Act provides that one can hold the title for more than 99 years.
What is the Sub-leases Framework?
Before the Sectional Properties Act, 2020, there was a different Unit ownership regime where units were owned through sub-leases or the Management Company Framework.
Under the Management Company Framework, a developer would buy a piece of land and erect a block of flats. He would then form a management company under the Companies Act of Kenya. He would sell the units or apartments to purchasers through sub-leases of 99 years.
With each unit sold, he would allot the buyer or homeowner a share in the management company. After all apartment units were sold, he would transfer the land on which the block of flats was erected to the management company.
Ideally, by this time, all purchasers would be shareholders in the management company. Therefore, they would be the beneficial owners of the land on which their homes were erected (title to this land is commonly called the “Mother Title”).
Since the homeowners were holding sub-leases, they were dependent on the Mother Title which was held by either the developer or the management company. Their sub-leases were borne from the Mother Title and could not exist independently of the Mother Title.
Problems with the Past sub-lease Regime
At times a developer would not issue shares in the management company to the purchasers of units in his development. This meant that the developer retained ultimate control of the development. This also means that they could at any time threaten to terminate their sub-leases.
A developer would sometimes refuse to exit the management company once all the units are sold and continue to collect service charges set to very high rates without consulting the unit owners.
Because the sub-leases are usually set to 99 years, a developer would at times forget to include a renewal clause in the sub-lease. Even where such a renewal clause was included, a developer would fail to renew the sublease under the Mother Title and this would result in the homeowner’s title being in jeopardy. There are instances where the company that owns the Mother Title is erroneously wound up leaving a homeowner unable to renew their sub-lease on expiry.
Developers who took loans to complete construction sometimes failed to discharge the units or apartments sold from the banks. Where a unit is not discharged from the bank, innocent buyers are vulnerable to repossession of the unit where the developer defaults on his loan to the bank.
The Government of Kenya had in the late 80’s enacted sectional titles legislation. The Sectional Properties Act of 1987 did not take off because it was based on the now-repealed Registered Lands Act (RLA). Titles had to be converted to RLA titles at a significant cost before one could process section titles under the 1987 Act. As a result, a lot of developers often opted for the Management Company Framework.
How the New Act Cures Previous Issues
- It introduces sectional titles registrable for freehold properties or leaseholds of over 21 years regardless of the nature of the title.
- The new Act establishes a corporation that comprises all homeowners of units within an estate development. The corporation’s core mandate is to take care of the common areas of the Estate. The parking bays, walkways, garden areas, playgrounds, and so forth.
- Another advantage of the corporation is that it is not a company under the Companies Act. There are no filing fees or incorporation costs payable for its setup. Also, unit owners automatically become members by owning the unit. The developer doesn’t have to allot shares to them.
- Finally, it established a dispute resolution committee that determines disputes with the development between unit owners. This makes it cheaper and easier to resolve disputes.
What are the types of land ownership in Kenya?
- Freehold
- Leasehold
- Community ownership
What is a freehold title in Kenya?
A freehold title provides absolute ownership of the piece of land. This means that the individual owns the land for a lifetime unless they sell it.
We hope you now have a great understanding of what a Sectional title deed is in Kenya and how it differs from the previous sub-leases regime. This information should be useful for you especially if you are looking to invest in units within a development. In the next blog, we are going to delve into the world of off-plan developments and investigate if it is wise to buy an off-plan project. Stay tuned
