NOTES ON CONVEYANCING LAW-PART 1

CHECK OUT PART II HERE

INTRODUCTION

Conveyancing has been defined as the “process by which legal title to property is transferred “(Abbey & Richards, 2000, 18).The Council of Licensed Conveyancers in England and Wales on the other hand defines Conveyancing as “the legal process of transferring a house or flat, commercial property orpiece of land from one owner to another”. Both definitions may however be limiting as Conveyancing involves more than just drafting and registering documents. Conveyancing may also involve a simple modification of title or even an involuntary transfer of an interest e.g. sale by a mortgagee.It may thus be more appropriate to define Conveyancing as the art or science of conveying or effecting the transfer of legal property or modifying interest in relation to property by means of a (written) document.  The three critical ingredients are thus the process, the legal title and the transfer or modification.

The process is what is basically referred to as Conveyancing practice or protocol – which refers to the branch of advocacy in real property transactions or the procedural side of the coin of which the law of property is the substantive side.  The legal title or interest to be transferred or modified must be legal in the strictest sense of the word.  The transferee must be seized of a legal title.  Consequently, protocol or process will demand that a Conveyancer investigates and ascertains that the title to be transferred or modified is legal. 

“Conveyance” describes the document used to effect the conveyancing, and “Conveyancer” describes the qualified professional or specialist lawyer retained by the parties to a transaction to deal with the paper work and finances. His role is to represent the buyer or seller or the mortgagor. He must however be qualified in line with the decision of the Court of Appeal in the unreported case of National bank of Kenya Ltd Vs Wilson Ndolo Ayah & Another (eKLR 2009).

National Bank of Kenya Ltd v Wilson Ndola Ayah [2009] eKLR

In this suit the respondent prayed for, among other relief’s, a declaration that a charge and Deed of Guarantee, both in favour of the appellant, dated 23^rd  July 1990 and 17^th  October, 1990, respectively were null and void ab initio, and that the sums of money they purportedly secured were irrecoverable. Both documents were executed by the respondent for the benefit of a company known as Bungu Investments Ltd, and were drawn by one V. Nyamodi, advocate.

At the trial, the Court found as a fact that on the respective dates the two documents were drawn, V. Nyamodi did not hold a current Advocates Practicing Certificate, and was therefore not qualified to draw those documents in view of the provisions of section 34 of the Advocates Act, Cap 16 of the Laws of Kenya.

Section 34 provides that No unqualified person shall, either directly or indirectly, take instructions or draw or prepare any document or instrument—

(a) Relating to the conveyancing of property; or

(b) For, or in relation to, the formation of any limited liability company, whether private or public; or

(c) For, or in relation to, an agreement of partnership or the dissolution thereof; or

(d) For the purpose of filing or opposing a grant of probate or letters of administration; or

(e) For which a fee is prescribed by any order made by the Chief Justice under section 44; or

(f) relating to any other legal proceedings; nor shall any such person accept or receive, directly or indirectly, any fee, gain or reward for the taking of any such instruction or for the drawing or preparation of any such document or instrument: Provided that this subsection shall not apply to—

(i) any public officer drawing or preparing documents or instruments in the course of his duty; or
(ii) any person employed by an advocate and acting within the scope of that employment; or

(iii) Any person employed merely to engross any document or instrument.

(2) Any money received by an unqualified person in contravention of this section may be recovered by the person by whom the same was paid as a civil debt recoverable summarily.

(3)Any person who contravenes subsection (1) shall be guilty of an offence.
(4) This section shall not apply to—

(a) A will or other testamentary instrument; or

(b) A transfer of stock or shares containing no trust or limitation thereof.

Following the trial court’s findings as aforesaid, the court concluded that the instrument of charge and deed of Guarantee aforesaid were null and void ab initio, with the result that the money they secured which had grown from the initial figure at Kshs. 10 million to Kshs. 57,308,137/50 was irrecoverable. The court gave judgement in terms and thus provoked an appeal.

Mrs. V.Nyamodi did not hold a practicing certificate as at the date she drew the two documents. She was qualified as an advocate having successfully gone through law School. However, qualifying as an advocate is quite different from qualifying to practice as an advocate.

Neither the Advocates Act nor any other written law makes provision with regard to the validity or otherwise of such documents. The Stamp Duty Act, Cap 480 Laws of Kenya, unlike the Advocates Act, makes provision, in section 19, making an unstamped document inadmissible in evidence. The Legislature, we think, not only made the document unregistrable but also made the document invalid for any other purpose before stamping.

Section 9 makes provision for qualifications for practicing as an advocate, and the qualifications include having in force a current practicing certificate. No person shall be qualified to act as an advocate unless—

(a) He has been admitted as an advocate; and

(b) His name is for the time being on the Roll; and

(c) He has in force a practicing certificate;  and for the purpose of this Act a practising certificate shall be deemed not to be in force at any time while he is suspended by virtue of section 27 or by an order under section 60 (4).

The Court of Appeal held that:

It is also noteworthy that the Advocates Act itself makes provision for the recovery of the fees paid to such an advocate. So the innocent party is reasonably covered, although in our view provisions similar to section 19 of the Stamp Duty Act should have been included in the Advocates Act to remove any doubt as to the validity of documents drawn by unqualified advocates. It is public policy that courts should not aid in the perpetuation of illegalities. Invalidating documents drawn by such advocates we come to the conclusion that will discourage excuses being given for justifying the illegality.

A failure to invalidate the act by an unqualified advocate is likely to provide an incentive to repeat the illegal Act. For that reason alone the charge and instrument of guarantee in this matter are invalid, and we so hold.

GenerallyConveyancers duties are wide and varied and are not limited to merely drafting the conveyance and registering the same.

The duties include:

Ø  Advising clients on buying and selling process + effect of transferring an interest in land

Ø  Investigating title

Ø  Drafting the K with sale details, offers, leases, transfer

Ø  Liasing with lenders, estate agents, Advocates, etc

Ø  Paying taxes e.g. Stamp duty, land rent, VAT, CGT, Rates

Ø  Keeping records of payments and finally preparing a completion statement

Ø  Perfecting the documentation including proper execution, completion and registration

DUTIES OF ADVOCATES IN CONVEYANCING TRANSACTIONS

Generally- the role of a conveyancer is to represent the parties. Read S 34 (1) (a)of the Advocates Act- no unqualified person shall either directly or indirectly take instructions, draw or prepare any document or instrument relating to the conveyancing of property. 

Vendor’s Advocate

Obtain information on:-

Full names of the parties, full particulars of the property, the price, whether any deposit is required, details of encumbrances (if any), whether the property is vacant, expected date of completion, prepare the sale agreement, obtain original title document from vendor, approve transfer/conveyance, procure execution of transfer/conveyance, receive and account for the proceeds of the sale to vendor., obtain rates, rent clearances, consents where required, obtain discharge of charge/reconveyances.

Purchaser’s Advocate

Obtain information on:-finances taxes and legal costs and expenses of the conveyance, scrutinizing of title documents, investigation of title, approving sale agreement, preparation of transfer/conveyance and engrossing the same, attending to execution of the conveyance or transfer where necessary, stamping and lodging of documents where necessary, obtaining and paying the purchase price to the vendor’s advocates.

The worst mistake a practicing conveyancer can make is to fail to spot something fraudulent. A conveyancer must not be negligent. Attestation of signatures without verifying could constitute negligence. The need to verify if the practitioner on the other side is qualified is really important. So are searches at government land registries.

A thorough understanding of the key conveyancing protocols is also important. (E.g. where advocate for the buyer calls for original title documents and clearances without offering cheque for purchase SUM to the sellers advocate or ensuring that requisite undertakings are given by the buyer's financers.)

An understanding of the Law Society Conditions of sale, current practice notes and guidelines is also important.

Conveyancing practitioners also have a duty of confidentiality to their clients. There is also the obligation to act in the best interests of the client. There is need to verify a client's identity before commencing any transaction particularly if the client is new or unknown to the advocate.

There is also need to ensure that there are no conflicts of interest and also to ensure one has proper instructions from the clients. Sometimes it may be necessary to confirm your instructions in writing at each stage of the transaction and especially just before an exchange of money or documents. If any one writes to confirm instructions there can be no dispute at a later stage. It is also important to keep full and detailed attendance notes record telephone conversations with the client as well as meetings in the office or outside the office with the client. Make diary entries of important dates such as completion dates or search priority records.

Reflection: What skills and knowledge will one need as a conveyancer?

The process of transfer or modification of interest must be by way of a written document.  This is a statutory requirement as the transfer or modification is deemed only to be complete once registration has been effected as demanded by the relevant statute.  It is noteworthy that the transfer or modification can be to oneself [cf. Assents and transmissions].

Can an advocate act for both parties?

General principle is that one should avoid acting for both vendor and purchaser where there is a conflict of interest or where such a conflict is likely to arise. This view has been restated by the court in the case of King woolen Mills and another v. Kaplan and Stratton Advocates6

In this case, the firm named Kaplan and Stratton had acted for both the borrower and the lender in a borrowing transaction.  The firm had prepared all the relevant documents, including the security documents.

Subsequently, the borrower had defaulted on repayment and had questioned the validity of the security documents. Subsequently, Kaplan and Stratton had purported to enforce the said security and the appellant sought a grant of injunction to stop the firm.  The Court of Appeal held that since Kaplan and Stratton Advocates were aware that there was likely to arise a conflict between the lender and the borrower, and since having acted for both parties they were in a position to be privy to information pertaining to the appellant’s case, they would not purport to enforce the said securities to the prejudice of the appellants. It is thus evident that an advocate should not purport to act for a client during the trial process where a conflict of interest exists or is likely to arise.

Both parties should consent.

To appreciate conveyancing protocols better one ought to be familiar with the other branches of law dealing with real property [Land Law], Obligations [Contract law] and remedies/restitution [equity].  An appreciation of these branches of the law is thus necessary as advice to client will run and cross through literally all of them in any ordinary conveyancing transaction.

[Reflection: what is the relationship of the other branches of law in particular the law of contract, the law of torts, the law of equity, the law of real property to conveyancing law and practice?]

 A Conveyancer must however not only be knowledgeable but also ethical and defensive.

            See: JumaMuchemi V WaweruGatonye HCCC No.853 of 2002 NBI

            Momanyi V Hatimy 2003 KLR 545

HISTORY  

Conveyancing law in Kenya, like other branches of law has drawn its history mainly from English Law.  Up till 1535 the English medium of transferring an interest in land was vide the primitive method of surrendering to the Lord of Manor the subject parcel of land and his Lordship in turn granted the same to the transferee’s nominee.  The earliest and most important form of conveyance however was the feoffment.  This involved no formalities save in the form of a ceremony known as livery of seisin (delivery of possession).  The feoffment was an assurance note made by the feoffor (owner of land) that he had given his right over an estate to the feofee.  The assurance note was accompanied with a formal public delivery of possession in the presence of witnesses mainly feudal lords.  The law then also recognized facts of leases, assignments, exchanges and partitions. [Note the enactments of 1535 Statute of Uses and 1536 Statute of Enrolments, the 1677 Statute of Frauds which introduced the requirements of writing, execution and attestation, the Real Property Act 1845, Land Transfer Act 1875, Vendors & Purchasers Act 1874 and finally the most important of them all the 1925 Law of Property Act which like the Registered Land Act Cap 300 Laws of Kenya was intended to simplify conveyancing.The 1925 statute established a formal register and also introduced state indemnity to those deprived of their land or title.

Reflection: The conveyancing instrument to be drafted depended on the interest to be transferred and the statutes played no role:true or false?

The history of conveyancing in Kenya can be traced to the turn of the 19^th Century.   Like most laws, the relevant statutes were also transplanted the last being the Registered Land Act in 1963 which was an even imitation of the Law of Property Act 1925 (U.K).

The first relevant conveyancing statute enacted in Kenya was the 1901 Registration of Documents Act (RDA).   Section 4 of the Act requires/d that documents conferring property interest be registered within the month of its making to ensure its availability in evidence.  Registration of a transaction under the RDA guarantees no title but is merely evidence of the occurrence of a transaction. Under the RDA certain conveyancing documents are still registered to give efficacy to some conveyancing transactions. These documents include; Trust Deeds, Powers of Attorney and Building Plans.  Next was the Land Titles Act 1908 (LTA) which was intended to help deal with the haphazard “deserted” parcels at the Coastal strip of the country.  The LTA also guarantees no title. In 1915 the Government Lands Act (GLA) was enacted to deal with conveyancing and land titles in the interior hinterland.  It introduced a more systematic approach to registration and provided for Deed Plans for all parcels of land to the registered. The title under the GLA was usually the last Indenture of Conveyance (Freeholds) or Assignment (Leaseholds).In 1920 the Registration of Titles Act (RTA) was enacted.  It was based on the Australian Torrens system as to systematic certainty of title.  It provided for registration of and guarantee of titles.  It attempted to make conveyancing simple by introducing statutory conveyancing form albeit not mandatory. The title document under the RTA is either a Grant or Certificate of Title or a Lease.

  The Registered Land Act (RLA) enacted in 1963 tried to “modernize” conveyancing.  The Act borrowed heavily from the 1925 English Law of Property Act. Unlike the RTA, the RLA made the use of statutory conveyancing forms mandatory(S.108). Thetitle document under the RLA was a Title Deed/Land Certificate (for absolute proprietorship) or Certificate of Lease (for leaseholds) or a Certificate of Sectional Property if it is a property under the Sectional Properties Act. Both were issued at the request of the registered proprietor and upon payment of the requisite fees.   The Land Registration Act of 2012 was later enacted to repeal the RLA LTA RTA GLA and ITPA.

Reflection:  what is the Torrens System?  Of what relevance is it today nearly 150 years since a non-lawyer in Sir Robert Torrens cropped up with it in Australia? 

FORMALITY OF WRITING IN CONVEYANCING

One cannot buy land the way one would buy a newspaper or a loaf of bread.  The contract must be in writing executed by both parties and attested. This is a mandatory statutory requirement.[1]Section 3(3) of the of the Law Contract Act provide that:

(3) No suit shall be brought upon a contract for the disposition of an interest in land unless-

(a) the contract upon which the suit is founded-

(i) is in writing.  (ii) is signed by all the parties thereto; and

(b) the signature of each party signing has been attested by a witness who is present when the contract was signed by such party:

Provided that this subsection shall not apply to a contract made in the course of a public auction by an auctioneer within the meaning of the Auctioneers Act, nor shall anything in it affect the creation of a resulting, implied or constructive trust.

(4) subsection (3) shall not apply to a contract made in the course of a public auction by a licensed auctioneer within the meaning of the Auctioneers Act, 1996 nor shall anything in that subsection affect the creation or operation of a resulting, implied or a constructive trust.

Under Section 44(1) of the LRA every instrument effecting any disposition under the Act shall be executed by each of the parties consenting to it, in accordance with the provisions of this section. And this is by of appending a person’s signature on it or affixing the thumbprint or other mark as evidence of personal acceptance of that instrument.

