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  • Writer's pictureEsther Nduta

Conversion of Long-Term Leases to Sectional Titles



conversion of lng term leases to sectional titles

The concept of sectional titles in Kenya was crafted in the 1980s following concerted efforts by the Law Society of Kenya, the Land Review Commission, and the Ministry of Lands and Settlement to introduce titled ownership for flats, apartments, and townhouses which were becoming increasingly predominant in the country.


This push culminated in the enactment of the Sectional Properties Act, 1987 (the SPA, 1987) and the Sectional Properties Regulations.


Although these legal developments ushered in a new era of sectional units, a challenge subsisted in the rollout of sectional titles in the country as most legal practitioners embraced ownership of units through sub-leases as an alternative to sectional titles.

 

Constitutional Developments


Upon promulgation of the Constitution in 2010, the need for uniformity of property holding was appreciated. Consequently, in the spirit of Article 68 of the Constitution, the Sectional Properties Act No. 21 of 2020 (the “Act”) was introduced with the aim of simplifying the process of registering titles for apartments, townhouses, and office units among others.


Unlike its 1987 predecessor, the SPA 2020 extends to all forms of ownership of land and head titles, with the intention to replace all subleases with sectional titles.


In 2021, new Sectional Properties Regulations were gazetted to facilitate implementation of the SPA, 2020, 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. 


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.

 

Frequently Asked Questions (FAQs)


1. What are the benefits of the sectional regime of ownership?

 

a) Sectional titles exist independent of the mother title.

This is unlike sub-leases which are borne from the mother title and do not exist independent of the mother title.


Homeowners holding sub-leases are dependent on the developer or the management company as their consent is required when sub-leasing or charging the property. Under the sectional regime, investors and homeowners hold sectional titles to individual units.


Consequently, unit owners can easily secure financing by charging the units in favour of the lenders without requiring the consent of the developer and/or the management company.

 

b) Simplification of the registration process.

Individual sectional titles are transferred in the typical way that land is transferred. Cumbersome lease documents will no longer be required.

 

c) It is less costly.

Purchase of sectional units may be less costly since the purchaser will not be required to incur costs for the transfer of reversionary interests, allotment of shares, and issuance of share certificates.

 

d) Sectional developments are regulated thus offering protection to homeowners.

The comprehensive provisions of the Act as well as the by-laws of the management corporation regulate sectional units. 

 

 

2. Which land interests registered can be converted to sectional units under the new Act?


Freehold titles and leases of over twenty-one (21) years can be converted to sectional titles.


Section 54(5) of the Land Registration Act, 2012 empowers land registrars to register long-term leases and issue certificates of lease over apartments, flats, maisonettes, townhouses, or offices having the effect of conferring ownership if the property comprised is properly geo-referenced and approved by the statutory body responsible for the survey of the land.

 

3. Who can initiate the conversion of subleases into sectional titles?


Conversion of sub-leases into sectional titles can be initiated either by a developer, management company, owner of an individual unit, or by a charge.


a)      Where part of the units in a development have been transferred to the respective owners and reversionary interest has not been transferred to the management company, the conversion process can be initiated by the developer or the management company.


b)      Where all units in a development have been transferred to the respective owners and reversionary interest has been transferred to the management company, the conversion can be initiated by the management company.


c)       Where the developer or management company fails to apply for conversion, a homeowner may apply for conversion.


d)     Where the parcel of land is encumbered, the application is submitted by the chargee or its representative.

 

 

4. 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 before the commencement of the conversion process.


The Ministry of Lands and Physical Planning vide various Gazette Notices published various land titles in Nairobi for gazettement. The Gazette Notices listed all the properties to be affected by the conversion process by specifying the ‘old’ Land Reference Numbers and the new parcel numbers.


For parcels of land that are properly geo-referenced and which bear new parcel numbers, an application for replacement of title should be made on Ardhisasa and the ‘old’ title document from the closed register surrendered at the lands registry. Thereafter, the land registrar will furnish the applicant with a title document bearing the new parcel number.

 

5. What is the conversion process of long-term leases to sectional titles?


A surveyor will be engaged to prepare the sectional plans for the development. The surveyor will require the following documents in developing the section plans and obtaining the relevant approvals from the Survey of Kenya;

a) Approved building construction permit;

b)     Stamped architectural building plans; and

c)     The floor plans.


The sectional plans will be endorsed by the developer and the county government. Thereafter, a technical file will be submitted for circulation. The end product will be the following;

a) Approved sectional plan(s);

b)     Sealed Registry Index Map (RIM);

c)     Covering letter addressed to the Director of Land Administration at Lands office for valuation for apportionment of land rent.


Once the approved sectional plans are registered then the conversion of the long-term leases into sectional titles commences. The application for conversion is done through Form SP 16 which is accompanied by:

a) The sectional plan;

b) The leases;

c) The certificates of lease (where applicable); and

d) The original and copy of the mother title.


The register relating to the mother title will be closed and its title deed will be surrendered to the land registry. A separate register will then be opened for every sectional unit.


Certificates of title (for freehold land) or certificates of lease (for leasehold land) will be issued for each sectional unit. The sectional titles will indicate the amount of land rent payable by each unit owner.


The unit owner will be required to present a copy of the sectional title at the relevant county office for the opening of records relating to the land rates.

 

6. Will stamp duty be required for the 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 if it was not paid during registration of the sub-lease.

 

7. Who owns and manages the common areas of a sectional development?


The common areas such as parking bays, walkways, garden areas, and playgrounds are owned by the sectional unit owners as tenants in common in shares proportionate to the units. A sectional unit owner’s interest in the common areas is endorsed on their certificate of title or certificate of lease (as applicable).


The Act provides that on registration of a sectional plan(s), a corporation consisting of homeowners is borne through an application to the land registrar. Subsequently, a certificate of registration of the corporation will be issued to the applicant.


The role of the corporation is to manage the common areas on behalf of the unit owners in accordance with the provisions of the Act and by-laws adopted by the members.

 

8. Will I need a share certificate for my share in the common areas?


Share certificates will not be issued under the sectional regime. The advantage of the corporation is that it is not regulated under the Companies Act. There are no filing fees or incorporation costs payable for its setup.


In addition, unit owners automatically become members by owning the unit. The developer or management company does not have to allot shares to the homeowners or issue share certificates.

 

9. What happens to an existing management company once a corporation is registered?


The management company is required to transfer its assets and liabilities (if any) to the corporation. The management company is then wound up.


10.   Who pays land rent and rates in a sectional development?


Each sectional unit owner will pay the land rent and rates for their individual unit. This will no longer be the responsibility of the management entity.


11.   Which documents must a developer deliver to a prospective buyer of a sectional unit?


The developer should furnish a prospective buyer with the following completion documents:

a) The sale agreement;

b) By-laws for the development;

c) The management agreement (in relation to management of common areas);

d) The recreational agreement (concerning management of recreational facilities) (if any are in place);

e) The mother title or the sectional title for the unit;

f) The sectional plan or proposed sectional plan; and

g) The charge registered against the mother title or the sectional title (if any); and

h) Where there is a charge or proposed charge, a notice indicating:

I. The principal amount secured by the Charge;

ii. Monthly installments payable under the Charge by the developer;

iii. The amortization period;

iv. The term of the loan;

v. The rate of interest payable on the loan;

vi. Any privileges on pre-payment of the loan.


If you'd like to know more about Sectional Properties, and how to get started with yours, please get in touch with us. We'd love to hear from you.

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