1 INTRODUCTION.

On 11th December 2020 President Uhuru Kenyatta signed the Sectional Properties Act, 2020 (SPA) into law repealing the Sectional Properties Act, 1987. This was done in conformity with the provisions of the Constitution of Kenya 2010, the Land Act No. 6 of 2012, the Land Registration Act No. 3 of 2012 and the National Land Commission Act No. 5 of 2012.

2 RATIONALE FOR THE ACT.

The SPA seeks to simplify the process of registering sectional properties in Kenya. It provides for, inter alia, the division of buildings into units to be owned by individual proprietors who will have individual titles for their respective units.

The SPA applies in respect of units developed or to be developed on land held on freehold title or on leasehold title where the unexpired residue of the term is not less than twenty-one (21) years and there is an intention to confer ownership.

2.1 Purpose of the Act:

Division of buildings with shared common areas into sectional units; and
Addresses the use and management of the units and common property/areas.

2.2 Scope of the Act:

The SPA applies to apartments, flats, maisonettes, townhouses or offices having the effect of conferring ownership, (as long as the intention is to confer ownership to another person/entity) provided that the property is properly geo-referenced and approved by the statutory body responsible for the survey of land.

A sectional unit is defined as a space that is situated within a building and described by reference to floors, walls and ceilings within buildings and the concept of sectional properties entails a sectional unit together with a distinct share of the common area.

3 OVERVIEW OF THE REGISTRATION AND CONVERSION PROCESS

3.1 Preparation and Registration of a Sectional Plan

The first step is the registration of a geo-referenced sectional plan. The sectional plan is prepared by a licensed surveyor from a building plan approved by a county government. The sectional plan must be signed by the surveyor and the owner of the property (or management company or financier in an instance of conversion and the developer is not interested in doing the conversion or has refused to provide the old title. The registrar can dispense with the submission of the same).

The sectional plan must be endorsed by the county government and authenticated by the authority responsible for survey. The sectional plan must clearly indicate the user of the unit. The lands registrar will not register a sectional plan unless the sectional plan describes two or more units in it.

The sectional plan must be accompanied by an application for registration of the corporation and a list of the owners of the units.

3.2 Registration of a Sectional Plan

During registration, the register/deed file relating to the main title is closed and the main title is surrendered to the lands registry. A separate register for every unit in the sectional plan is opened. A certificate of title (freehold) or a certificate of lease (leasehold) is issued for every unit at a fee. The certificate of title/lease for the unit includes a share in the common property apportioned to the owner of the unit. All the interests against the main title e.g. a charge, are endorsed on all the certificates of title issued in respect of the sectional units.

No more than one unit and no other land except the share in the common property apportioned to the owner of that unit, may be referred to in one registar.Notwithstanding any other written law, as soon as a sectional plan is registered under the SPA, the title to a unit comprised in the sectional plan, with effect from the date of the registration of the sectional plan, is deemed to be issued under the LRA.

After the register for a unit is opened, all dealings and dispositions regarding the unit shall be in accordance with the LRA.

3.3 Sale of Sectional Units

Developers will be required to deliver copies of the following documents to prospective buyers before the sale of any sectional units.

The sale agreement; the by laws for the development; the management agreement i.e in relation to the management of the common areas, the main title for the property or the sectional title for the unit if the same has already been issued; the charge if any; and the sectional plan or proposed sectional plan

These are mandatory requirements and non- compliance will attract a fine of KES 20M or imprisonment for one year.

3.4 Financed Developers

Where a charge is registered against the main title for purposes of securing financing for the sectional property, the developer must also deliver a notice to the prospective buyer containing the following information;

The charge; the maximum principal amount secured by the charge; the maximum monthly instalments payable; amortization period; term of the loan; rate of interest on the loan or the formula if any for determining the interest rate and any prepayment privileges, if any.

3.5 Conversion of Existing Long Term Leases

The SPA provides that the conversion of existing long term leases in respect of sectional units should be undertaken by the 28^th Dec 2022.

The conversion process can be initiated by the owner, management co or unit holder or chargee. There will be no stamp duty payable during the process i.e if the same had been done during the initial registration of the subleases.