The formality of writing serves three purposes: Evidentiary, Protective and Forensic. The formality of writing performs the forensic (of or used in court of law) function in providing simple yet conclusive evidence of the fact of agreement.  The Statute of Frauds 1677 expressly provided that the requirement of writing was intended to guard against the fraud.

Formality of writing also performs a useful evidentiary function in encouraging precision and recording the result for posterity.  Writing helps to avoid disputes as to what interest has been or is intended to be conveyed. Remember too that land can generate an array of interests from its original form in the freehold estate.

Thirdly, it is argued[2] that the formality of writing performs the protective function of giving parties a chance to reflect and think on the deal before executing a binding contract that they may wish so shortly before the ink is dry to renege on.  It is stated that if the agreement was to be oral there would be no time for reflection on the deal per se. This function has been reinforced further by the requirement of “independent legal advise” to be given by a qualified conveyance.Under The Evidence Act there are some agreements that must be in writing.

Reflection: Are these arguments conclusive?e.g.has writing gotten rid of fraud in conveyancing and how often do we make sensible decisions orally?]

 

Formality of Registration in Conveyancing

Conveyancing is complete only once registration is effected.  Registration is the keeping of records of land transactions in the Lands Register.  It involves registration of both the title and as well as the interest. What is registered is usually the title or ownership to land and any instrument dealing with land or the disposal thereof. The purposes of registration include:-

·         enabling the Government to keep track of user and easier collection of revenue;

·         simplifying dealings in land registration and also avail certainty and security of title or tenure;

·         Reduction of unnecessary litigation in matters relating to land.

·         Enables easy dealings in land transactions

Security of tenure: A registered proprietor acquires an indefeasible tile against the whole world. The security of tenure acquired through registration also gives the property, owner a right to indemnity from the Government where there is fraud or an error in the Register. See LRA 81-84 Ss, but note the qualification in S. 80(1).

Reduction of unnecessary litigation: The registered owner can transact or settle his land without the fear of being sued to challenge his title because upon registration, he acquires an indefeasible title against the whole world.

Prevention of re-fragmentation of land: Registration helps to determine whether or not a particular piece of land can be sub-divided because his tide details pertaining to the land, such as acreage, will have been noted in the Register.

Facilitation of Government property tax administration: Through registration, the Government is able to identify persons/property owners on whom to levy tax in respect of a particular piece of land and also keep track of the Government's planning programmes.

Efficient administration and facilitation of the loan system: The security of title which flows from registration makes it possible for property owners to obtain loans from financial institutions. A prospective purchaser has more faith dealing with an owner whose land is registered.

Prevention of concealed dealings in land: Registration gives publicity to land transactions. Since the register is a public document and is therefore open to the public, it is possible to ascertain who owns what interest in land.

Upon registration of the land or conveyance the registered proprietor acquires an indefeasible title against the whole world [cf. Section 24 of the Land Registration Act No. 3 of 2012].  Registration is effected at the relevant Lands Registries.

Care must be taken that the conveyancing instrument is not only presented at the proper Registry but is also signed/registered by the proper Registrar.

What is registered?  Title (land) and interest (servitudes,encumbrances,quasi-encumbrances).The latter includes charges, leases, easements, profits, restrictive agreements or covenants[3].  The former involves the estates namely allodiums, fee-simple, freeholds and leaseholds which also rank as limited interests.

Effect of Registration

       Pursuant to Section 24 of the LRA the registration of a person as the proprietor of land shall vest in that person the absolute ownership of that land together with all rights and privileges belonging or appurtenant thereto; and the registration of a person as the proprietor of a lease shall vest in that person the leasehold interest described in the lease, together with all implied and expressed rights and privileges belonging or appurtenant thereto and subject to all implied or expressed agreements, liabilities or incidents of the lease.

One becomes an absolute owner of the title or interest registered.  [Reflection:  How absolute is absolute?]

Pursuant to section 25 of the LRA The rights of a proprietor, whether acquired on first registration or subsequently for valuable consideration or by an order of court, shall not be liable to be defeated except as provided under the Act, and shall be held by the proprietor, together with all privileges and appurtenances belonging thereto, free from all other interests and claims whatsoever, but subject—

(a) to the leases, charges and other encumbrances and to the conditions and restrictions, if any, shown in the register; and

(b) Overriding interest (S. 28 LRA)

See also:  National Prov. Bank Limited –vs- Hastings (1964) Ch 9

Mbui –vs- Mbui (2005) I E. A 256

Marigi Vs Marigi 1996 LLR 463

Ogongovs.Ogongo CACA 29/2003

Esiroyo –vs- Esiroyo (1973) E.A.

Effect of Non-registration

Non-registration means simply that there is no interest passedat least in rem.  See however Section 30 (3)a certificate of title or certificate of lease shall be prima facie evidence of the matters shown in the certificate, and the land or lease shall be subject to all entries in the register. Section 26LRAprovidescertificate of title to be held as conclusive evidence of proprietorship unless obtained by way of fraud or misrepresentation or where it has been acquired illegally, unprocedurally or through a corrupt scheme.

See also Rogan Kamper vs. Grosvenor 1977 KLR 123, Clarke vs.Sondhi (1963) E.A., Merali vs. Parker (1956) 29KLR 26, Bains -Vs- Chogley (1949) 

Reflections:   On a proper construction of Section 30 of the LRA, rightsconcerningland give no proprietary quality unless registered – true & false?  cf.

·         S. 30(3) LRA.

·         Registration only creates more to the whole world and no more.

·         Cautions and caveats effect of,

·         Overriding interests

·         Abstract matrimonial property rights

Echaria –vs- Echaria         C.A.C.A 75/2001

Kivuitu –vs- Kivuitu    C.A.C.A 26 of 1985

Lord Melvin Blackburn Vs Lady Blackburn ( Malindi HCCC No. 87 of 2007)

Married Women’s Property Act 1882. S. 17

·         Adverse possession

Wambugu vs. Njuguna 1983 KLR 172

·         Proprietary estoppel.

TengHuanvs.SweeChuan 1992 1 WLR 11

NB

·         Registration at the Company’s Registry under Section 96 of the Companies Act (Cap 486) is required where a Company creates a Charge  over its  parcel of land.  Companies Form 214. use of,

·         Registration at the Registrar of Co-operative Societies.

§  Purpose in both instances: 

-                      Create a secured creditor vis-à-vis insolvency

-                      Notice to prospective Debentures- holders.

·         Under Section 44(1) of the LRA every instrument effecting any disposition under the Act shall be executed by each of the parties consenting to it, in accordance with the provisions of this section. And this is by of appending a person’s signature on it or affixing the thumbprint or other mark as evidence of personal acceptance of that instrument.

·         Reflections on Registration:Where is registration effected? Who effects it? When is it deemed to have been effected? What is registration subject to? What is (must be) registered?

INSIDE A LANDS’ REGISTRY:A CONVEYANCER’S NIGHTMARE OR PYRRHIC?

1. Filled Valuation Forms lodged with the Collector of Stamp Duty for purposes of valuation

                                    Particulars of property Form filled by conveyancer

                                    Valuation for Stamp Duty Requisition Form filled by the Collector

and sent to Chief Government Valuer for valuation. This is only applicable where the document is a transfer or Deed of Conveyance

2. Document stamped and dutypaid at the Banks (KCB/NBK) then document lodged for registration

3. Document presented in duplicate together with all relevant requisite documents e.g. original of the government’s valuation report, consent, clearance certificate, original title,e.t.c

Fill out application for registration in quadruplicate.

                                                Pay registration fees.           500/=

4.UponPresentation of document and a day book number given entered into a register and date and time of presentation endorsed on the document for purposes of priority

                        -See   Sec 27 RDA[4]

The time of presentation of doc ,not execution or date thereof ,  counts to pass interest.

5. taken to audit and Government Auditor ascertain stamp/duty,taxes-rent,rates, have been paid.

6.  Left for matching with the Deed or Parcel files from the strong room

7.  Registration proper commences with the Registry- in charge of marking the documents for action in

a register known as the ’A’ book

First is verification of document by an officer in the registry: detection of any defects

            Second is Inspection of the title by an officer to ensure title is clear and registration can proceed

            Third is Entry of particulars of interest being acquired.

8. Document is then passed to relevant Registrar for execution and ultimate registration

                 Registrar vets it again and then signs in approval or rejection with reasons

9. In epilogue:

   Document is photocopied (except RLA documents)

Sealed with Land Registry’s Seal (except GLA documents)

Released to owner.If RTA,RDA,GLA or LTA the Registry keeps a photocopy,if RLA the Registry keeps   the original and releases the counterparts.

Reflection:Why does it take more than 14 days to complete such a simple looking process?

PRE CONTRACT PERIOD AND INVESTIGATION OF TITLE

Of Estate Agents

Ordinarily any contract of conveyance will have two parties:  the Vendor and the Purchaser, the Chargor and Chargee, the Lessor and Lessee.  The third outsider is always the Conveyancer.  However most of the conveyancing transactions have also been known to have another outsider in the form of an agent who brokers the conveyancing deal.  Brokers are now statutorily recognized under the Estate Agents Act (Cap 533) Laws of Kenya.  Their role is to identify a party to a conveyance i.e. the Purchaser or Vendor or the Financier, at a commission.

The Estate Agents Act was enacted  ‘’to provide for inter alia the registration of persons who by way of business negotiate for or act in the selling or purchasing or letting of land or buildings erected thereon”. Section 2(3) of the Estate Agents Act expressly exempts advocates from the provisions of the said Act. Advocates do not need to be registered under Section 13 to practice as estate agents.  Advocates by dint of the provisions of the Advocates Remuneration Order Articles 27 (Sales) and Article 30 (Mortgages) can also be agents even though they do not meet the stringent qualifications outlined in the Estate Agents Act. Advocates are exempt from the provisions of the Act under S 2(3)(Advocates can be estate agents).

 For any one to earn a commission as an Estate Agent one must be registered under the said Estate Agents Act:  See Omollo J. A. in Rajdip Housing Development Company Limited vs. J. W. Wambugu t/a Wambugu & Company Advocates C.A.C.A 4/1991.See also the case ofMapis Investment (K) Limited vs. Kenya Railways Corporation C.A.C.A 14 of 2005 and section 18 of cap 533[5].

It is otherwise a positive transgression of the law to practice as an estate agent when one is not registered[6]and the message passed by the Court of Appeal in the MapisCaseis that a transaction may be declared null and void and unenforceable ex turpicausa. The commission is earned when the transaction is actually successful and is either as agreed or per the scale provided under the Estate Agents (Remuneration) Rules 2002.

Rajdip Housing Development Company Limited vs. J. W. Wambugu t/a Wambugu & Company Advocates

The seller asked the advocate to instruct an estate agent to get a buyer for property at the asking price of 100 million. The advocate instructed the broker who got a buyer for 200 million. Then the advocate moved a step further and managed to secure 225 million. When the seller realized what happened he went to court and claimed unjust enrichment and instructed the advocate to refund 25 million.  The court of appeal alluded to the fact that advocates should actually earn commission.

Facts of the case

Rajdip housing the appellant entered into a sale agreement dated March 30^th 1990 to sell to Ufundi co-operative property situated along Uhuru Highway at a consideration of Ksh. 225 million. Wambugu &Co. Advocates acted as advocate for the appellant while Mr. Satish Gautama acted for the Society. It was a term of the Sale Agreement that 125 million represented the developments and expenses and the balance of the purchase price of 100 million would be paid by installments as stipulated in the agreement. The advocates of the appellant refused to forward some of the money (25m) to the appellants as part of the sale price claiming that fees of some firms needed to be settled. These included fees of Lobi firm as commission agents for the purposes of securing a purchaser and negotiating on the purchase price of the property. The appellant contended that the advocate had no authority to negotiate the sale of its property or to bind it in any way without its agreement nor had it held them out as having such authority. The advocates argued that the agreement was ambiguous and therefore extrinsic evidence was needed to show the intention of the parties. The court was of the view that an instrument must be read most strongly against the party who prepares it and offers it for execution. This is the rule in the maxim verbafortiusaccipiuntur contra preferentem. Also unless otherwise shown the presumption is that the advocates for the vendor prepare the Agreement of Sale.

Reflection:  Are Advocates to be subjected to the Estate Agents (Remuneration) Rules 2002 or the Advocates (Remuneration) Order when calculating their commissions as Advocates qua Agents?  Are Advocates deemed qualified per se under the Estate Agents Act? What happens when an estate agent misappropriates money deposited with him and which constitutes part of the purchase price?

It must however be noted that the role of a Conveyancer and of the Agent must always be separated.  An Advocate must as a Conveyancer keep off the negotiations and show the least interest.  Likewise an Advocate must not allow an Agent to take over his role e.g. conduct an investigation of the title on behalf of or for the Advocate. Besides estate agents, a conveyancing transaction may also invite other “innominate“parties. A conveyancer and or a party to the conveyance may require the services of a ‘Valuer’,’an urban planner’, ‘a surveyor’, ‘an architect’ to ensure the success of the transaction.

Land valuer

Land valuers must be qualified under the Valuers Act- Cap 532. They value the property especially if the purchase is financed by a bank.

Planners (control of developments and subdivisions within local authorities)

Planners must be registered under the Physical Planners Registration Act no.3 of 1996.

Architects

Architects must be qualified under the Architects and Quantity Surveyors Act (Cap 525). Create the architecture of the development.

Quantity Surveyors

They must be qualified under the Act above. They estimate the quantities and cost of the materials labour and time of the development.

Land Surveyors

They must be qualified under the Survey Act (Cap 299). They determine boundaries and mapping. They are useful when subdividing the property.

Reflection: In what instant will you advise your client to engage the services of each of the above professionals?

Of the Initial Client Interview

Prior to the formation of an enforceable contract an Advocate will have an initial client interview.  The purpose of the initial client interview is to firstly gather all the relevant facts pertaining to the intended transaction and secondly afford crucial advise to the client on transactions generally and the particular transactions specifically. There is utter need to prepare well for the interview. The facts and instructions to be ultimately obtained at the initial client interview will depend on each transaction but ordinarily one will be interested in:-

Details of the parties: names, capacity, advise on co-ownership [cf. Barclays Bank PLC vs. Obrien (1994) 1AC 180, Shah V Akiba Bank Limited (2005) 2 KLR. At the initial interview, look at their capacities. For instance if the client is a minor, you advise the client to use a trustee. If transferred to the minor there are repercussions because the minor will not be able to transfer the property or deal with the property as he/she may please. Or in certain circumstances the trustee may even misuse the property.

The issue of joint tenancies where such systems are recognized by registration systems. Distinguish joint tenancy and tenants in common. In joint tenancies the interest is bound and if a tenant dies then the other tenants gets the share of the deceased tenant. A lawyer can be sued if unmarried couples are advised to take up joint tenancies. In co-ownerships if advising a mortgagor it is critical to ask the wife to obtain independent legal advice as this came from many common law cases like:Barclays bank PIC v. Obrien,in this case the House of Lords held as against the court of appeal, a wife who hasn’t obtained independent legal advice any such mortgage will be void but only as against the wife.  This is the law, but you ask as a legal advisor aren’t you giving legal independent advice?

