Month: February 2023

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Costly Mistakes to Avoid When Purchasing Property in Kenya

Costly Mistakes to Avoid When Purchasing Property in Kenya

  1. Money Matters
    • Don’t send money directly to the seller or their advocate unless advised by your qualified advocate.
    • Don’t pay the whole amount at once. Deposits should be at least 10%.
    • Don’t pay in hard cash! Always ensure there’s a money trail.
  2. Not Having Your Own Lawyer
    • Don’t engage in any property transaction without appointing your own qualified advocate.
    • Your advocate will advise you on the necessary documents and other important experts such as surveyors and valuers.
  3. Relying on Influencers
    • Don’t make a decision to buy land based solely on journalists, social media influencers, pastors, friends, or TV adverts.
    • Influencers cannot perform due diligence on your behalf.
  4. Buying in Secrecy
    • Don’t buy property without informing your family, close friends, confidants, or spouse.
    • They may provide valuable alternative opinions or warn you of potential risks.
  5. Not Doing a Site Visit
    • Don’t buy property without a physical site visit or through your power of attorney or qualified advocate to ensure the land is vacant.
    • Upon your advocate’s advice, engage a qualified surveyor to map out the beacons on a second site visit.

By avoiding these common pitfalls, you can make a more informed and secure property purchase in Kenya. Always seek professional advice and ensure thorough due diligence to safeguard your investment.

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Fees, Costs, and Taxes Payable When Buying Land or Houses in Kenya (Conveyancing)

Fees, Costs, and Taxes Payable When Buying Land or Houses in Kenya (Conveyancing)

Buyer’s (Purchaser) Costs

  1. Purchase Price
    • Unless advised otherwise by your qualified advocate, let a qualified advocate hold all funds as a stakeholder, not an agent, or jointly by both parties, or by a third party in an escrow account. The purchase price is ideally paid as follows:
      • Deposit: 10% (or higher) of the purchase price on or before execution of the sale/lease agreement.
      • Balance: Remaining purchase price on completion (exchange of documents, transfer of original title, etc.).
      • If it is a gift, state clearly that it is a gift. Never pay in hard cash! Check our Vol 2, 2023.
  2. Professional Fees
    • Qualified Advocate: Minimum legal fees are regulated by the Advocates Remuneration Order (ARO) and based on the value of the subject matter. Avoid agreements for KES 2,000.
    • Qualified Valuer: To value the property.
    • Qualified Surveyor: To obtain maps/mutation at the Ministry (Maps cost about USD 4/KES 400) and resurvey the property.
  3. Nominal Duty to Stamp Agreement
    • The sale/lease agreement must be stamped to be used in a court of law in case of fraud.
    • Cost: Usually USD 20-50/KES 200-500 (expressed in denominations of KES 20, referred to as pounds).
    • The agreement will be stamped with a red dye stamp (in Kenyan pounds).
    • Must be stamped within 30 days, or penalties will accrue.
  4. Stamp Duty
    • 4% for properties within cities and municipalities.
    • 2% of the value for properties outside municipalities/cities.
    • Your advocate will advise on properties exempt from stamp duty.
  5. Bank Fees & Miscellaneous Costs
    • If taking a loan, the bank will charge the property. Charges/mortgages attract 0.1% of the amount secured.
    • Bank miscellaneous costs (RTGS/excise tax).

Seller’s (Vendor) Costs

  1. Land Rent
    • Payable to the government (if leasehold).
  2. Land Rates
    • Payable to the county government.
    • Includes all penalties for late payments.
    • Seller to provide buyer with all clearance certificates and accompanying receipts/bank cheques.
  3. Utility Bills
    • All pending water and electricity bills.
    • All the above costs will be apportioned between buyer and seller. Your advocate will advise on this.
  4. Commission
    • Payable to duly licensed estate agents/brokers.
  5. Partitioning or Subdivision of Land/Building Plans
    • Costs of engaging a surveyor, physical planner, qualified engineer/architect/quantity surveyor.
  6. Consents/Approvals
    • All costs necessary for obtaining consents referred to in our Vol 2 (Commissioner of Lands, Land Control Board, Change of User, County Council Building Permits, etc.).
  7. Probate/Succession Costs
    • In case of succession matters, all probate fees to obtain proper title.
  8. Capital Gains Tax (CGT)
    • Check our Vol 1, 2023.
    • The rate of tax is 15% of the net gain.
    • Your advocate will advise on how to calculate tax and properties exempt.
  9. Bank Loan Discharge Fees
    • If the owner had taken a loan against the property, it must be discharged with consent by the bank. Discharges/reconveyances cost 0.05% of the amount secured.
    • Bank miscellaneous costs/excise tax.
  10. VAT (16%) on Sale of Commercial Buildings
    • On January 17, 2019, KRA was granted a stay of execution on the High Court judgment (civil suit 541 of 2015) until the presumed appeal is heard. For now, VAT on the sale of commercial buildings remains payable.