If conversion is not undertaken by 28^th December, 2022, the registrar can register a restriction on the parcel to prevent any further dealings. However, non conversion by the said date does not invalidate/negate any security held by the chargee.

3.6 The Conversion Process

The process is effected by submitting a sectional plan accompanied by the registered long term lease, the original main title (if not available, an indemnity form should be filled) and the registrar will issue a gazette notice stating that conversion of the said parcel is underway.

The registrar will then proceed with the registration of the units and the unit holders will be issued with their certificates of title.

3.7 Registration and the Mandate of the Corporation

The corporations are a creation of the SPA and are not subject to the Companies Act, 2015. The corporation is automatically registered upon the registration of a sectional plan.

Section 17 of the SPA requires owners to register a corporation name as follows: “The Owners, Sectional Plan No. ______ (the number given to the sectional plan on registration). The registrar shall issue a certificate of registration of the corporation.

The corporation shall consist of all those persons who are owners of the units in the parcel to which the sectional plan relates and who are entitled to the parcel when the sectional arrangement is terminated under the SPA. The corporation cannot engage in any trading activities.

On registration, the by-laws prescribed in the regulation are deemed to be the corporations by laws. However, the same can be changed/improved but the changes can only take effect once the corporation has filed a copy of the changed by-laws with the registrar and the registrar has made a memorandum of the filing on the sectional plan.

Duties of the corporation are default imposed by Section 20 of the SPA. The corporation has a duty to form a dispute resolutions committee to deal with disputes within the unit holders and those between unit holders and the corporation. The corporation can register a caution on a unit holders title for non-payment of the service charge

The corporation will maintain accounts and file returns. It will also have perpetual succession and a common seal. The voting rights of the owner of the unit shall be determined by the unit factor for their unit.

3.8 Renting of Sectional Units

Before renting out a sectional unit, an owner of the sectional unit must provide the following;

A written notice to the corporation of the intention to rent out the unit and the details of the tenant; An undertaking to be liable for any damage caused to the unit by the tenant; A written notice that the unit is no longer rented out once the tenant vacates the unit.

If a tenant contravenes the developments by-laws and the owner of the unit fails to take necessary action, the corporation is entitled to give the tenant notice to vacate the unit and this is without the consent or need to consult the other unit holders.

4 TERMINATION OF SECTIONAL PROPERTIES

Section 47 of the SPA provides that the sectional status of a building may be terminated by either;

The unanimous resolution of the corporation;
Substantial or total damage to the building; or
Compulsory acquisition

The corporation is mandated to file a notice of termination with the registrar in the prescribed form to effect the termination. Once the sectional status of a building is terminated, the owners are entitled to the parcel of land on which the building is erected as tenants in common in shares proportional to their respective units.

Section 50 of the SPA further provides that the corporation shall automatically stand dissolved upon the termination of the sectional property.

5 OVERVIEW OF THE SECTIONAL PROPERTY REGULATIONS, 2021

Pursuant to Section 59 of the SPA, the Cabinet Secretary gazetted the SPA Regulations, and their objective is to operationalise the SPA by providing a framework and procedures for the registration of sectional plans, outlining the statutory forms to be used for the purposes of the SPA and giving guidance on the conversion of registered long term leases.

The regulations list the different parties involved in the registration and conversion processes and highlight the key roles these parties play in the processes.

The second schedule of the Regulations guides the operation of the corporation. Regulation 34 provides that sectional plans and prescribed forms may be submitted in electronic form.

6 PROPERTIES EXEMPT FROM THE SPA

Regulation 22 provides that long-term leases not falling within the categories set out in Regulation 18 are exempt from the requirement to convert to sectional units. Additionally, the following long-term leases are also exempt:

i) where it is expressly provided by agreement that reversionary interest belongs to the developer or lessor or management company as legal owner and not as trustee;
ii) 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

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

It is however, important to note the following;

the exemptions have not been included in the main sections of the SPA but only in the regulations;
neither the regulations nor the SPA has defined the term “mixed use development”; and