Details of the proposed conveyance:parcel number, fixtures, consideration. As an advocate you need to know the plot number, if the land only is being sold or there are fixtures.

Authorization to disclose details and information about related transactions: Cf. Mortgage Express Ltd vs. Bowerman& Partners 1996 2 All E R 836. The authorization from the client that you may disclose information related to the other members in the chain or the parties. There is the duty of confidentiality and you need permission first. You need to ascertain and get formal authorization. If the client denies this permission what should the advocate do? Breach the duty of confidentiality or let go of the brief. Here you try and advise the clients of the repercussions in that if the information isn’t disclosed the transaction could take longer than expected. There is a duty by the advocate to uphold the dignity of the client, because if you keep everything in confidence most of the time the client would come back to you. If the property is charged to a 3^rd party you ought to be in a position to disclose the amount the client is borrowing. In the case of Mortgage Express Limited v. Bowerman& Partners 1996 2 All ER 836 it was held the advocate doesn’t just protect the client but also 3^rd parties for the sake of earning fees. You shouldn’t encourage such fraud just to earn your fees.

Details on pre contract enquiries.Especially acting for seller. Here you are bound to receive pre contract inquiries which are searches that inquire on the physical structure of the property. When acting for the buyer at the initial interview you don’t really tell your client to go and investigate but if it’s the seller you even have an evaluation report. Advocates must be equipped with all these information so that you aren’t sued for negligence.

Discussion on conflict of interest:  when acting for buyer/ seller it is a general principle of professional conduct that an advocate must not act for two or more clients where there is a conflict of interest between those clients. There is no specific bar against acting for a buyer and seller provided there is no conflict of interest. The advocate must however not be involved in the negotiation of the sale price of the property. It is also advisable to get the written consent of both parties for an advocate acting for both the seller and the buyer. Acting for Lender and Borrower: Acting for lender and borrower is generally permitted provided the chargee is an institutional lender which provides charges on standard terms in the normal course of its activities, e.g. a bank or building society. This in the vast majority of residential transactions, the advocate for the borrower/purchaser will   be the same as the advocate for the lender

The nature of the advise you offer the client must be independentt [ Cf. Barclays Bank PlcVs Obrien 1994 All E R, Royal bank of Scotland VsEtridge 2001 4 All E R 449]

Discussions on fees.-All relevant client care information, together with information on fees to be charged must be confirmed in writing at the start of the conveyancing transactions. It’s possible to agree on the advocates fees for the whole transaction. It is also important to inform the client the right to increase the advocate's charges should the transaction prove to be unduly complicated or protracted. In this way, the advocate does not bind themselves to a fixed unalterable fee. It may be necessary to reassure the client by saying that in the vast majority of cases, no increase is, necessary. An advocate must inform the client in writing the estimate of fees and should also advise the client immediately in writing if the figure is to be revised.

Discussions on financing and financial implications of the transaction:advice on deposits, stamp duty, undertakings

Details on the title documents:Obtain copies of the title document.

Reflection:”...When men die at war it is usually because of lack of proper preparation...”Sun Tzu 300B.C.How prepared isyou for your initial interview?

 What is the principle of “Independent Legal Advise “all about? Cf. purpose of transaction, nature of documents as well as their terms and effect, giving client option of making the choice and advise on liability premised on the documents

Of the Investigation of Title (and Property)

Investigation of title (and property) is the process through which a Conveyancer determines whether the client is going to ultimately acquire a good marketable title.  The Conveyancer is obliged by practice to ensure that what is being disposed of and or what is being acquired is a good marketable title.  For three basic reasons title (and property) are investigated.

Firstly the caveat emptor (Buyer beware) rule imposes an obligation on any person intending to acquire an interest in property to investigate the same.  A Seller is under no obligation to disclose patent defects but he is under an obligation to disclose such latent defects as he may be aware of [Reflection:  What are patent defects? And latent defects? Can you figure out some examples of either?].

Secondly, the well settled principle of law that a bona fide Purchaser for value without notice acquires a good title to property unaffected by matters of which he had no notice also dictates that the title (or property) is investigated in order for a party to have the protection afforded by the law to such bona fide Purchasers for value without notice: see Oliver V Hinton 1899 2 Ch D 264, Section 3 of the Conveyancing Act 1881, Section 199 of the Law of Property Act 1925.

 The third reason for investigating a title (or property) is that prudence and practice demands the same of a Conveyancer as well as of his client. The client wants to be certain that it is obtaining a good and marketable title.  Failure to do so may result in a successful claim for negligence in the event of loss on the part of the client.  It may thus be said that investigation of the title (or property) is part of defensive conveyancing. Vendor- deducing of title, disclosure of latent defects: This is the responsibility of the vendor. Vendor is expected to deliver on the promise that he has good title to the property. This duty is imposed on the vendor because it is expected that the devolution of interest in a property is best known to the vendor.

The Vendor deduces the title by submitting an abstract of title. This is a brief history of the property showing how the interest in the property moved from one person to another, the encumbrances and any other thing that may affect the property. It is also called an epitome of title in many jurisdictions- a schedule of documents and other relevant information which constitute the title together with copies of these documents. LSK Conditions of Sale- cond. 9 requires the abstract to be presented by the vendor within 14 days of the date of the agreement.

Immediately after receiving the abstract/epitome of title it is the duty of the purchaser to conduct an investigation of the title. The purchaser is expected to go to the following places:

·         Land Registry (remember the location of the registries for the various registration Acts)

·         Company Registry- where the property is/was owned by a company

·         Probate Registry-where transfer is by succession

·         Local Authority- to establish planning hindrances, notices, rates payment

·         Survey Department to establish boundaries.

·         Physical Inspection of the property- to ensure the measurement, description, boundaries, improvements etc correspond with what is in the title. Also to establish patent defects.

·         Court records- if there has been a dispute over the property.

 Ideally, investigation of title (or property) will be conducted prior to the contract being executed.  Post-contract investigations of title may however also serve the purposes.  [Reflections:  what dangers would post-contract investigations of title pose to the Conveyancer and or his client? Distinguish between patent defects and latent defects.]

There are basically three mediums of investigating the title or property.  These are searches, pre-contract inquiries and requisitions.

(a) Searches

Like registration, searches also shield against fraud.  Searches are enquiries carried out usually by the Purchaser’s or Chargee’s or Leassee’s Advocate in the government departments so as to check ownership of the interest as well as planning, environmental and encumbrances and other related matters which affect ownership of the interest being transferred or given and which matters are noted or ought to be noted on the title register.

It is effectively the purposeful inspection of title records or register at the relevant (Lands) Registry.   The modern Conveyancer is more concerned with the Lands Registry Search though it is advisable that the other searches are not ignored.  Such other searches will include searches at the Companies Registry to confirm existence of the Vendor or solvency of such Vendor, search at the Local Authority Registry to ascertain any planning hindrances or notices search at the Survey Department to reconfirm or identify boundaries.

With regard to the Lands Registry searches, the statutes recognize both official and unofficial or hand (personal) searches.  An official or postal search is one made by an Official of the relevant lands Registry at the behest of a party upon payment of the requisite search fees and the results of such official searches are guaranteed by both the registry and the Government as accurate.  A Certificate of Official Search is always issued for such searches.  The personal or unofficial or hand search on the other hand is made by a member of the public by inspecting the relevant register, parcel or deed file availed by the Lands Registry staff.    Currently only Lawyers and Advocates are allowed to conduct personal or hand searches.  The official search may have the advantage of a government guarantee and indemnity for any loss resulting or sustained by reason of a defective official search, but is also has its disadvantage in that the Registry staff may not be able to discern and avail all the relevant information.  Such failure to discern and avail information may not necessarily amount to a “defective search” to qualify for indemnity.  The Official Search on the other hand has one great advantage that one is able to collect the information required without discrimination.

In conducting a search one ought to get details of ownership, of special conditions, of the tenure, of the rental, of the user, of encumbrances and quasi-encumbrances (i.e. caveats).  Expect however to meet such hiccups as missing registry deed or parcel files.A third type of Lands Registry Search ordinarily not conducted is the “historical search”.  This refers generally to a search on the history of the subject parcel of land.  Such history will be found in the correspondence file and not the parcel or deed file.  The correspondence file contains all the details about the origin of each parcel of land from the allotments to any subsequent subdivisions and indeed to the “root of the title”.  The correspondence file is comprised of the internal correspondence between the various sub-departments of the Lands Department.  It may thus be ranked confidential and it is important that an official request is made to the Commissioner of Lands.

 The availability of the correspondence file has however helped in discerning good and marketable titles as was in the cases of Gitwany  Investment Limited –vs- Tajmall Limited and 2 Others ( 2006 2 E A 76) and Skyview Properties Limited –vs- Attorney General & 2 Others (NBI HCCC No. 1622 of 2001 unreported). The Court of Appeal however seems to hold the contrary as in Pashito Holdings Limited &AnorVs Paul NderituNdungu& Others [1997] eKLRthat one shouldnotinvestigate a title beyond the register at the lands’ registry. See also Justice Kimaru’sobiterin Attorney General Vs Kenya Commercial bank Limited , Afraha High School Limited & 2 Others [2004]eKLR that historical searches are unwarranted and unnecessary for being an affront to the principle and concept of registration.[ Reflection: do the statutory provisions allowing official searches effectively also allow a historical search to be conducted? Need one limit himself to statutory searches only? Are you intellectually independent of your client’s control as an officer of the court and law and thus the consequences of your client’s acts must be viewed by you in the larger probably public’s interest as well?]

The result of Searches will disclose information in relation to the Vendor/Mortgagor and or the property.  It may be necessary to disclose and discuss such information to the client as this may impact on the decision to purchase or take the security.   Good practice however demands that you engage the other party or require the other party or his Advocates to confirm position of the findings i.e. wills the detected encumbrances be discharged? 

            NB: read- s.39 RDA and s.34 LRA

(b) Pre Contract Inquiries

Pre Contract inquiries are also a medium of investigating the title (or property).  They are preliminary inquiries relating more to the physical condition of and location of the subject property as well as the proposed contractual document itself.  A Purchaser will ordinarily want to know the physical condition and extent of the property.  For this the Purchaser will conduct a personal inspection of the property or deputize his agent (e.g. a valuer).  The inspection is conducted to help ascertain not only the value of the property but also to detect physical and patent defects, ascertain those in occupation, ascertain the boundaries and also to check on the fixtures and fittings, if any.  Naturally these are matters not covered by searches and pre-contract inquiries will thus be made after such physical inspection to help plug in the gaps.

Pre contract inquiries thus relate to matters touching on the physical condition of the property as well as other matters not covered by searches.  They are as important as searches.  The Purchaser, for example, buys the property as it stands and the Vendor is under no duty to disclose any physical defects in the property.  The Purchaser must be advised by the Conveyancer of this and must be further advised that in order to protect himself or herself he or she should have the property fully surveyed and inspected before the contract is signed.  Some of the pre contract matters one will bother himself with include development prospects and planning permission matters of the property and adjoining property, access to the property, boundaries of the property, water supply, physical defects detected or suspected, disputes existing in court over property, tenants in occupation or absent, etc.  The full extent of the pre contract inquiries will depend on each particular transaction and property.  When acting for the Vendor it is important not to presume any answers to pre contract inquiries but to consult with the client and answer accurately as possible. Answers if unequivocal and relied upon but turn out to be untrue can lead to a suit in damages both against the client and his Advocate providing the answers especially where the Advocate decides to step out of his role as Advocate and accepts direct responsibility towards the third party:  Gran Gelato Limited –vs- Richcliff (Group) Ltd [1992] 1 All ER 865. See also Cross J’s holding in National Provincial Bank Ltd Vs Hastings 1965 AC 1175 that “persons dealing with unregistered land must obtain same information outside the register in the same manner and from the same sources as people dealing with unregistered land would obtain it”.

(c) Requisitions

The purpose of requisitions on title besides aiding the process of investigation of title is to help give the Purchaser title in accordance with the contract for sale.   Requisitions relate to matters which arise not on the basis of the search or simple physical inspection of property but through the inspection of the title document or abstract availed.  The requisitions are in the form of forthright questions arising after a perusal and deduction of the title document.  Deduction will relate to tenure or the property, execution of the title document, identity of and description of theproperty, underpaid stamp duty, identity of the encumbrances if detected on the face of the title.

The LSK Conditions of Sale (1989) at Condition 10 provide for the requisitions or objections  to be made after the contract has been executed and in any event not later than  fourteen (14) days after delivery of the abstract, title deed or a copy thereof.  However as requisitions do not enable the Purchaser to have a second bite of the cherry in respect of matters which were overlooked at the time of execution of the contract, good conveyancing practice would tilt towards conducting requisitions prior to the execution.  A Vendor is however under an obligation to fully and correctly answer the requisitions.

Additional Notes

Why do searches?

The caveat emptor rule remains a cornerstone of conveyancing. It is prudent that a buyer will need to find our as much as possible about the subject property before contracts arc exchanged. The seller to some extent and under common law also has a duty to disclose any material subsisting encumbrances. .A prudent buyer needs to discover as much as possible about the property being purchased.

This is the obligation of the buyer's advocate. The buyers advocate must conduct pre-contact searches and all preliminary enquiries. The advocate must carry out all appropriate searches and enquiries before advising the buyer to sign any contracts to purchase property. Advocates must bear in mind that if they fail to carry out every appropriate search, they will be liable in negligence for any loss suffered by the client as a result of their negligent conveyancing. The advocate must also advise the buyer of the need for a physical search or inspection of the subject property prior to the exchange and the signing of any contracts. In Kenya, searches can be divided into official and unofficial searches. In all searches, nominal fees are paid.

Personal searchesentail an actual examination of the deed files or register. A personal search may be carried out by anyone. Normally advocates use their conveyancing clerks to do this. A search will reveal details of all transactions registered against or in respect of the title.

Official searchesconstitute of an application to the registrar of lands to supply the person applying with certified copies of details of the register (RLA). The registry by accepting to do so, takes responsibility of investigation of the title. Certified copies are admissible in court and -conclusive of the entries in the register of deed file in the event of litigation.

The Significance of Searches

Searches may appear simple and routine, but they are vital for successful conveyancing.

An omission of a search could lead to unpleasant surprises. These include;

a)   Discovering that documents lodged for registration cannot be registered because of restrictive entries such as caveats, caution, prohibitions or restrictions on tide.

b)   Discovering that the title is encumbered.(Charges)

c)   The proposed vendor may turn out not to be the registered proprietor of the subject property. The unpleasant surprises may turn out to be a matter of professional negligence against the advocate. There is also the issue of embarrassment.

Other necessary searches include;

Investigations of the correspondence file to establish if Land Rents have been paid over the years. Huge outstanding land rent arrears owing to the government by prospective vendor could affect a sale/purchase transaction. An investigation of the status of payment of rates at local municipal offices is also essential.

