The Essential Guide to Real Estate Due Diligence in Kenya
In Kenya’s bustling real estate market, conducting due diligence is not just a preliminary step; it’s a crucial safeguard for all parties involved in land transactions. This process helps to ensure the legality, authenticity, and safety of property investments. Understanding the different aspects of due diligence across various types of land transactions—from off-plan projects to plots and apartments—is essential for anyone looking to navigate this complex landscape.
Why Real Estate Due Diligence in Kenya Is Critical
Due diligence in real estate transactions involves verifying several key elements that affect the integrity and legality of a property deal. This includes checking the legal title, confirming the property’s physical status, assessing compliance with zoning laws, and understanding any financial encumbrances that might be tied to the property.
Due Diligence for Off-Plan Projects
Investing in off-plan projects requires rigorous due diligence since buyers are purchasing based on plans and not an existing structure. Key steps include:
- Verifying Developer Credentials: Confirm the reputation and track record of the developer.
- Legal Approvals and Permits: Ensure the project has all necessary government approvals, including construction permits.
- Escrow Account Status: Confirm that the developer has an escrow account in place to safeguard buyers’ funds
Due Diligence for Apartments
Purchasing an apartment involves its unique set of challenges and checks:
- Property Inspection: Examine the structural integrity of the building and the quality of finishes.
- Homeowners Association (HOA) Regulations: Understand the management of the apartment complex and any associated fees or rules.
- Title Verification: Ensure the apartment title is clear and accurately reflects the property details.
Due Diligence for Leases
Leasing property, either commercial or residential, requires:
- Lease Agreement Review: Scrutinize the terms of the lease to understand obligations and restrictions.
- Land Use Verification: Confirm that the leased property is zoned appropriately for the intended use.
- Existing Liens or Encumbrances: Check for any existing financial claims that might impact the lease.
Due Diligence for Plots
Buying land or plots demands extensive due diligence to avoid common pitfalls such as fraud:
- Title Search: Conduct a thorough search at the land registry to verify ownership.
- Survey: Engage a surveyor to confirm the plot’s boundaries and ensure they match registry maps.
- Land Rates and Taxes: Check that all land rates and taxes have been paid up to date.
Legal Framework and Compliance
Kenya’s real estate is governed by laws such as the Land Registration Act, the Land Act, and the Physical Planning Act. These statutes outline the processes and legalities of land acquisition and ownership, including the rights and responsibilities of property owners. Compliance with these laws is not optional; it’s mandatory for the legality of any real estate transaction.
The Land Registration Act provides the specific regulations affecting land transactions and the necessary processes. In section 7, the land registry keeps a record of the cadastral map, georeferenced plans, and parcel files containing instruments and documents that support the entries and names of proprietors. This information is accessible upon payment of the prescribed fee.
Further, the land register is expected to have the following features;
- The property section
- The proprietary section
- The encumbrances section
- The user of the land
Section 34 of the LRA, provides that a person is entitled to receive particulars of the subsisting entries in the register, certified copies of any document, cadastral map, or plan upon payment of a prescribed fee.
The land registry plays a key role in the due diligence process. This is because interests appearing in the register have priority in the order in which the instruments led to their registration.
The Land Act provides for general regulations affecting land and land transactions. Contracts in the sale of land have to be in writing and signed by all the parties, therefore when conducting due diligence, parties have to ensure that the clauses provided in the contract are legal and protect their right as Vendor and/or purchaser.
The Physical and Land Use Planning Act (PLUPA), gives regulations on the general direction, and trends on physical and sectoral development in Kenya on the use and development of land. Section 56 provides that the County Government has the power to prohibit the use and development of land and buildings in the interest of proper and orderly development of its area. This is just one of the ways that the County Government can control land use and/or development.
Therefore when conducting due diligence, on off-plan development or buying plots, ensure that the permits and certificates for the development are acquired. The Certificate includes a Certificate of Compliance from the County Director of Physical Planning and an Occupation Certificate. The investor or purchaser can conduct a search and look at the plans provided and determine whether they align with their interest and the State’s interest.
Mitigating Risks Through Comprehensive Due Diligence
The purpose of due diligence is not just to comply with legal requirements but to also mitigate potential risks. Risks in real estate can range from financial losses due to undisclosed liens, to delays in project completion, or severe structural issues in a property. Effective due diligence helps prospective buyers or leasers to make informed decisions, negotiate better terms, or even withdraw from potentially detrimental deals.
Conclusion
The real estate market in Kenya offers vast opportunities but also comes with its complexities. Due diligence is the cornerstone of successful real estate transactions, providing a critical layer of protection against various risks. Whether you are a first-time homebuyer, a seasoned investor, or a commercial entity looking to lease, understanding and implementing thorough due diligence procedures is indispensable.
Secure Your Investment with CR Advocates LLP
Real estate investment in Kenya offers promising opportunities, but success hinges on meticulous due diligence and legal compliance. Partner with CR Advocates LLP to leverage our Kenyan real estate law expertise, ensuring your property transactions are secure, compliant, and strategically sound. Contact us today to safeguard your investments and capitalize on Kenya’s real estate market.
At CR Advocates LLP, we specialize in real estate law, providing expert guidance through the due diligence process to ensure that your investments are secure and compliant with Kenyan law. For more detailed assistance, visit our website at www.cradvocatesllp.com or contact us directly to schedule a consultation.
Secure your real estate investments by partnering with CR Advocates LLP, where your property’s legality and your investment’s security are our top priorities.
“The information provided in this article is intended for general legal advice and does not constitute legal advice for any specific transaction or case. Since each transaction presents a unique legal context, it is advisable to retain a legal adviser for specific transactions.”
To contact CR Advocates LLP, send us an email at info@cradvocatesllp.com or call +254 714887777 or Book a strategy call HERE or direct message us on WhatsApp at your convenience. Our legal team will be happy to help you.