Property due diligence when buying a Property in Kenya: What is essential?

Due diligence is a form of investigation to discover hidden issues of a property before buying it. With the recent change in Land regime laws in Kenya, due diligence has transformed and with it, essential steps have changed. Below are the current key steps: –

Conduct an Official Search at the Land Registry

The first and most crucial step is to conduct an official search at the Land Registry. This search will help you verify the ownership of the property and check for any encumbrances such as mortgages, caveats, or disputes.

Manual Search: Visit the nearest land registry with a copy of the title deed, the seller’s KRA PIN, and the seller’s national ID. Fill out the Land Search Form LRA 84, attach the title and any other necessary document, and submit the form. The results will typically be available within a few hours or days.
Online Search: Log in to the Ardhisasa portal, select the land search option, enter the title deed number and follow the steps.

Title Deed and Encumbrance Check

Verify Title Deed: Ensure the title deed is authentic and free from encumbrances, such as mortgages, disputes, or unpaid taxes. This can be done by obtaining a search report from the land registry
Caveats and Cautions: Check for registered caveats or cautions that may restrict dealings with the property. Investigate the reasons for these restrictions and ensure they are resolved before proceeding with the purchase

Verify the Seller’s Identity and Legal Standing

Ensure that the seller is the legitimate property owner with the legal capacity to sell it. This involves checking the seller’s identification documents and confirming their legal standing. If a company sells the property, it must maintain the legitimacy of the company, its shareholders, and directors. Conduct a search of the Company on E-citizen to ascertain its current Directors and Shareholders.

Conduct a Physical Inspection

A physical inspection of the property is necessary to verify its condition, boundaries, and any existing structures. Engage a licensed surveyor to confirm that the boundaries match those on official land maps and to check for any structural issues.

Verify Zoning and Land Use Regulations

Confirm that the property complies with zoning and land use regulations. This involves checking with the local county government to ensure that the property is zoned for the intended use and that there are no future restrictions or violations for the intended developments.

Review of the Sale Agreement and other documents.

Work with a qualified real estate Advocate to review all relevant legal documents, including contracts, agreements, permits, and licenses associated with the property.

Historical ownership and approvals/consent for transfer.

Apply for a copy of the green card from the respective land registry to understand the historical ownership of the property and other underlying encumbrances that the official search could not have highlighted. Also, seek Land Rates from the respective County Government and a Land Rent Clearance certificate from the Ministry of Lands. For Consent, ensure you get the spousal consent to sell the Land Control Board (LCB) consent for the agricultural land.

Execution of Sale Agreement

Once satisfied with the terms of the agreement, you can proceed to execute the sale agreement. The execution is the signing of the contract by the seller and the buyer in the presence of their witnesses. Once executed, the buyer proceeds to make a 10% security deposit of the purchase price in an escrow account to offer protection in case of any issues.

Completion and Transfer of Title

Once all due diligence steps are completed, you can proceed with the completion of the sale and the transfer of the title. This involves payment of stamp duty, which is 4% for lands in the municipal/urban areas and 2% for agricultural lands, depositing all the completion documents with the land registrar for the transfer of ownership to the buyer, issuance of a new title deed in favor of the buyer and finally completing the payment of the balance of the purchase price.

Conclusion

By meticulously following these steps, you can mitigate risks associated with property transactions in Kenya.

To navigate the due diligence process effectively, it is highly recommended that you engage professionals such as advocates, licensed surveyors and property valuers. Due diligence is a crucial step in any property purchase and every single step shared above is essential. It may require time, effort and resources, but it’s worth it to protect your investment.

For a more detailed guide, contact us at info@sirimara.co.ke