Physical Search or Inspection of the Property

A buyer should always be advised to inspect the subject property prior to exchange or signing of contracts. The reasons for this are five fold;

 Why check the state and condition of the property.

In general the seller is under no obligation to reveal defects in the property. There is normally no warranty given about the state of the property and consequently all buyers should obtain their own survey report before contracting to purchase property. The caveat emptor rule (let the buyer beware), applies to conveyancing transactions. In most cases, sale agreements will stipulate that the buyers accept the property in the physical state it is in at the exchange of contracts. A prudent buyer will therefore use the services of professional advisers such as surveyors or valuers to assist in inspecting all the buildings.

(ii) To check who is in Actual Occupation of the Property

This is critically important as the seller may not be the person in actual occupation of the property and others could be entitled to occupy the property not withstanding that they are not co-selling. It is of most importance to check that there are no undisclosed occupants within the property who could claim rights of occupation and thereby delay or defeat completion. As well as physically inspecting the property, a buyer’s advocate will also raise written enquiries about who is in occupation (e.g. tenants.)

(iii) To check boundaries

A buyer will want to be sure that the contract correctly describes the property and the boundaries on the ground are the same as those shown in the title and in the contract.

(iv) To check on rights and easements affecting or benefiting the properly.

A physical inspection of the property will assist the buyer establish the rights of others, such as path ways and gates. Any easements adversely affecting the property should be referred to the seller without delay for clarification.

(v) To check fixtures and fittings contracted to be sold are in the subject property just prior to the exchange

The buyer will want to be sure that items to be sold actually exist and are within the subject property. (Water tanks, electrical fence, etc)

Advice on Survey

A purchaser / mortgagee/chargee should always be advised to have a survey carried out before exchange of contracts because of the caveat emptor principle, 'let the buyer be ware.' It is for the buyer to discover all the physical defects in the property and these may not be apparent from the clients own inspection. A client may sometimes be reluctant to incur additional expenses in survey fees. It is however the advocate's responsibility to advise the client that this is money well spent. Failure on the advocate's part to give this advice could amount to professional negligence. A physically defective property may of course be unsafe to occupy but there are financial implications for the purchaser as well.

The market value of a property will be reduced if a property is in poor condition and so the purchaser may be paying more than he/she should. This may also adversely affect the purchaser's ability to mortgage the property or sell it at a later date. There is also the danger of non-existent properties. These are all considerations that must be drawn to the client's attention. Basic valuation by a registered valuer constitutes one of the simplest and cheapest forms of survey. It constitutes a visit and physical examination of the property to establish the property's value on the open market and its physical delineation.

A valuation report is important especially if the property is to be charged to secure a loan. A mortgagee's surveyor/valuer owes a duty of care not only to the lender but also the borrower who relies on the report. A copy of the valuation report should be made available to the borrower. Special considerations when valuing include; neighbouring properties, drainage, infrastructure, location, the zoning and development policy by municipal authorities of the property area are also key.

[Reflection: What remedies are available to a recipient of inaccurate answers to pre-contract inquiries or requisitions?]

EXECUTION & ATTESTATION

Execution is the signing of documents the purpose of which is to authenticate and acknowledge the same.  Signature on the other hand is the “writing or otherwise affixing a persons name or a mark to represent his name by himself or by his authority with the intention of authenticating a document as being that of, or as binding on the person whose mark or name is so written or affixed”.  Initials, thumb prints (left thumb for men, right for women) are deemed to be signatures but the mere typing of a name is not  (See: Lord Denning in Goodman Vs J. Eban 1954 1QB 550, see also First Post Homes Ltd –vs- Johnson [1995] 4 All. E. R. 355, Section 3(6) of the Law of Contract Act (Cap 23) Laws of Kenya).  Section 44 of the  LRA provide for execution of documents.

  Natural persons can sign by themselves or by their duly constituted Attorney(s).  Companies and other juristic persons will execute the document as per the provisions of their respective constitutions, memoranda, charter or the constituting statute as necessary. Such juristic persons may also execute documents through their duly constituted Attorneys.  A close perusal of these constituting or establishing documents or statutes is thus important. Look at sections 43-48 of the LRA.

Whilst the actual conveyancing instruments must be signed by the proprietor or his duly constituted Attorney, a Sale Agreement may be signed by he who has “apparent or ostensible authority” and not necessarily actual authority. [ Reflection: In the recent case of Shem ObondiVsSeemford Holdings Limited, the Court of Appeal seems to have suggested that apparent or ostensible authority has no place in modern day commerce. Do you agree?]Documents will be signed at the signature block which appears at the very end of the conveyancing document. It is however prudent that to achieve the aim of execution and also to guard against unscrupulous practitioners, parties be encouraged to initial or sign every page of the document.

Attestation is the proper witnessing of a signature or execution. It simply means to bear witness to a fact. The person witnessing the execution must be present as the executant ascribes his mark. The object is to help guard against fraud and thus a party to a deed cannot attest to its execution. A Vendor ought not witness the Purchaser’s signature and vice versa. So seriously is the issue of attestation taken that the Court of Appeal in Lamchand Fulchand Shah –vs. - I & M Bank Limited C. A. C.Appl. No. 165 of 2000 decreed that where there is a question of proper or improper attestation then the Advocate who purportedly witnessed the execution must be made a party to the suit. The conveyancer must thus take care and ensure the document has been executed in his presence. [Reflection: who should attest the execution?]. A document executed by a company does not necessarily require to be attested: see Coast Brick –vs- Premchand Raichand 1966 E. A. and Eccon Construction & Engineers –vs- Giro Commercial Bank [2003] 2. EA LR 426

VERIFICATION

Verification is explicitly provided for under section 45 of the Land Registration Act. It is however more than just witnessing. A person executing an instrument is required to appear before the Registrar, public officer or other person as is prescribed; and be accompanied by a credible witness for the purpose of establishing identity, unless the person is known to the Registrar, public officer or other person. The Registrar, public officer or other person shall then identify the person and ascertain whether the person freely and voluntarily executed the instrument, and shall complete thereon a certificate to that effect.

POWER OF ATTORNEYS

This is an authority in writing by which one person (donor) enables another (attorney in fact ordonee) to act for him. Attorney is a person who is appointed by another and has authority to act on behalf of another. The authority could be general or special (specific). It authorizes the doneeto do some lawful act for and in the stead of the donor. The authority is contained in a Letter ofAttorney and could be irrevocable or revocable. Ordinarily it is irrevocable when there is someinterest conveyed or granted to the decree. The donee can use the authority to do only what he isauthorized under the Letter of Attorney to do and no more. Since the Land Registration Act makes no form for a power of attorneys the RLA prescribes a mandatoryform to be used in donating the authority which form must be executed and the executionverified

It is a general rule that an act done under a power of attorney must be done in the name of the person who gives a power, and not in the attorney's name. The power may be general or specific. The person appointing is known as the principal or donor.  The person appointed is referred to as the donee. A power of attorney presupposes that the person donating it has capacity. As such, a person of unsound mind, for example, has no capacity to donate a power of attorney. Consequently where a person purports that he has a power of attorney donated to him by a person of unsound mind, as was the case in Grace Wanjiru Munyinyi & another v Gedion Waweru & 5 others,[7] the power is null in law.A power of attorney must be executed by the Donor of the Power and thereafter stamped and registered in the Register of Powers of Attorney. Stamp duty is payable by the donor/executor.[8]

Power of attorney may be revoked through the following ways:

a)   By the donor executing a revocation

b)   By performance of the act it was created to perform

c)   Expiry of time

d)   Operation of the law e.g. when the principal becomes a bankrupt, his power of attorney in relation to property or rights of which he was divested by the bankruptcy, is revoked by operation of law.

The Execution of Powers of Attorney

Section 48 of the Land Registration Act No. 3 of 2012 makes provisions for powers of attorney. Pursuant to this section, an instrument dealing with an interest in land shall not be accepted for registration where it is signed by an agent (other than the registered proprietor) without a power of attorney. The original of such power of attorney must be filed. In the event that one wish to file a copy of the power of attorney then it must be with the consent of the Registrar and the copy must duly be certified by him.

However, an instrument may still be registered when signed by an agent without a power of attorney in certain circumstances. These are:

a)   Under section 48(3) of the Land Registration Act, the guardian of a person under a legal incapacity or, if there is no such guardian, a person appointed under some written law is allowed to  generally represent that person for purposes of the Act without necessarily obtaining a power of attorney, by way of an application for the same. 

b)   Under Cap 248 (Mental Treatment Act) one may apply to manage the property of an insane person. Such a person need not have a power of attorney.

Sample forms on Powers of Attorney

The forms on power of attorney are to be found in the Government Lands Act (Cap 280), the Registration of Titles Act (Cap 281), the Land Titles Act (Chapter 282), the Registered Land Act (Cap. 300) which were all repealed by the Land Registration Act (LRA)  No. 3 of 2012. However the LRA does not provide for the forms on powers of attorney. Resort is thus provided for under section 108 of the LRA which provides that:

Until the Cabinet Secretary makes the regulations contemplated under section 110, any rules, or other administrative acts made, given, issued or undertaken before the commencement of this Act under any of the Acts of Parliament repealed by this Act or any other law, shall continue in force and shall be construed with the alterations, adaptations, qualifications and exceptions necessary to bring them into conformity with this Act.  Section 110 on the other hand empowers the cabinet secretary to make the forms to be used in connection with the Act.

Pursuant to the provisions of section 108 the following forms may still be used:

SPECIAL POWER OF ATTORNEY

APPOINTMENT

I, MAYENDE NYONGESA, of Post Office Box Number 781 Bungoma in the Republic of Kenya do hereby appoint BARCLAYS BANK OF KENYA LIMITED of Post Office Box Number 30691 Nairobi (hereinafter called “the Attorney”) to be my attorney with authority to do all or any of the acts and things hereunder specified on my behalf in relation to my property known as L R No. 209/34 (hereinafter called “the Property”)

AUTHORITY

The Attorney has authority in my name and on my behalf and on such terms and conditions as seen to him expedient to:

1.            to sell to any person all or any of my interest in the Property;

2.            to charge or mortgage all or any of my interest in the property for any sum at any rate of interest;

3.            to lease all or any portion of the property for any term of years at any rent;

4.            to demand collect receive and take all necessary steps to recover all rents and other sums owing to me in relation to the property;

5.            to obtain or accept the surrender of any lease in which I am or may be interested in relation to the Property;

6.            to exercise and execute all powers which are now or shall hereafter be vested in or conferred on me as a lessee or chargee under any Act of Parliament in relation to the Property;

7.            to represent me and to appear in my name and stead and on my behalf, before any Land Registry in Kenya and before any other official government or municipal officer or competent local council or any other administrative officers or before any other authority in all matters pertaining to or connected with the Property and to sign and execute all certificates documents contracts and declarations before such authorities or offices and to perform all actions and matters which may be required by law in connection with this power of attorney;

8.            to enter and permit others to enter the Property;

9.            to take any action to abate any nuisance;

10.          to do all other things incidental to the above powers or which it thinks necessary or expedient in relation to the Property as fully and effectually as I could do them myself.

REVOCATION

I shall not revoke this Power of Attorney as long as I remain indebted in any manner to the Attorney.

IN WITNESS WHEREOF I have hereunto set my hand and seal today this……day of June 2012

SIGNED and SEALED by me the      Said MAYENDE NYONGESA )

In the presence of: -                        )                                                          

Advocate                                         )

DRAWN AND FILED BY:

GENERAL POWER OF ATTORNEY

POWER OF ATTORNEY

-TO-

SHINJI KAGAWA

I, MAYENDE NYONGESA of Post Office Box Number 781 , Bungoma HEREBY APPOINT my son  Shinji Kagawa of  Post Office Box Number 781 , Bungoma ASMY TRUE AND LAWFUL ATTORNEY for and in my name to manage, transact and generally conduct all lawful business, act or activity on my behalf and in may name without any reference to me AND without prejudice to the generality of the foregoing to sign, attend and otherwise participate on my behalf and in my name (in so far as my signature attendance or participation would be requisite) all documents, correspondence, meetings and other activities relating to:

a)   ordinary correspondence, checks and other bills of exchange;

b)   hiring,  leasing, transferring and mortgaging of any of my property;

c)   taking of leases and mortgages by myself;

d)   opening and maintenance of any type of account with any bank or financial institution;

e)   recovery of any and all moneys, debts or property due and owed to myself;

f)     taking delivery of letters, telegraphic messages, drafts, packages and securities of any kind, from the Post Offices or from Railway, Airline, Express or Steamship companies against the necessary receipt and discharge signature;

g)   attending, taking part in or voting at any and all meetings of creditors, shareholders, directors or officers of any corporation or association in which I have an interest or to give proxy therefore;

h)    arbitration, suits, actions and other legal or equitable     proceedings in which my interests are concerned;

i)      employment, retention, suspension or dismissal of any and all employees in my employ;

j)      execution signing sealing and delivery of all deeds contracts receipts acknowledgement notices instruments documents and letters necessary and proper for effectively doing or causing to be done any or all of the acts and things which the Attorney is by these presents empowered to do on my behalf;

k)    generally to do or cause to be done for and on my behalf all acts and things whatsoever whether expressly mentioned herein or not which may seem to the Attorney to be requisite or expedient to be done or caused to be done on my behalf.

IN WITNESS WHEREOF I have hereunto set my hand and fixed my seal this … … day of … … … … … 2012

SIGNED and SEALED by me the said          )

MAYENDE NYONGESA                                 )

In the presence of : -                                               )                                                                       )

Advocate                                                     )

DRAWN AND FILED BY:

RAFAEL DA SILVA & CO. ADVOCATES

ADVOCATES                                                                                                   

ALCATRAZ PLAZA, 4TH FLOOR,                                                 

TEABAG AVENUE, LIMAU,                                                  

P.O. BOX 781-00100,                                                                                                                                                       

NAIROBI 

STAMP DUTY

As part of conveyancing and taxation, stamp duty is basically revenue raised by the Government by requiring stamps sold by the Government to be affixed to designated documents.  The stamps are affixed or embossed or impressed by means of a red dye or franking or adhesive revenue stamps.  The Stamp Duty Act (Cap 480) Laws of Kenya designates various conveyancing instruments to be stamped.  Section 5 of the said Act demands that every instrument relating to property in Kenya if specified in the Schedule to the said Act do fetch stamp duty as prescribed.  The duty is to be paid within 30 days of execution of the document or of its receipt if it is executed outside Kenya (Section 6). [Reflection:  when do you date the conveyancing instrument? Who authorizes payment of duty when there is a delay beyond the statutory time and what is the penalty?].

