This is the first of a two-part series seeking to demystify sectional title ownership in Kenya. The enactment of the Sectional Properties Act, of 2020 raised a lot of questions among real estate developers, prospective buyers of apartments, and even financiers. These questions center around how a sectional title is created or obtained. This blog explores the general aspects of sectional title ownership and how this differs from the previous framework.
1. What is a Sectional Title?
A sectional title describes a type of property tenure where a person can have separate or individual ownership in a unit within a building or a development. Sectional titles can be issued for apartments, flats, maisonettes, townhouses, or office units.
The ownership of such a unit also includes ownership of a share of the common property with other unit owners in the building or development. For example in a residential estate, a homeowner will exclusively own their own apartment and also jointly own the compound, garden, or driveways in the estate with the other homeowners in undivided shares.
2. Can one hold a sectional title in Kenya
Yes, the Sectional Properties Act of Kenya, 2020 came in to provide a means for units in buildings to be owned by individual owners. 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 create or process a sectional title and hold it in your name.
The Sectional properties Act applies similarly for both foreign nationals and Kenyan citizens. The exception being that foreign nationals can only hold leasehold sectional titles of up to 99 years only while Kenyan citizens can hold both leasehold sectional titles of more than 99 years and freehold sectional titles pursuant to article 65 of the Constitution of Kenya.
3. How does the Sectional Properties Act, 2020 differ from past unit ownership regimes in Kenya
Previously, the structure for ownership of units or apartments in Kenya has been through sub-leases (we can refer to this as 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.
This past regime was problematic for various reasons.
- 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 and 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 would sometimes fail 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 however not take off mainly because it was based on the now repealed Registered Lands Act (RLA). Titles had to be converted to RLA titles at 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.
The Sectional Properties Act, 2020 can cure some of the issues arising from these past regimes. It:
- Introduces sectional titles registrable for freeholds properties or leaseholds of over 21 years regardless of the nature of the title.
- Establishes a corporation which 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. The 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 set up. Also unit owners automatically become members by owning the unit. The developer doesn’t have to allot shares to them.
- It established a dispute resolution committee that determines disputes with the development between unit owners. This makes it cheaper and easier to resolve disputes
We hope this content has been useful to you. On our next blog, we shall delve into what a sectional title is, the steps to acquiring one, the consequences of not having one and the fate of existing sub-leases. There is a deadline for conversion of sub-leases to sectional titles so remember to tune in to understand how to achieve compliance.
If you are a developer or homeowner looking to understand the sectional titles regime in Kenya or undertake the conversion of your sub-leases to sectional titles, please reach out to Divinah Ongaki (d.ongaki@agema-analysts.com) or Elizabeth Omol (e.omol@agema-analysts.com)
