1.     Introduction
Kenya’s Sectional Properties Act (the “Act”) commenced operation on 28th December, 2020 and its enactment was necessitated by the emerging market needs such as the growing demand for affordable housing, mixed use developments and master planned projects.

The main purpose of the Act is to provide for division of buildings into units to be owned by individual proprietors and common property to be owned by proprietors of the units as tenants in common. This is in-line with the provisions of the relatively new land laws[1] that deal with all matters relating to land and registration of interests in land.

The Act was also by design intended to address three key concerns by the general public: the first was to ensure that each person is able to obtain a title that is completely delinked from the developer thus protecting purchasers and streamlining administration of governmental rates and rent. Secondly, it was to make it impossible for developers to change the common areas and convert them into revenue streams for their personal benefit to the detriment of the end user purchasers. Thirdly it was to prevent developers from changing the size and location of the unit agreed upon after the sale.

2.     Analysis of the key provisions of the Act
The Act provides for division of buildings into units and is to the effect that an existing structure may be designated a building containing a unit or part of a unit or divided into two or more units. This will be achieved by registration of sectional plans prepared by surveyors from building plans approved by the county government. The import of this is that if an owner of a building elects to divide the building into units, he will then be required to prepare a sectional plan before selling the units. Developers will no longer be able to use architectural floor plans to process titles for the units.

Upon registration of the sectional plan, the land registrar is required to close the register of the parcel described in the sectional plan and open a register of each unit described in the sectional plan. The registrar is further required to issue in respect of each unit, a certificate of title or a certificate lease depending on the tenure of the property and include the unit’s proportionate share in the common areas.

This is a good move since the purchaser’s share in the common property shall be set out in the title document unlike in the previous regimes where unit owners only owned common property by way of shareholding in the management company.

Every plan presented for registration under the Act is required to:

• be described in the heading of the plan as a sectional plan;
• be geo-referenced;
• bear a statement containing those particulars as may be necessary to identify the title to the parcel;
• include a drawing illustrating the units and distinguishing the units by numbers or other symbols;
• show the approximate floor area of each unit;
• have endorsed on it a schedule specifying in whole numbers the unit factor for each unit in the parcel;
• be signed by the proprietor;
• be signed and sealed by the office or authority responsible for survey;
• have endorsed on it the address at which documents may be served on the Corporation concerned in accordance with section 54 of the Act;
• clearly indicate the user of the unit; and
• contain any other particulars prescribed in the regulations.

Additionally, every plan presented for registration as a sectional plan is required to be endorsed by a surveyor stating that the structure shown on the plan is within the external surface boundaries of the parcel which is the subject of the plan as well as a certificate from the county government stating that the proposed division of the structure as illustrated on the plan has been approved by the county government. This prevents the sale of non-existent units by ensuring that the developer has progressed with construction before offering units for sale.

Approval by the county government will serve to protect developers by ensuring surveyors prepare quality sectional plans and protect purchasers by ensuring that the developers construct the units in accordance with the approved plans.

A sectional plan presented for registration is to be accompanied by an application for registration of the corporation (the “Corporation”) established to manage the common property together with a list of the persons who are the owners of the units.

On registration of a sectional plan, a Corporation is established under the name “The Owners, Sectional Plan No. and the registrar issues a certificate of registration of the Corporation.

The Corporation is to be regulated in accordance with the Act and the bylaws specified in the regulations.

In as much as the Act reserves the Corporation’s power to make its by-laws, it also contains comprehensive provisions on how the Corporation is to be run. In this regard, the Corporation may opt to adhere to the provisions of the Act or adopt the by-laws made under the Regulations without having to make its own by laws.

The Act further provides a list of the documents to be provided to the purchaser by the developer before selling a unit. These documents include:

• the purchase agreement;
• the by-laws or proposed by-laws;
• the management agreement or proposed management agreement, if any;
• the recreational agreement or proposed recreational agreement, if any;
• the lease or title of the parcel on which the unit is located or the certificate of title or the certificate of lease in respect of the unit;
• any charge that affects or proposed charge that will affect the title to the unit or proposed unit; and
• the sectional plan or proposed sectional plan.

The requirement for the developer to supply the above documents goes a long way in assisting the purchaser to undertake comprehensive due diligence on the unit.

3.      Regulations to give effect to the Act

Section 59 of the Act empowers the Cabinet Secretary in charge of the Ministry of Lands and Physical Planning to make regulations in respect of inter alia forms to be used for purposes of the Act, the manner of registering sectional plans and the fees to be paid for any procedure or function required or permitted to be done under the Act.

Pursuant to the above provision, the Cabinet Secretary for Lands and Physical Planning gazetted the Sectional Properties Regulations of 2021 (the “Regulations”).[2] The Regulations contain the standard forms applicable in the registration of Sectional Property, conversion to sectional units and winding-up of management companies among others.

4.     Impact of the Act on Registration of Long-Term Leases

The Act provides that all long-term sub-leases intended to confer ownership of an apartment, flat, maisonette, townhouse or an office that were registered before commencement of the Act shall be reviewed to conform to section 54(5) of the Land Registration Act within two (2) years from the date of commencement of the Act.

The Land Registration Act[3] as read with Land Registration (General) Regulations, 2017[4] require every long-term lease presented for registration to be accompanied with among others a sectional plan.

Pursuant to the above provisions, the Cabinet Secretary issued a public notice[5] to the effect that Registrars will no longer register long-term leases unless they are accompanied with sectional plans.

Regulation 18 of the Regulations provides that pursuant to section 13(2) of the Act, all long-term leases shall be converted[6] to sectional units in accordance with the Regulations. Long-term leases to be converted to sectional titles include where:

a.     all the units have been transferred to the respective owners and the reversionary interest has been transferred to the management company to hold in trust for the owners; or

b.     all the units have been transferred to the respective owners and the reversionary interest is by written agreement intended to be transferred to the management company to hold in trust for the owners; or

c.     part of the units have been transferred to the respective owners and the reversionary interest is by written agreement intended to be transferred to the management company to hold in trust for the owners.

Therefore, where all or part of the units have been transferred to the respective owners and they meet either of the criteria above, long-term leases will have to be converted to sectional titles.

Regulation 22 of the Regulations however provides for categories of long-term leases that are exempt from conversion. These include long term leases:

a.     which it is expressly provided by the agreement that reversionary interest belongs to the developer or management company as legal owner and not as a trustee;

b.     large mixed-use developments and phased developments where it is by agreement provided that reversion shall be retained by the developer or to be otherwise held by a management company; or

c.     projects of strategic national importance, substantial transactions, and special economic zones, which by their nature, renders it impractical to relinquish reversionary interest.

5.     Conclusion

The Act is progressive and once fully operational it will simplify the process of registering sectional properties thus creating a conducive environment for investors and property dealers.

Authors:

Jessica Mwenje, Partner and Head of the Real Estate Department, MMC Asafo

Henry Omukubi, Associate, MMC Asafo

Jessica Opiyo, Associate, MMC Asafo

[1] The Land Act, No. 6 of 2012 and Land Registration Act No. 3 of 2012
[2] This was vide Legal Notice 236 of 2021 issued on 26th November 2021.
[3] Section 54(5)
[4] Regulation 77
[5] The notice can be accessed through the link: https://lands.go.ke/wp-content/uploads/2021/05/Public-Notice-Sectional-Properties-7th-May-2021.pdf
[6] An application for conversion is to be made through Form SP 16 accompanied with the Sectional Plan; Sub-leases or long-term leases; original title of the land parcel; and the parcel title or a copy of the parcel title.