Failure to pay duty is equivalent to evasion of tax and is a criminal offence under Section 113 of the Act.  Section 46 of the LRA supplements the Stamp Duty Act and under the Section no document is acceptable for registration if the stamp duty required to be paid has not been duly paid and documents properly stamped [Reflection:  what is proper stamping:  revenue stamps, or franking].   Duty on conveyancing instrument is paid on the ad valorem value at the statutory rate.  The rates currently are :  Transfers – 4% for properties situate within cities municipalities and 2% of the value for properties outside municipalities/cities; charges and Mortgages – 0.1% of the amount secured; Discharges/Reconveyances -0.05% of the amount secured and Leases 1% of the annual rent for a Lease of less than 3 years and 2% of the averaged rent for a Lease of  3 years or more.  Long term Leases or subleases are deemed to be Transfers and fetch duty as if they were Transfers.

Currently stamp duty fees is collected directly by the Kenya Revenue Authority by payment being made to the Authority’s account in commercial banks.   The document together with the stamp duty assessment form and the banking pay-in slip is then delivered for stamping by the Collector of Stamp Duty.  The Collector has powers to adjudicate and decide whether a document should fetch duty [Reflection:  How wide is the Collector of Stamp Duty’s discretion under Section 17 of the Stamp Duty Act?  Contrast and compare this Section with Sections 96/97 of the same Act].

Exemption from payment of duty is however the recluse of the Minister of Finance after receiving the appropriate recommendation from the Minister of Lands [see Section 106].   Relief and or exemption will be granted to charitable organizations as well as religious organizations or institutions.  Certain institutions are also duty-exempt.  These include educational institutions, government departments (e.g. Central Bank of Kenya) and the Export Processing Zone Companies.  [Reflection:  what possible reforms would you recommend to the Stamp Duty regime?  E-stamping, first-time home owners be duty exempt, beneficiaries of deceased estates to pay file duty, base duty on the theory of “from each according to his means”.]

It is important that in a conveyancer’s brief; the Stamp Duty Assessment Form obtained from the Collector of Stamp Duty is completed in a legible manner, the payment is re-checked to have been fully made to match the amount assessed, all receipts are available copied and properly filed and any certificates for purposes of relief or exemption required are obtained in time.

 Process:

• Applicant presents document for assessment by collector. Fills Form SD1
• Assessor confirms if duty is payable, counterchecks info on the form and document, ascertains amount and endorses both Form and document
• Applicant pays amount in designated bank
• Returns document with proof of payment to Collector of Stamp duty
• Collector of Stamp Duty reconciles records and stamps  document by franking
• Audited by Government accountant and dispatched

RATES & RENT CLEARANCE CERTIFICATES

Rates are levies payable to the Government through the local authorities under the Rating Act (Cap 267) Laws of Kenya.  It is simply a form of taxation and conveyancing helps in a way towards its collection.   Upon full payment of rates due on any parcel of land, the local authority’s Clerk issues the owner of the parcel with a Rates Clearance Certificate.  It is prima facie evidence that the rates due and any interest accrued thereon have been fully paid.  Sections 38 of LRA require that prior to the Registrar accepting any document intended to transfer or vest any interest in land for registration there must be also produced a valid Certificate or Statement showing that the rates have been cleared or paid up.  Rates will be levied on all parcels of land, freehold or leaseholds.

Land Rent, too, is a source of income for the Government as Landlord.  Land Rent will be levied only on leasehold parcels where the annual rent has been reserved at the time of the Grant being issued.  [Reflection:  what is a peppercorn?]  Section 39 of the LRA helps to assist the Government in collection of rent as both Sections require that before any transaction on a leasehold property is registered the parties must produce to the Land Registrar a valid Rent Clearance Certificate.  It is always the duty of the registered proprietor to pay and obtain the Rates and or Rent Clearance Certificate, unless agreed otherwise. [Reflection: What is the process of obtaining either a Rent Clearance Certificate or a Land Rates Clearance Certificate? What are the challenges met by ordinary practitioners?]

RATES CLEARANCE CERTIFICATE

This is issued by the appropriate local authority in whose area the land is situated. It certifies that all monies payable to the local authority in respect of that property have been paid. Such monies include:

i)          Land rates

ii)         Interest charges on rates and

iii)         Unpaid water bills.

It is necessary to obtain a Rates Clearance Certificate before a transfer is presented for registration: S.86 RLA; S.33 RT A. Both state that the Registrar shall not register a transfer unless a Rates Clearance Certificate is produced to him where necessary.

LAND RENT CLEARANCE CERTIFICATE

All leaseholds from the Government are subject to an annual rent that is payable by the grantee of the lease. Before registering a transaction involving leasehold land, the grantee must show that all land rent has been paid to the Government. E.g. Before registering a transfer (of a leasehold interest), the vendor must obtain a Land Rent Clearance Certificate which is a document certifying that all land rent due has been paid.  S.86A RLA - provides that the Registrar shall not register a transfer unless a Land Rent Clearance Certificate is produced to him where necessary.(Note: No LRCC is necessary where land is freehold)

Examples of other transactions where a LRCC is required for leasehold land: Lease, Charge.

CONSENTS

There are quite a number of consents in conveyancing to ensure the success of the transaction.  Different transactions however require different consents and occasionally some will over-lap.

Reflection:  what is the rationalebehind the various consent?

1.    Consent from the County Land Management Board  

The Registrar shall not register an instrument effecting a transaction unless satisfied that any consent required to be obtained in respect of the transaction has been given by the relevant County Land Management Board on the use of the land, or that no consent is required (section 39(2) of the LRA). This includes paying all outstanding land rent. It will be applicable only to leasehold properties and not freeholds.  .

2.         Land Control Board Consent

This applies to all land designated as “agricultural land” under Section 2 of the Land Control Act (Cap 302) Laws of Kenya [Reflection:  what is “agricultural land”?] and is required for all transactions touching on and concerning such land.  The particular transactions are outlined in Section 6 of the Land Control Act.  The consent is granted by the local Land Control Board on application by both parties to the transaction.  The application is made in a prescribed form and consent also issued in a prescribed form.   User of both forms is mandatory.  Transactions touching on and concerning agricultural land will be exempt from the Land Control Board Consent if the President so directs or if it is a transmission or if the Government is a party.  The application to the Board must be made within six (6) months from the date of the transaction otherwise the transaction is null and void:  Simiyu –vs- Watambamala 1985 KLR 252, Karuri –vs- Gituru 1981 KLR 247, Jacob Minjire –vs- AFC, Njamunyu –vs- Nyaga 1983 KLR 282.

A case in point is Nelson Githinji et al vs. MuneneIrangi[9] where the court of appeal categorically stated that the effect of section 6(1) of the Act was to render null and void any transaction, sale, transfer or other disposition or dealing in agricultural land situate in a land control area without a Land Board Consent.

Facts

The suit land was agricultural land, but the consent of the Land Board was not obtained. There was supposedly an arbitration, which recommended that the superior court should order the appellant to transfer the suit land to the respondent without delay. On appeal;

Held

The transaction for which the respondent sought specific performance required the consent of the relevant Land Control Board. This was a legal requirement. The effect of the arbitrator’s award was to grant the respondent the specific performance he sought. If no consent of the relevant Land Control Board was obtained, then that award was illegal.

Jacob Minjire –vs- Agriculture Finance Corporation

AFC, exercising chargee’s power of sale sold land to the appellant in a public auction.  The buyer paid the purchase price but AFC failed to transfer the land.  Meanwhile, the original owner of the land (the chargor) redeemed the land. Consent of the Land Control Board had not been obtained in respect of the auction sale.

Held:

1.    Consent of the Land Control Board is by statute, made a term of the contract, non-compliance of which vitiates the contract.

2.    Where a controlled transaction becomes void for lack of consent of the Land Board, the Act gives an innocent party a special cause of action, which gives him a remedy independent of the void transaction.

3.    Consent has to be applied for within three months from the date of agreement.

4.    Neither special nor general damages are recoverable in respect of a transaction that is void for want of consent.

3.         Other consents include:

Consent of the Railways Corporation (for land adjacent/adjoining railway lines),Consent of Kenya Airports Authority (for land adjacent/adjoining the airports or flight paths), consent of chargee (see Section 59 of the LRA), Consent of Lessor/Landlord section 55 &56 of the LRA.[Reflection:  Whose responsibility is it to obtain the requisite consent? Which consent(s) may you require to transfer a free hold property?  And an Apartment under a Sub-Lease? What are the consequences of not obtaining a requisite consent or clearance certificate?]Unless otherwise agreed it is the responsibility of the person who intends to dispose of the interest to obtain the consent.

The Consent of the Kenya Railways

For any land adjacent to or adjoining the Railway land, the consent of the Railways Corporation is required prior to any dealing in that land. Cap 397 – Kenya Railways Corporation Act does not provide for the above requirement.

Most of the time when one applies for this consent, one is required to pay cess to the Corporation before being granted the consent. The Deed Plan to most properties reveal a Railway Line running through some parcels of land. This consent would be in addition to the LCB consent if applicable.

The Consent of the Kenya Airports Authority

This consent is issued by airport owners for all properties which may be adjoining flight paths. The whole purpose of this is for the authority to find out what one wants to do with the property. One is given a questionnaire to fill in.  One must consult before doing anything on the land.

The Consent of the Landlord [Lessor’s Consent]

This refers to one who has obtained leasehold from Government (head lessor) and wants to sub lease it. This is found in sub-leases. One will need the consent of the Landlord. Aimed at ensuring agreements in the lease are honoured as well as all rent being paid.

The Consent of Trustees of National Parks

Properties adjoining or within parks require this consent prior to any conveyancing transaction involving such land. The Kenya Wildlife Service is the Trustee of such parks. This is to ensure there is no derogation of title.

1.    These consents are required to complete any given transaction. In the absence of these consents the conveyance e.g. lease, mortgage etc will not be registered

2.    Condition 16 of the LSK provides that for purposes of completion, all necessary consent must be obtained by the vendor/lessor (he who is parting with the interest). In most agreements in practice, the person obtaining the interest is given a duty to assist in obtaining the consent especially where both parties presence is required.

3.    If the consent is not availed or obtained one will be held to be in breach. Unfortunately, the person who is aggrieved has remedies in damages only. There is no room for specific performance because as long as the consent is not given within the specified period, the agreement lapses

See: Mucheru v Mucheru [2002] 2 EA 456

The CA held that if LCB consent is not obtained the transaction becomes void even if the duty to obtain the consent was not exercised.

Facts: The respondent filed suit seeking an order to bury a deceased husband on the property in the control of the appellant who was the widow of the registered proprietor. The respondent claimed that her deceased husband was entitled to a portion of that property under Kikuyu customary law. The respondent proved trust under the customary law and that the administrator was to obtain LCB consent. The court held she was entitled to the portion subject to the LCB consent.

The CA held that the establishment of a trust is a disposition of property within the requirements of s.6 LCA and the LCB consent was necessary. Having not been obtained within the required time i.e. 6 months, the whole disposition was void

Jacob GichukiMinjire v AFC CA 61 of 1982

AFC sold Dagoretti/Riruta/1139 to the appellant at a public auction where the appellant was the highest bidder. The appellant paid 255 deposit but no agreement was signed as per s.3 of LCA. AFC refused to complete despite payment of the balance of the bid price within the required 30 days. The appellant sued for specific performance but AFC contended that the land was agricultural and a controlled parcel leading to the auction being a controlled transaction as per s.6(2) of the LCA and the sale was consequently void for all intents and purposes as no LCB consent had been obtained or an application filed within 6 months.

Held: No specific performance would be granted because:

a)   Property had already been redeemed. Equity could not act in vain

b)   No LCB consent was obtained

Bosire J said:

“The lack of statutory consent at the expirty of the 3 months makes the transaction void for all purposes until then there is only a de facto agreement which has no legal effect”

DISPOSITION IN LAND

Generally disposition is a transfer of an interest in land.

STAGES IN DISPOSITION

Having discussed the subject of disposition it is important to note that dispositions usually happens in two stages

—  First- contract for sale

—  Conveyance

The latter stage is where the transfer of an interest in land takes place.S 54 of the repealed ITPA and S3 RLA do not consider a contract for sale of land as transferring interest in land. Why is it important therefore?

WHY CONTRACT?

•       It deals fully with the matters that must be dealt with between the date of the contract and completion;crystallizes the position of the parties;

•       It binds the parties to the sale, prevents last minute withdrawal by either party and facilitates completion;

•       Parties may use it to confer special advantage on themselves;

•       It may be used to transfer the legal interest on chattels so as to reduce the duty payable at the completion stage;

•       It provides for the resolution of any disputes that may arise between the date of the contract and completion;

•       It provides remedies for breach;

•       It gives the purchaser time to investigate the title;

•       The equitable doctrine of conversion is applicable to these kinds of contracts;

•       It makes the transaction enforceable-S. 3(3) of the Law of Contract Act.;

What is the difference between agreement to sell land and a contract for sale of land?

NATURE OF CONTRACT FOR SALE OF LAND

A contract to sell or make any other disposition in land is made in the same way as any other contract:-

—  An agreement for valuable consideration between the parties on the essential terms.

3 types of contracts- simple, evidenced in writing, formal

It is important to note that although a valid contract relating to land may be made orally, it will be unenforceable i.e. by action.

INGREDIENTS OF A VALID CONTRACT

There must be a final, complete, written contract on at least the essential terms:

—  Offer

—  Acceptance

—  Consideration

—  Capacity

—  Intention to create a legal relationship

Reflection: what if an offer is accepted “subject to contract?” or “subject to suitable arrangements being made between your solicitors and mine”

VALIDITY VERSUS ENFORCEABILITY

A valid contract is one with the ingredients described above

What about an enforceable contract?Prior to 2003 S3(3) of the Law of Contract (LAC) provided as follows:

“          no suit shall be brought upon a contract for the disposition of an interest in land unless the agreement upon which the suit is founded, or some memorandum or note thereof is in writing and signed by the party to be charged or some person authorized by him to sign it.

            Provided that such suit shall not be presented by reason only of the absence of writing, where an intending purchaser, or lessee who has performed or is willing to perform his part of the contract:

1.             Has in part performance of the contract taken possession of the property or any part thereof; or
2.             Being already in possession continues in possession in part             performance of the contract has done some other act or in furtherance of the contract

ENFORCEABILITY

The requirement for writing was introduced in a 1968 and was borrowed from the Statute of Frauds of 1677. This requirement of writing was often defeated by the application of the equitable doctrine of part performance.An amended was introduced on 1^st June, 2003 vide Act No. 2 of 2002. Section 3(3) was repealed to read as follows:

—  No suit shall be brought upon a contract for the disposition of an interest in land unless:

—  The contract upon which the suit is founded –

                                      i.        Is in writing

                                     ii.        Is signed by all the parties thereto

—  The signature of each party signing has been attested by a witness who is present when the contract was signed by such party.........

After this amendment, the requirement of writing is absolute i.e.for a contract to be enforceable it must be in writing.

Reflection

—  What of the many transactions in rural Kenya and elsewhere which maintain oral or memoranda as a forma of contract?

—  Have we effectively locked out the equitable doctrine of part performance? 

