[SIZE=7]New bid to save flat owners from rogue land developers[/SIZE]
[li]Macharia Kamau 27th Feb 2020 13:35:00 GMT +0300[/li][/ul]
Apartment owners will now hold individual title deeds under a radical new plan proposed by the government.
The Sectional Properties Bill of 2019, which is currently before Parliament and championed by Lands and Physical Planning, seeks to address the legal loopholes that have exposed flat owners to unscrupulous property developers.
The Bill, which would repeal the Sectional Properties Act of 1987, aims to give the owner of an apartment more power than what is currently vested in management companies. If it goes through as it is currently proposed, apartment owners will have an absolute right to the property.
Currently, apartment owners do not own the land underneath their units, and hold no title to show ownership of their houses.
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They, however, own a share of the management company, which in turn owns the land. However, Kenya’s real estate market has been plagued by reports of some property developers using the mother title to take bank loans. In the case of default, the banks then come after the apartments.
Lands Cabinet Secretary Farida Karoney declined to go into details about the extent of risks that apartment owners grapple with, but said the Bill would deal with such cases.
Many relatively new homeowners buying up the numerous apartments sprouting up across the country’s landscape are not aware that unless the properties’ mother title is locked to ensure it cannot be used in a transaction without the consensus of all the owners, they are exposed to a number of risks that could quickly turn their investments into nothing but ‘air space’.
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This is a reality that John, who did not want his full name used for fear of reprisal, has been forced to confront. He invested in a house along Mombasa Road’s Athi River area in late 2012, and began paying for it off-plan.
“The off-plan pricing was Sh2.5 million to Sh2.9 million for a two-bedroom unit, depending on the floor. The units higher up were cheaper than the ones on the ground floor,” he said.
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And it was a bargain as upon the apartments’ completion in 2015, the developer sold each unit at Sh3.47 million.
“Back then, the area was not as built up as it is today. The completed houses largely lived up to their marketing hype – the lawns may not have been as well manicured as the impression we were given, but the houses were adequate,” John said.
The risks of buying off-plan in Kenya are well documented, but John says he was friends with the developer’s lawyer, which he thought added a layer of trust.
“I sank my life savings into the development. I paid cash – though a portion of this came from a bank loan. There were a couple of home owners who bought their units through the project financier, which was a local bank,” he said.
A year after John moved in, however, the heavy traffic between his house’s Athi River location and his Nairobi town office proved too taxing, so he decided to move back to the city and rent out his house.
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But then mid-2019, his dream fell apart.
“Around June last year, my tenant sent a photo showing my house was being auctioned,” John said.
This came as a shock to him as he had not attached the house to any loans, not even the unsecured one he had taken to top up the cost of his house, and which he had since cleared paying.
He would later learn that the developer of the property he had invested in had used its mother title to take out a loan.
The developer had been crafty and instead of transferring the title deed to the management company owned and run by the people who had acquired housing units at the estate, he had not only retained it but also used it as security for a loan.
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The developer then defaulted on repayments and the bank was coming for its pound of flesh, a move that promises to leave the more than 200 apartment owners bleeding. By the time auctioneers were moving in on behalf of the bank, the developer owed it more than Sh400 million.
The estate, which is now in the middle of a court battle, is valued at about Sh2 billion.
“We don’t understand why we are being affected. The deal between the developer and the bank is between them – they should not be dragging us in. We paid for our houses, even though we don’t have the sub-leases,” John said.
He is not alone. There are hundreds more like him who are convinced they have bought an apartment, but legal technicalities show otherwise.
Jaqueline Wangui, a partner in the commercial and property division at law firm MMC ASAFO, said before buying an apartment from a developer whose project has been financed by a bank, the customer should talk to the property’s financiers to ensure that they are baggage-free.
“It is mandatory for the buyer to seek the consent of the developer’s financier prior to execution of a sales agreement,” she said, adding that the financier reserves the right to any money earned from the sale of any houses in case of default.
It would also be advisable to undertake a search on the mother title at the Lands Registry to prevent against heartaches.
This helps establish the particulars of the registered owner of the property and whether it has issues that might include arrears, such as land rates as well as other legal restrictions, said Ms Wangui.
“For a purchaser, this means that they must undertake comprehensive due diligence on both the seller and the mother title where the apartment is constructed. This should be done twice; before any contractual formalities and at the completion of registration formalities.”
Legally, there is still a long way to go to fix the problems that apartment owners face, while the saga around apartment ownership gets more complicated for buyers under a shared ownership programme.
The good news is that the solutions to such scandals have held the attention of regulators and the Lands ministry, which could save the billions of shilling belonging to homeowners.
The Sectional Properties Bill proposes closure of the mother title and instead issuance of individual titles to apartment owners which, according to lawyer Polycarp Moriasi, will protect buyers from property developers “who hold on to ownership arbitrarily even after selling off the units to end purchasers”.
“The Bill also provides for the closure of the mother title or head lease to prevent mischief by property developers. Closure of the mother title means each unit holder will have their own title not dependent on the mother lease. The management companies will also now have less control in terms of renewal of the leases,” he said.
“This will have the effect of vesting absolute rights on the individual unit owners as they can then deal with the property only in such a manner as they wish to, as opposed to being at the mercy of developers.”