Buying a House/Apartment + Costs

  • Note that for houses and apartments, the first agreement is called an offer letter, and the sale agreement is known as an agreement of lease. The purchase price is referred to as lease premium.
  • After the passage of the Sectional Properties Act No. 21 of 2020, buyers/owners of apartments will receive a title deed rather than a certificate of lease. Buyers/owners will also have one share in a corporation to manage the common areas.

Seller’s Lawyer Legal Fees

  • 1% of the purchase price.
  • Can be renegotiated by your qualified advocate.

Other Costs

  • Disbursement for Water Infrastructure Costs
  • Electricity Infrastructure Costs: Normally referred to as electricity/power meter & deposit & connection charges.
  • Provisional Service Charge and/or Service Charge: For the first 3 to 5 months, expressed as a percentage of the lease premium.
  • Initial Provisional Infrastructure Levy Deposit: May not be charged.
  • Cost of Transfer of Allotment and Setting Up of Management Corporation
  • VAT on Fees and Disbursements: VAT is payable on legal fees and disbursements at a rate of 16%.
  • Registration of Documents and Pre/Post Search Costs: Green card search and normal search before and after obtaining title, and registration of transfer documents to obtain new title/sectional title.

For more details, visit WKA Advocates.

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WKA Advocates’ Guide to Avoiding Pitfalls When Buying Land or a House in Kenya

WKA Advocates’ Guide to Avoiding Pitfalls When Buying Land or a House in Kenya

Don’ts

  1. Don’t send money directly to the seller (vendor) or their agent unless advised by your advocate. Avoid paying in hard cash to ensure there is a money trail.
  2. Don’t buy or sell/lease land or apartments without involving a qualified advocate. Your advocate will guide you and recommend other essential experts like qualified surveyors and valuers.
  3. Don’t make a decision to buy land based solely on radio and TV adverts or media influencers. Conduct a simple Google search for any cases or complaints against the sellers.
  4. Don’t ignore this advice, or it may end in premium tears.

Who Sells Land/Houses in Kenya?

  • Reputable real estate firms (Ensure they are licensed and check for any court cases against them)
  • Saccos, churches, chamas, cooperatives, financial trusts, companies, individuals, and communities
  • Private developers and licensed estate agents/brokers on behalf of owners for a commission

Do’s

  1. Do a first site visit physically or through your power of attorney to ensure the land is vacant.
  2. Upon your advocate’s advice, engage a qualified surveyor to map out the beacons on a second site visit.
  3. Inform your confidants/family/spouse of your intentions to buy/sell land or an apartment. They may provide valuable opinions or better options.
  4. After a phone call or oral chat, always write an email/WhatsApp/text message to confirm what was discussed. Ensure you have written evidence or minutes of the meeting.

What Are the Types of Land Classification?

  • Private, Public, or Community Land: Refer to the NDUNG’U LAND REPORT to ensure the land was not acquired illegally.
  • Freehold or Leasehold: Freehold indicates absolute proprietorship/ownership, often for agricultural land. Leasehold is for a term like 99 years.
  • Apartments/Townhouses: Classified as sectional properties.

Important Notes

  • A certificate of allotment/share certificate is not a title deed. Do not be deceived.
  • There is no such thing as a “ready title” or “clean title”. The title must be legally transferred to you.
  • Hiring a qualified advocate is not expensive. Advocate fees are guided by the Advocates’ Remuneration Order. Better safe than sorry! Avoid any agreements claiming to cost USD 30/KES 3,000.
  • All agreements involving land/houses must be in writing, signed, and properly witnessed.

Which Consents Do You Need?

  • Land Control Board Consent: The board consists of assistant county commissioners and village elders. A controlled transaction is declared void if this consent is not obtained within six months. Cost: USD 10/KES 1,000 or special sitting USD 50/KES 5,000.
  • County Land Management Board Consent
  • Spousal Consent: As they have matrimonial property rights.
  • Financial Institutions (Banks): If the property was charged (used to secure a loan).
  • Other Authorities: Kenya Airports Authority (KAA), Kenya Railways, Kenya Civil Aviation Authority (KCAA), Kenya Ports Authority (if land is adjacent), and trustees of national parks.

For further information or legal assistance, please contact us at info@wka.co.ke, visit wakilihub.co.ke/, or call +254 798 03 580. Our Nairobi Hub is located at Parklands, Valley View Business Park, 6th Floor, City Park Drive, Off Limuru Road.

Authors:

  • Founding Partner: William Karoki
  • Lawyer: Florence Mwende