JUDICIAL INTERPRETATION OF S3 (3)

Prior to the amendment of 2003

1. Morgan vs. Stubenitsky(1977)KLR 188- It was held that though the memorandum was signed it was devoid of the envisaged terms, therefore there was no agreement capable of satisfying s3(3) of LCA
2. Wagiciengo vs. Gerrard (1982) CAN 336.It was held that 2 unsigned documents (one contained terms of the agreement, the other a schedule of payments received) in the defendant’s handwriting, satisfied the requirement of S3(3) of LCA

Post 2003 amendment

Kenya Institute of Management vs. Kenya Reinsurance Corporation 2008 eKLR

The defendant had advertised its property (South C Sports Club) for sale in the newspaper; the plaintiff made an offer, entered into negotiations and agreed on a price. The Plaintiff sought financing but by then the defendant had sought to withdraw from the transaction. Though the Court found that no agreement within the meaning of S3(3) existed, it granted the injunction on the basis of high handedness of the defendant.

Mumias Sugar Co. Ltd vs.  Freight Forwarders (K) Ltd Nairobi 2005 eKLR- It was held that S3 (3) conditions were not satisfied.

No action may be brought- the effect of non-compliance with this provision is not to make the contract void but merely make it unenforceable.

To deprive a party to a contract of his right to bring an action upon it is to deprive him of one of his most important rights.

Reflection:

Is it true that the provision does not bar the contract from being enforced in any other way except by action?

CONTRACT FOR SALE OF LAND

TERMS

It is open for the parties to make a contract as they deem fit. In practice certain standard forms of conditions have been settled on.The Law Society Conditions of Sale (1989 edition) outlines various terms and conditions for the sale of property.

TERMS IMPIED BY STATUTE, S.55 OF THE REPEALED ITPA

Vendor is bound	Buyer is bound
To disclose to the buyer material latent defects in the property	To disclose to the seller info which increases the value of the property
To produce upon request title documents	Pay purchase price on completion
Answer to the best of his information all relevant questions from the buyer	If sold free of encumbrances, retain part of purchase price to cover encumbrances
On payment of the purchase price, execute a conveyance	When property has passed to him bear losses on the property not caused by seller
Between the date of the contract of sale and delivery of the property take care of the property and title documents(Dharmshi V Abdul Reikhman (1950) 204 KLR	Where property has passed to him, pay all public charges, rent etc
To give possession of the property when required
Pay public charges and rent

Other terms are found in S 46-48 of Sectional Properties Act- for sale of sectional properties.Remember the terms must be certain

—  Read Michira vs. Gesima Paper Mills Ltd (2004) EA 168

—  The entire agreement was held to be void for uncertainty

SALE AGREEMENTS

1. What is the position of the vendor and the purchaser?

It has been stated that the vendor becomes the trustee for the purchaser between the time of execution and completion of the sale agreements. Do statutes support the statement?

2. What sort of sale agreement is acceptable to my client? A simple agreement or a complex one with damages etc

In the case of short/simple agreements, one leaves himself open to implied provisions and the courts mercy. The complex agreement covers more issues. There is no statutory requirement for the format of a sale agreement.

One may opt for a hybrid agreement, not too simple and not too complex depending on the circumstances. Do not include irrelevancies.

3. The agreement must comply with any statutory requirements. These include:

(a) The Law of Contract Act (s.3)

(b) Other statutes will vary depending on the circumstances

4. A sale agreement is a contract and one must ensure that the agreement is in tandem with all the Law of Contract principles of:

-          offer and acceptance

-          intention to be bound

-          consideration exchanging hands

-          the contract is certain

Under the statute, there are three basic requirements that relate to the form of the agreement: Cap 23 – Law of Contract Act (s.3)

(i)        The agreement for sale of land to be enforceable must be in writing. This applies to all dispositions of interest in land.

(ii)       The agreement must not only be signed by both parties but the execution must be attested/ witnessed in the presence of the person attesting. This requirement runs across e.g. for a charge includes attestation of the facility letter.

Where do you sign?

Practice dictates that you sign at the end but since the purpose of the execution is to authenticate the document it can be anywhere as long as it is witnessed.

(iii)      The terms of the agreement ought to be in one document – s.3 seems to allow incorporation of terms by reference. Although the reference is in the one document. In the UK, there can be more than one document.

-           

Question then is: Why do we draft and title the same”a contract for sale” or a “a sale agreement”? What is the difference anyway between a contract and an agreement or there is no difference?[ cf. Lord Diplock’s reference to “bisynallagmatic” associations as distinguished from “mere concordance of opinions”]  .   An agreement to sell land is basically a contract. The next question perhaps thus that one would want to ask himself is what sort of agreement is he to draw: a “pigs, whistles and all” or a “mini skirt” agreement? It is recommended that a hybrid of both be adopted, instead of either. Finally there is the need to ask and answer the question: what is the nature of the relationship that exists between the parties during the period between the execution and completion of the contract (See: Derry vs. Peek, Shaw vs. Forster)?

 As an agreement is a contract compliance with the basic tenets of the Law of Contract is necessary and so is compliance with the provisions of the Law of Contract Act (Cap 23) Laws of Kenya as well as Sections 38 through 42 of the Land Act 2012. 

A good and enforceable agreement will thus not only exhibit offer, acceptance, intention to be bound, capacity, consideration and certainty (see:  Michira vs. Gesima Power Mills Limited, 2004, 2 E.A. 168) in the terms but must also be in tandem with the provisions of Section 3(3) of Cap 23.[This section of Cap 23 is a must read for anybody aspiring to be an advocate].   In the latter case of the Act the sale agreement must be in writing, signed by both parties and their signatures attested to.  The terms of the agreement apparently need not however be in one document.  Terms may be incorporated by reference (eg. the Law Society Conditions of Sale being made to apply).  Sections 54 and 55 of the repealed ITPA also had certain implied terms which in the absence of contrary agreements applied to open contracts. The Sectional Properties Act [Cf. ss 47 through 49] however dictates particular matters which must be in the Sale Agreement where a sectional unit is being sold. The agreement must of course also not be tainted with any illegality as the maxim ex turpicausa non orituractionwillbe invoked. Neither must the agreement be unconscionable. The new statutes have however kept faith with the doctrine of freedom of contract and not prescribed any specific terms or conditions to be incorporated in any contract.

It is possible though that the parties may have some pre contract negotiation documents in place and prior to actual execution of the contract. These include Heads of Terms, Term Sheets, MOUs and Letter Agreements [what are they and are they binding once executed? Can either party enforce the same in a court of law or equity?]

In general an ordinary Sale Agreement will contain five parts namely:  the parties, particulars of sale, special conditions, general conditions and execution.

An agreement must at whatever cost be certain. If agreement is not certain even if one complies with statutory provisions the agreement will be void. See: Muchira v Gesima Power Mills Ltd (2004) 2 EA 168

The COA held that any agreement that contains uncertain clauses is void and specific performance or reliance on it for any remedy will not be allowed.

Facts: The vendor sold land to the purchaser for 10 million. The parties themselves drew the agreement. The execution was witnessed by a qualified advocate. 10% deposit was to be paid on execution, 20% later and balance within 90 days or when the title was produced in the purchaser’s name. Possession was to be granted on completion or when 20% was paid. Inter alia damage on default was 40% of 10 million. The purchaser alleged default and sued for 4 million.

Held: The CA held that the agreement was not enforceable even though it had met all the statutory requirements. There was no consensus ad idem as there was no clear provision as to when the balance and possession would be given. The agreement was uncertain and specific performance could not issue.

NOTE: Why didn’t the court get rid of the uncertain provisions? It did not have a ‘saving clause’ in case of inconsistency

CONTENTS OF A SALE AGREEMENT

1. Parties
2. Particulars of Sale
3. The General Conditions
4. The Special Conditions
5. Execution

Parties:     This is self-explanatory.   The parties to the contract as well as their addresses must be properly stated in the contract.  The address is crucial in the event that there will be need to issue a notice to either party. It is important that the parties to any contract are properly identified.[It is not necessary that only parties to a contract are those who must get some benefit there from or shoulder some obligation]

Particulars:   This entails a description of the subject property.  Both the physical and legal description of the property are given in the particulars of sale.  Encumbrances, if any, also constitute part of the property definition.    Occasionally, fixtures and fittings will form part of the particulars of sale.  Finally the consideration (purchase price) will be part of the particulars.

The position on encumbrances i.e. the property is sold free of encumbrances. If there is an encumbrance, you must indicate who is to service the loan/discharge the encumbrance. You must state that the purchase price will be used to offset the balance of the encumbrance/loan. Avoid allowing the clause “sold subject to all encumbrances…”

Special Conditions

These are those terms which are peculiar or specific to and relevant to the contract in question.  They will involve issues of vacant possession, deposit, fixtures and fittings, remedies in the event of default, contract being subjected to a mortgage facility, variation of general conditions, etc.They are those conditions which apply sui generis to each agreement. They are being extended to mean the variations of the general conditions. For this reason it forms a separate part of an agreement.

Examples

-          where the contract price includes the value of the fixtures and fittings sold separately

-          where the fact is that the property is sold subject to a mortgage

-          where the fact is that the sale agreement is conditional upon the vendor receiving duly sealed letters of administration or probate

In such cases you may have a clause titled special conditions.A sale agreement (if the LSK conditions apply) will be completed within 42 days of obtaining consent. This is a special condition which varies the general conditions of sale.

General Conditions:  These are terms which in the absence of any specific terms apply generally to the open contract.  They came from implied terms which have been complied together from common law, equity as well as conveyancing practice generally.  Section 55 of the ITPA contains examples of such general terms.  Likewise the LSK Conditions of Sale now in its third edition is an assembly of the general terms and conditions.  The general conditions apply also to fill up gaps in a contract and cover a variety of matters e.g.Regulating right to rescind, preparation and content of transfer, possession and grant, deposit and forfeiture, notices and completion.  The Sale Agreement will always be drawn by Vendor’s Advocate (see Salim –vs- Okongo, 1976 KLR 42, LSK Condition 24).

Note: Fixtures and fittings – Case Law-   Melluish –vs- BMI (No. 3) Ltd 1996 AC 456

-                      Ellitestone –vs- Morris 1997 1 WLR 687

-                      Leigh –vs- Taylor 1902 AC 157

-                      Wake Vs Hall (1882 ) 8 App Cases 195

The answer to the question whether a structure or an item has become a part and parcel of the land itself depends on the degree of annexation as well as the object and purpose of annexation and the test is objective. Land is no longer looked at from the perspective of that latin maxim of quic quid plantatur solo solocedit. It may be critical to ensure that one adequately provides for fixtures and fittings in any Contract as they may affect the stamp duty payable.

Deposits                                -           LSK Condition 3

-                      Stakeholders & Agents as Holders

-                      Universal Corporation –vs- Five Ways Properties

1997 1 All ER 254 (on return)

-                      Workers Trust –vs- Dojap Investments 1993 2 All ER 370

(as to forfeiture of more than the customary 10% deposit in the event of default by the Purchaser and the need to liquidate the damages)

Deposits are not only part of the purchase price but are also earnests or guarantees on the part of the Purchaser to complete the transaction.  They entitle the Purchaser to a lien over the land once paid. Note too the fact of the courts being extremely jurisdictional in a purely contractual situation [should not a deposit constitute only a genuine pre-estimate of damage and no more? How can we reform it?]

           

Completion   -           LSK Conditions 2 & 4

-           Barclay –vs- Messenger 1989 3 All ER 492(time of the essence)

Notice to complete              -          Efficacy & Validity:  must be explicit and leave no doubt that giver will rescind agreement if notice is not honoured.  Giver must be ready able and willing to complete.

-                      LSK Condition 28

Completion time                  -           Duty of Vendor:   to deliver

(i)            Vacant possession and

(ii)           Completion documents.

                                                            What is vacant possession?  Property must be:

                                                                        -  Free from physical impediment

                                                                        -  Free from any form of occupation

-                      Duty of Purchaser:   to inspect completion documents,

authorize release of deposit and deliver balance of purchase price.

[Reflection: What are the dangers of electronic drafting and negotiation of contracts?]

See also Hand outs  -           Steps commonly taken by Buyer’s Advocate

                                                -           Steps commonly taken by Vendor’s Advocate

                                                -           Checklists      – acting for Vendor

                                                                                    -  acting to Purchaser

-           Model Sale Agreement Clauses (for class discussion)

-           Deposits & Completion

-           J. M. Kibuchi on LSK Conditions of Sale

MODEL SALE AGREEMENTS

Parties

If a company the description should have successors and assigns, if a society it should be registered under the Societies Act, if personal it should state personal representatives and assigns and it should state the agreement is between X & Y

Definitions and Interpretations

Vendor and purchaser, singular and plural, definition of person to include legal and artificial persons, headings etc

Incorporation of LSK Conditions for Sale

It is not mandatory to incorporate them. You could exclude some or allow some or include all. You can also vary the LSK conditions and you can add more details.You must specifically state which LSK conditions to incorporate i.e. 1972, 1982, 1989. NOTE – there is a need to amend the LSK conditions especially in light of new developments.

Agreement for Sale and interest sold

You incorporate the offer and acceptance i.e. vendor agrees to sell and the purchaser agrees to buy.

Special conditions

Sui generis clauses

Variation of general conditions

Capacity

Legal competence for a person to sell e.g. if selling as an attorney, administrator, agent, beneficial owner

Purchase price and Deposit

That is consideration that supports the contract. State it explicitly. If by way of gift, it should be so stated. It must also state the acknowledgment of receipt of the consideration.Deposit is ordinarily 10% of the purchase price and ought to be paid before or on execution of the contract.For deposit state when it is to be paid, by who and to whom.

Completion documents

That is the purchaser is to deliver the purchase price and the vendor is to deliver the completion documents. The date of completion must be stated i.e. time is of essence.Provide for place of completion usually at the vendor’s advocates office.Where there is a financier, a professional undertaking is given instead of the money/cheque. One also has to state vacant possession. Completion documents include title documents, Clearance and Consent certificates, executed transfer, photos, consents, stamp duty valuation forms.

Assignment Clause

That is the transfer of the whole interest in the property. This is also referred to as the conveyance clause in a sale agreement. Assignment may be of the transfer or of the obligations and rights of the parties.

Default Clause

On omission or failure to perform a legal or statutory duty under the contract. This clause addresses what happens in the event of breach e.g. in case of default, a party will pay a specified liquidated amount in damages.

Non merger Clause

The clauses should be read as distinct and separate such that in the event that one is null and void, it should be severed and will not affect the others.At completion it was deemed at common law that everything is closed such that if there were any other agreements they would be closed i.e. do not inherit obligations of the vendor at the completion of the sale agreement. The agreement does not merge the sale agreement with the conveyance itself. Read LSK condition 27.

Stamp Duty and other related costs

This is based on the value of the property in question.Registration charges are paid at the lands registry and are not pegged on the value of the property. The advocates fees must also be catered for and each party bears the cost of their own advocates, (if a purchaser is obtaining advances from a financial institution, the costs are borne by purchaser). Search fees to confirm registration of the property in purchaser’s name. LSK condition 30.NOTE: Stamp duty is usually paid by the person acquiring the interest. Commissions should be given negative obligations i.e. the vendor shall not be liable for any commissions whatsoever.

Disclaimer

Provides for under the LSK Condition 14 clause 5. It embodies the caveat emptor doctrine i.e. buyer beware.It is the equivalent of an exclusion clause stating the vendor shall not be called upon to point out irregularities in the property. (Q. Whose interest is being protected? One needs to inspect the contract and carry out pre-contract inquiries)

General

One needs to put any general obligations in this clause. One may put saving clauses, how and when payment is to be made, whether the amount would be net or gross. One may also include a clause on whether the agreement, if it is to be varied, should be varied in writing or any other way.

Intention to be bound

This is a conclusion to the agreement where the parties are of one mind. It is just before the execution clause. It is the parties affirmation to the contract especially in relation to the law of contract act.

Miscellaneous clauses and provisions

1. if a party has not exercised their right or power  or remedy does delay in exercising such a right or power that does not mean that they have waived the right; Partial exercise of the right or remedy does not mean that you are not entitled to further exercise of such a right.
2. The remedies are cumulate and not exclusive of any remedies provided in law (law of contract)
3. That if any term or condition in the agreement shall be found invalid and unenforceable this does not invalidate all the agreement, the rest of the terms and conditions of the agreement shall be valid and enforceable to the fullest extent permitted by law. In such a case you do a variation of that clause by a further agreement which is to be annexed to the original agreement.

Execution

This is the affixation of one’s mark on the document. It may be by way of signature, thumb print or a duly appointed attorney of a company or by a common seal. The parties have to authenticate the document. One must state the capacity in which the parties are executing the document.

SALE AND PURCHASE OF LAND

STEPS COMMONLY TO BE TAKEN BY SELLER’S ADVOCATE

1.         Take instructions from Seller.

-                      Take Sellers instructions including details of proposed, of related purchase, authorization to disclose details in chain transaction, replies to pre contract inquiries etc.

-                      Check conflict of interest issue.

-                      Discuss fees, disbursements, taxation matters and confirm instructions.

-                      Check and confirm that proceeds will clear any encumbrances.

2.         Draft initial letters

            To agents, to client, to Buyers Advocate etc.

3.         Obtain Title Deeds from Seller and other documents necessary for purposes of sale which are available immediately.       If property is leasehold address following issues:

-                      is consent required?  From who?

-                      What are the outstanding outgoings?

-                      Will the freehold or leasehold be deduced?

4.         Draft and reconfirm with Seller  answers to pre contract inquiries.

5.         Draft the Contract and dispatch to Buyer’s Lawyer with copy to Seller for approval.

            Send also to Buyer’s Advocate    

-           copy or abstract of the Title

-                      reply to pre-contract inquiries

-                      copies of relevant planning consents, covenants, easements, licences, insurance certificates  etc.

6.               Engross the Contract (Sale Agreement) on receipt from Buyer.          If amendments proposed then consult with Seller before engrossing.

7.         Return Contract to Buyer for execution or signature.1

8.         Receipt  and deposit in the client account any deposit payable.

9.         Confirm deposit cheque has been honoured and ask Seller to execute Contract.

10.       Return counterpart copy of the Contract to Buyer’s Advocate.

11.       Advise Seller that he had a continuing duty of care towards the property and should take reasonable care to ensure that the property remains in the state in which it was at the date of the Contract.

12.       Reply to any requisitions on title.  Attend to specific queries or objections raised by Buyer.

13.       Peruse and approve the Draft Conveyance and return the approved or revised Conveyance.

14.       Prepare for the redemption of any Mortgage(s).  Contact Mortgagee and send Discharge with undertaking.

15.       Prepare a Completion Statement.Purchase price less deposit paid  add apportionments (and interest?).

16.       Arrange for execution of the Conveyance.

17.       Arrange for and host completion meeting.

18.       Report completion to Seller and Estate Agent and authorize release of keys to Buyer.

19.       Redeem Mortgage(s)

            Comply with and satisfy undertakings and obtain release from undertakings.

20.       Account to client for proceeds of sale.Full purchase price less Mortgage redemption Less commissions to Estate Agent         Add apportionment (and interest?)          Less Advocates fees.  Pay net to Seller.

2

                        STEPS COMMONLY TO BE TAKEN BY BUYER’S ADVOCATE

1.         Take instructions from Buyer.

2.         Consider conflict of interest.

3.         Discuss and agree on fees.

4.         Receive and deposit the Deposit in the client account.

5.         Liaise with Buyer as to his financial arrangements and send a letter to Buyer on desirability of having a survey and/or physical inspection of property and determine appropriate completion period.

6.         Advise Buyer on taxation matters i.e. rent, rates, V.A.T and stamp duty implication on the transactions.

7.         Consider Surveyors or Valuer’s Report.

8.         Deal with planning matters.

9.         Make pre-contract searches and enquiries.

10.       Consider the draft Contract and raise pre contract enquires of the Seller.

11.       Investigate Title and raise requisitions.

12.       Consider Seller’s replies to pre contract enquiries and requisition.   Consult on same with Buyer.

13.       Amend draft Contract as necessary and return to Seller.

14.       Make preparations for the Mortgage Facility if Lender is separately represented and advise Buyer on terms of Mortgage.        

15.       Engross or receive engrossment of Contract.

16.       Arrange for execution of Contract.

17.       Return engrossed and executed Contract together with deposit cheque to the Seller’s Advocate.

18.       Receive counterpart Contract signed by Seller.

19.       Draft Conveyance and send for approval and upon its return engross same.

20.       Make pre completion searches.

21.       Make further preparations for grant of Mortgage and ensure this is in place.

22.       Arrange for execution by Buyer of

-                      Mortgage

-                      Conveyance and attestation of both.

23.       Receive all monies (disbursements, fees, balance of purchase price and apportionments).

24.       Attend completion and report to client.

25.       Stamp Conveyance & Mortgage.  Get Conveyance endorsed with assessed value.

26.       Give notice to tenants.

27.       Simultaneously with 26, lodge Conveyance for Registration.

28.       Make post completion searches.

29.       Account to client and release title documents to client.

30.       Dispose of any other documents as instructed.

SALE AND PURCHASE OF LAND

CHECKLIST – ACTING FOR PURCHASER

(i)    Full name(s) and address(es) of

      Purchaser(s)…..………………………………………………………………………………………………

(ii)   PIN No(s) …………………………………………………………………………………………………….

(iii)  Telephone No(s)……………………………………………………………………………………………..

(iv) Is time to be of the essence?  ……………………………………………………………………………….

(v)  Does Purchaser want Vendor to point out beacons? …………………………………………………….

(vi) Does property have access?  ……………………………………………………………………………….

(vii)Are there any shares in a water or management

      company to be transferred? ………………………………………………………………………………...

                                                                  Obtained       Pending         Comment

1.   Obtain copy title deeds                             …………..       …………..           …………………...……………..…

2.   Search the title                                             …………..       ……………      …………………………………….

3.   Is Land Control consent required? …………..       …………..       ……………………………….……

      (To be obtained by vendor)

4. Is Commissioner of lands consent

required? (vendor to obtain)                     …………..       ……………            …………………………………….

5. Is any other form of consent

required?  (vendor to obtain)                    ………….        ……………            …………………………………….

6. Does client have deposit?             …………         ……………     …………………………………….
7. Is vacant possession going to

be granted on completion?  If

earlier, on what conditions?                      …………..       ……………            …………………………………….

8. Are there any tenancies?              ………….        …………….    …………………………………….
9. Is the Transfer document prepared?        ………….        …………….            …………………………………….
10. Joint tenants or tenants in common?       …………         …………….            …………………………………….
11. Have we collected Stamp Duty

and fees from client?                                  …………         ……………            …………………………………….

12. Have all completion documents

been received?  Rates Certificate?         ………..                       ……………            …………………………………….

        13.           Has stamp duty been paid?                       ………..                       ……………            …………………………………….

14. Has a valuation been carried out

by Government Valuer?                             ………..                       …………...            …………………………………….

15. Has document been endorsed by

the Collector?                                              ………..                       …………..            …………………………………….

16. Are there any new encumbrances

On title?(Do a further search)                    ………..                       ……………            …………………………………….

17. Is registration complete?                ………..                       ……………            …………………………………….
18. Has client’s title been

entered on the register?                             ………..                       ……………            …………………………………….

(Do a further search)

19. Has the completion statement and

and fee note been prepared?                 …………         ……………            …………………………………….      

SALE AND PURCHASE OF LAND

CHECKLIST – ACTING FOR VENDOR

                                                      Obtained       Pending         Comment

                                                      Tick or Cross where appropriate

1.         Obtain title deeds                …………..       ………….        ………………………………………………

2.         Investigate the title              ………….        ………….        ………………………………………………

3.         Is vacant possession going to

            be granted on completion?          ………….        ………….            ………………………………………………

4.         Are there any tenancies?  …………         ………….        ………………………………………………

5.         Has Purchaser paid deposit?         …………         ………….            ………………………………………………

6.         Prepare Agreement for Sale          ………..                       ………….            ………………………………………………

7.         Is Land Control consent

            required?                              ………..                       ………….            ………………………………………………

8.         Is Commissioner of Lands

            consent required?               ………..                       ………….            ………………………………………………

9.         Is any other form of

            Consent required?              ………..                       ………….            ………………………………………………

10.       Does notice to vacate to

            occupants of property need to

            be served?                           …………         …………..       ………………………………………………

11.       Has Rates Clearance Certificate

            been obtained?                               …………         …………..            ………………………………………………

12.       Has Stamp Duty Valuation

            Form been prepared?                    …………         ………….            ………………………………………………

13.       Has draft Transfer been

            received?                             ………..                       ………….            ………………………………………………

14.       Has Transfer been received?         ………..                       …………            ………………………………………………

15.       Undertaking required?                    ……….            .           ………….            ………………………………………………

16.       Has registration been

            completed?                         ………..                       ………….            ………………………………………………

17.       Received counterpart copy

            of duly registered transfer? ………..                       ………….            ………………………………………………

18.       Has the completion statement

            and fee note been prepared?     ……….                        ………….            ………………………………………………

PROFESSIONAL UNDERTAKINGS

Common practice in banking and conveyancing transactions

What is a PU?- Encyclopaedia of Forms and precedents “any unequivocal declaration of intention addressed to someone who reasonably places reliance on it and made by...a solicitor in the course of his practice, either personally or by a member of his staff under which the solicitor becomes personally bound”

Ingredients:

·         Unequivocal declaration of intention by an advocate

·         Addressed to someone

·         Places reliance on it

·         Made personally by an advocate in the course of practice or as an advocate or by a member of staff

It is simply a promise made by a solicitor or on his behalf by a member of his staff to do or refrain from doing something. It is one of the ways of completing a sale transaction.

WHY?

Given by lawyers to smoothen and hasten the process of transactions. They create bridges without which a transaction may never be completed banks would not release funds without registration of transfer or mortgage. The Vendor on the other hand faces the risk of losing his property to a purchaser who may fail to release the purchase price after registration.

INSTANCES

·         Vendor’s Advocates undertaking not to release the purchase price to Vendor pending actual registration of the Transfer.

·         Purchaser’s Advocate undertaking to hold completion documents to Vendor’s order pending payment of the purchase price.

·         Mortgagee’s Advocate undertaking to pay the loan proceeds upon registration of the Charge plus/or transfer simultaneously.

·         Mortgagor’s Advocate undertaking to pay the redemption amounts upon registration of the discharge.

BRIDGING OF COMPETING INTERESTS

PUs involve arrangements for settlement such as

·         Payment of purchase monies

·         Loan funds

·         Discharge of obligations

·         Accounting to the other party for documents in return

An undertaking by an advocate is subject to supervision by the Court, the breach of which amounts to professional misconduct which is enforceable in Court for breach of contract. Professional Undertakings are based on mutual trust. The concept of implied undertakings as known in common law also applies e.g. to return documents held should registration fail. Care should be taken in responding to requisitions such that sufficient particulars of the specific charges or mortgages the subject of a PU should be given e.g. avoid statements like “an undertaking will be given as to how outstanding mortgages will be dealt with”- what if some mortgage not the identified before emerges after a search?

PUs ought to be given to professionals not to laymen. They ought to be in writing although no law bars oral undertakings. The giver and recipient don’t have to be in an advocate/client relationship (See Bridge up Containers Services vs. GichanaBw’omwando t/a GichanaBw’omwando& Co. Advocates, Misc. Civ. App. 386 of 2006).

Law Society of Kenya “Digest of Professional Conduct and Etiquette” provides that an undertaking shall be in a form which is clear and once accepted by an Advocate shall bind him or his firm to the undertaking and any breach thereof shall constitute professional misconduct”

Naphtali Radier vs. D Njogu & Co. Advs - An advocate is obliged by law as an officer of the Court to honour his professional undertaking. Failure to honour= professional misconduct. In the UK- Advocates cannot give uninsured undertakings. In Kenya advocates are faced with the dilemma of losing a client (e.g. banks) or issue a non funded PU.

IS IT A CONTRACT?

It places both a legal and ethical obligation on the giver. In Peter Ng’ang’aMuiruri vs. Credit Bank & Charles Nyachae  t/a Nyachae& Co. Advocates  (Civil Appeal No. 263 of 1998-Court of Appeal Nairobi)- the Court held that an undertaking is a solemn thing, in enforcing it the Court is not guided by considerations of contract but the Court aims at securing the honesty of its officers.

An undertaking must be clear, unambiguous and certain and without conditions precedents

•       see Kenya Re V MugukuMuriu t/a MugukuMuriu& Co. Advocates (Civil Appeal No. 48 of 1994)

•       See Kimaru J’s ruling in Pyrethrum Processing Co. Ltd vs. Rogers Shako Adv. HCC 148 of 2004- an undertaking is a form of trusteeship

•       See Onyancha J’s ruling in David Muema vs. Victor Mulee (eKLR 2007)- undertakings should be looked at from an ethical point of view

•       See DK Thou & Co. Advs vs. NjagiWaweru& Co. Adv. HCC No. 209 of 2008- Justice Njagi refused the Advocates’ arguments that he was entitled to a lien over the funds.

TYPES

•       The granting advocate is able to personally fulfil the stated obligations e.g. “...to hold the documents to your order returnable on demand.....”

•       The granting advocate’s promise can only be fulfilled by the lawyer’s client (see the case of HaritSheth t/a HaritSheth Advocates vs. K.H.Osmond t/a Osmond Advocates Civil Appeal No. 276 of 2001 CA NBI)

ENFORCEMENT OF PUS

Once it is determined that an undertaking exists and the same has been breached the recipient has the following options jointly and severally;

•       Co-operation with the undertaking party e.g. extending time

•       Demanding compliance in writing

•       Seeking enforceability through Court action –O 52 of CPR through an Originating Summons

•       Reporting the matter to LSK for disciplinary action

•       Undertakings can be enforced even if one is not the recipient-KCB V Mohammed MuigaiAdv (HCC757 of 2003)

Thirteen principles, which are generally applicable to all undertakings, are set out below. It is hoped that the principles as presented are clear and informative.

PRINCIPLES

1. An undertaking is any unequivocal declaration of intention addressed to someone who reasonably places reliance on it and made by a Advocate in the course of his practice, either personally or by a member of the Advocate’s staff whereby the Advocate (or in the case a member of his staff, his employer) becomes personally bound.

1.1. There is no obligation on an Advocate either to give or accept an undertaking, nor can an Advocate be required to stand guarantor for a client by way of an undertaking.

1.2. The Society does not recommend the giving or accepting of oral undertakings. Oral undertakings can lead to uncertainty as to the nature and extent of the undertaking. Evidential problems may arise. When oral undertakings are given, the lack of formality detracts from the gravity which should be attendant on the giving of any undertaking.  The Society recognizes that an oral undertaking given by one person to another may be enforceable at law, but the Society will not render assistance to a party seeking to enforce that undertaking as a matter of conduct.

1.3. Undertakings can be given even to lay persons. (See KCB Limited vs. Adala 1983 KLR 467)

2. Failure by an Advocate to honour the terms of a professional undertaking is a prima facie evidence of professional misconduct.  Consequently, the Society will require its implementation as a matter of conduct.

         2.1The Society has no power to order payment of compensation or to procure the specified performance of an undertaking if an Advocate declines to implement it. The Society will proceed by way of disciplinary action for failure to honour the undertaking.

         2.2.The Society will require an undertaking to be honoured by Advocates for so long as their names remain on the roll and regardless of whether they hold current practicing certificates or not.

         2.3. The Society has no power to order the release of an Advocate from the terms of an undertaking.  This is a matter for the court, or the person entitled to the benefit of the undertaking.

3. An undertaking will normally be required to be honoured only as between the giver and the recipient.

3.1The Society will normally require compliance with an undertaking only at the instance of a recipient.

3.2. An Advocate cannot assign the burden of an undertaking (and thus claim to be released from its terms) without the express approval of the recipient. ROA Otieno Vs AGN Kamau & Co 134/03

3.3. The court will however not hesitate to enforce an undertaking on an application by the recipient’s client.  See:  NaphtallyRadier vs. David Njogu t/a D. Njogu & Co. Advocates HCCC No. 582 of 2003 (Nrb), Kenya Commercial Bank Limited vs. Mohammed Muigai Advocates HCCC No. 757 of 2003 where the court held that undertakings are not just given at the behest of clients but the recipient’s client takes the benefit of the same and can enforce the same.

4. An ambiguous undertaking is generally construed in favour of the recipient.

         4.1. Wording of the undertaking is very important.  It has to be clear.

         4.2. In interpreting an undertaking the court will not invite extraneous evidence or terms implied.

5. An undertaking does not have to constitute a legal contract to be enforceable in conduct.

         5.1. No consideration is necessary for an undertaking to be enforceable in conduct.

6. An undertaking is still binding even if it is to do something outside the Advocate’s control.     

6.1. Before giving an undertaking an Advocate must carefully consider whether it will be possible to implement it.  It is no defence to a complaint of professional misconduct that the undertaking was to do something outside the Advocate’s control

7. An Advocate is responsible for honouring an undertaking given by a member of the Advocate’s staff, whether admitted to the Roll of Advocates or not.

         7.1. Where an assistant gives an undertaking, the conduct of the assistant may also be called into question by the Society.

8. Where an Advocate in partnership gives an undertaking as an Advocate in the course of practice, all partners are responsible for its performance.

            8.1. A partner remains responsible for the firm’s undertakings even after that Advocate leaves the firm or the partnership is dissolved.

9. An Advocate cannot avoid liability on an undertaking by pleading that to honour it would be a breach of duty owed to the client.

9.1.        Since an Advocate will be personally bound to honour his undertakings, it is essential for the Advocate’s protection that the client’s authority to do so is given before the undertaking is furnished. See the case of Kenya Reinsurance Corp. –vs- V. E. Muguku& Co. Advocates (1995-98) 1 EA 107.

10. An Advocate who gives an undertaking which is expressed to be dependent upon the happening of a future event must notify the recipient immediately if it becomes clear that the event will not occur.

11. In addition to the Society’s power to enforce undertakings as a matter of conduct, the court, by virtue of its inherent jurisdiction over its own officers, has power of enforcement in respect of undertakings.

11.1Where undertakings are given by Advocates to court, the Society takes the view that enforcement is a matter for the court; for this reason the Society will not normally intervene.

12. An undertaking should not be given by an Advocate as an inducement to a client to secure that client’s business.

13.The seeking by an Advocate of an  undertaking from another Advocate which the first Advocate knows, or ought to know, should not be given, may be deemed to be professional misconduct.

13.01 Self explanatory.

13.02 Illegal undertakings intended for example to perpetrate a fraud should not be sought or given.

ADDITIONAL NOTES

What is a completion notice?

The vendor has to ensure registration of the documents of conveyancing (even though the prime obligation rests upon the purchaser) because it is only after registration that he can get paid. Therefore he must follow the process through to ensure he is paid on time.

N.B ‘Completion’ doesn’t include/involve registration

What are land rates? What law empowers the municipal authority to charge land rates?

·         Local Government Act

·         Rating Act

·         Land rent-payable to the Government

·         Land Rates-payable to Municipal Authority

What is apportionment? This is the process of apportioning the rates and rent payable in case property is sold midway through a particular year. So for example if rent charges or rate charges were Kshs 1000 for every year, then if the property is sold midway through that year then rent/ rates due will be Kshs 600. This is the process referred to as apportionment.

Interest chargeable on late payments accrues from the date of completion. Such interest should not be punitive i.e. it should not be higher than the interest recommended by the Central Bank of Kenya as the base lending rate.

Exam Focus: List 5 or 6 Completion documents. These should be prioritized in the following order

Original Title Documents

Clearance Certificates-These should also include:  demand notes from the local municipal authority for payment of land rates, bank cheques showing that you have actually paid monies due, receipts evidencing payment of rates/rent.

Consents

Transfer Documents (In Triplicate)

Requisitions are enquiries raised by the purchaser after a Search.

Exam Focus: List down and explain 3 conditions found in a contract of sale agreement.

DEPOSITS

It is usual for a contract to provide for the payment of a deposit by the Purchaser upon or before execution of a contract.  A deposit is part of the agreed purchase price.  There is however no common law provision entitling the Vendor to demand or require the Purchaser to pay a deposit. Indeed Section 55 of the ITPA provides for the purchase amount to be delivered on completion. Therefore a special condition to this effect must be inserted in the contract.  This customary requirement has however seen the Law Society of Kenya Conditions of Sale provide expressly for the same at Condition 3, effectively meaning that even if not expressly provided for as a special condition it will be implied unless expressly excluded.  The Law Society of Kenya Conditions at the interpretation part has also adopted the customary “10% of the purchase price”.  Thus a “deposit” is defined as:

“ten (10) per centum of the purchase money excluding the price of movables, livestock, chattels, fittings and other separate items  Law Society Conditions of Sale.”

It is thus basically implied in each contract in Kenya.  You can however contract out of it by way of a special condition and this is often done especially where the Purchaser is being fully financed.

The amount of deposit (i.e. the customary 10%) can also be varied but care is to be taken not to accept anything less once the variation is effected.  Thus if you agree on 20%, as the Vendor’s Advocate you should not take 10% otherwise liability for any losses on your client may befall you.

Payment is ordinarily made to the Vendor’s Advocate or to the Estate Agent who introduced the Purchaser.  The Law Society of Kenya Conditions require payment to be made by bankers draft but it is now perfectly acceptable to take a client account cheque and it is to be banked in the client account too.  From client account to client account.   Where the deposit amount exceeds Kshs. 1,000,000/= payment is to be effected by way of electronic transfer or RTGS. Often this payment has been varied to be made to the Vendor and this may be pretty risky.  There is need to provide very carefully in such situations; like in estate covenyancing or sales by developers.

None payment means that the contract if already signed is repudiated upon notice.  It is however always paid before the Vendor signs the contract and care needs to be taken to ensure that the cheque is cleared upon presentment.

NATURE

A deposit is security for completion.  It is an earnest to bind the bargain and the fear of its forfeiture creates a motive on the part of the Purchaser to complete.  The Purchaser will not capriciously change his mind.  It sort of guarantees performance. It thus helps in assuring all that its forfeiture in the event of a default is not a penalty but rather an agreed loss.

Non-payment of a deposit as agreed means there is fundamental breach of the contract on the part of the Purchaser and the Vendor is entitled to rescind the contract.  Under the Law Society of Kenya Condition 3

rescission will only take place after notice to the Purchaser. A deposit also counts as part of the purchase price on completion. The Purchaser’s advocate is at completion expected to formally authorize the release of the deposit to the Vendor. Deposits also help create the symbiotic relationship between the Purchaser and the Vendor. It helps to entitle the Purchaser to a lien enforceable by the courts over the property.

CAPACITY OF HOLDER

Under the general conditions (LSK Cond. 3), the holder of the deposit whether Estate Agent or Advocate always holds the same as a stakeholder.   The agreement can however provide that you hold as agent for the Vendor.As an Agent, you hold the money to the order of the Vendor whether you are acting for the Purchaser or the Vendor himself and the Vendor in such a case has a proprietary interest in the funds.  Upon his demand you have to release to him unless the agreement specifies otherwise.  In such cases the funds may be utilized to his benefit i.e. clear outgoings without necessarily asking for provision.

A Stakeholder holds the deposit to the order of both parties.  He holds the same in trust to ultimately deal with it in different ways in different contingencies.  Pay to the Vendor if the sale is completed.  Pay to the Vendor if the Purchaser defaults. Return to the Purchaser if the Vendor defaults.  Safety is the Stakeholder’s responsibility.  You mishandle the same you pay it.  You deposit it in a “collapsing” bank you pay.  Deposit it in a client account unless urged to do otherwise by the parties.   As neither the Purchaser nor the Vendor has any proprietary claim any interest earned can actually be kept by the Stakeholder (as reward for holding the stake?)  Unless the contract states otherwise.As a stakeholder if the Purchaser consents you may use it as another “earnest” for the purchase of another property.  In the event of insolvency of holder various difficulties may arise.  Who bears the loss?  The Vendor or the Purchaser?  It there is a binding contract the Vendor bears the loss as he “who nominates the principal accepts the risk”.  If it is insolvency of the Vendor, the Stakeholder must refund the Purchaser.  If there is insolvency of the vendor and the deposit is held by an Agent then the Purchaser loses out as the money was, strictly speaking, the Vendor’s.

 

FORFEITURE

If the Purchaser is in breach of the contract and is unable to complete the contract, the deposit is forfeited to the Vendor even if held by a Stakeholder.  The Vendor is also discharged from the contract.  The Vendor may however opt for specific performance in which case the deposit will still count as part of the purchase price, although the Vendor will ask for damages too. Forfeiture however does not apply where the purchase price is paid rather by way of installments and there is no deposit (especially in estate conveyancing) but you may however provide for part forfeiture.Courts will ordinarily not intervene unless the deposit was more than the customary 10%.

IMPORTANCE OF DEPOSITS

1.       Deposit acts a security for completion, fear of forfeiture makes the purchaser complete

2.       Reduces the purchaser’s burden of paying the full purchase price at a go. It is part of purchase price and the purchaser’s advocate is expected to authorize its release to the vendor on completion.

3.       Gives the purchaser the right over a lien on the property enforceable in Court.

4.       Creates a symbiotic relationship with the vendor

HOW IS DEPOSIT HELD?

•       Under condition 3- it is held by advocate or estate agent as stakeholder or as agent

•       As stakeholder-held in trust to the order of both parties. The ultimate goal is to have it released to the vendor upon completion r when forfeited in case of breach by purchaser, return to the purchaser if the vendor defaults

•       As agent the money is held to the order of the vendor, to be released upon his demand, the funds are used to the vendor’s benefit to clear outgoings etc.

•       Care must be taken in handling client’s money- consider which bank to deposit it in. It is deposited in the client account unless agreement states otherwise.

•       Since both parties have no proprietary right over the deposit held as stakeholder, the interest earned can be for the stakeholder

[Reflection: what reforms would you propose to the issue of Deposits in sale transactions if any?]

LAND REGISTRATION ACT

Definitions S 2

o   Dealing-disposition & transmission

o   Legal incapacity- unsound mind or under 18 years

o   Disposition-sale, charge, transfer, grant, partition, exchange etc. It also means the agreement to undertake the disposition

o   Transfer-the passing of land from one party to another and not by operation of law. It also means the instrument by which such passing is effected

o   S34 Searches- one can obtain official search and certified copies of any document

o   S36(a)- allows contracts by correspondence, compare this with S38 of Land Act(contracts have to be in writing, signed by all parties and signature witnessed). Is there a contradiction?

o   S36(b)- allows for LSK Conditions of Sale

o   S38(1) no registration without a statement that rates for the last 12 months have been paid if property is within a rating authority

o   S39 (1)-no registration without payment of rent.

o   S39(2)- No registration without consents

o   S42- No part transfers. One has to subdivide first

o   S43- every instrument has to be in the prescribed form and be registered, this excludes contracts

o   S44-execution of instruments- by all parties, if by a body corporate, association of co-operative society it should be executed in the presence of an advocate, magistrate, notary public or judge. Also provides for execution of documents outside the country.

o   S45-Verification and attestation

o   S46-stamping

o   S47 & 48- capacity- minors(registration through a guardian) Agents(through power of attorney) and persons with disability(through guardians)

---

6Civ.  App. No.55/93

[1] Section 3 of Law of Contract Act Cap 23 Laws of  Kenya

[2]Moriaty, 1984 LQR 376) (Ojienda,2008)

[3] (see Tulk –v-s Moxhay [1843-60] All E. R 9)

[4] Section 27 of the RDA cap 285, the day upon which a document is presented for registration shall be deemed to be the date of registration.

[5] Section  18 provides(1) After the expiration of six months from the commencement of this Act or such further period as the Minister may, by notice in the Gazette, allow either generally or in respect of any particular person or class of persons—

(a) no individual shall practice as an estate agent unless he is a registered estate agent;

(b) no partnership shall practice as estate agents unless all the partners whose activities include the doing of acts by way of such practice are registered estate agents;

(c) No body corporate shall practice as an estate agent unless all the directors thereof whose duties include the doing of acts by way of such practice are registered estate agents.

(2) Any person who contravenes subsection (1) shall be guilty of an offence and liable to a fine not exceeding twenty thousand shillings or to imprisonment for a term not exceeding two years or to both.

[6] Ibid

[7] Civil Case No. 116 of 2002 (High Court at Nakuru, Kimaru J)

[8] Section 46 of LRA

[9] Civil Appeal No. 133 of 1987 at Nyeri