The Basics Of Buying And Selling Land Part 2
What is the legal procedure for buying or selling land?
Once you have done sufficient research and decided on the piece of land you intend to buy, the first step is to verify its ownership. This is usually done through an official search at the land’s registry where the land is located. In order to do a search one needs a copy of the title deed, a copy of the ID as well as a KRA PIN. Barring any complications, a normal search at the registry takes up to two days and it verifies the registered land owner, the size and acreage of the land and any encumbrances (which in simple terms means a claim over the land by a third party, such as a bank). When buying land ensure any encumbrances or debts the seller may have involving the land are paid or a mode of payment is agreed upon by the parties like deducting it from the purchase price.
Once the search has been conducted, you need to ensure that all the land rates have been paid which can also been done at the registry, or, for some properties, at the municipal offices. This is because, unlike previously when it was not possible, land can now be transferred when land rates have not been paid. As a purchaser you would not want to purchase a property whose rates become your liability. At best, you can seek their payment from the purchase price.
Next, it is important to do a land verification exercise which involves acquiring the Registry Index Map (“RIM”) of the area. With the RIM the buyer should hire a surveyor to visit the land and confirm the boundaries, and erect beacons where any are missing — this should also be at the cost of the seller. This also helps to verify that nobody has encroached on the property before you purchase it. If you are not familiar with the market price, one may hire a valuer to estimate the value of the land to ensure that the purchase price is within the market value and you are not buying land way above market value. Once all these preparations are complete then it is time to draft an agreement for sale which is usually done by the advocate representing the seller. While it is not advisable to have one advocate represent both parties, some exceptions may apply to allow parties to utilise the same advocate, for instance, availability of ready titles and payment of the balance at the end of the transaction.
The sale agreement is basically a contract that determines the duties and responsibilities of the buyer and seller towards each other. A good sale agreement should have provisions on ways to resolve conflict if any, payment of the purchase price or deposit, failure to pay the balance, how to rescind or in simple terms revoke the agreement for sale and other factors. This document ensures that both parties are protected should an issue arise. It is important to know that land agreements must be done in writing so always ensure before purchasing land that there is an agreement which is signed by both the buyer and seller and witnessed by the advocate. [Later on, we will address the difference between commissioning and notarising documents]
According to the Law Society Conditions of Sale (which can be varied in a sale agreement), a buyer is expected to pay a 10% deposit on the purchase price and is expected to pay the balance within 90 days. The purchaser should ensure the existence of an original title document. It is common practice (especially with high value land transactions) for the deposit to be handed to the seller’s advocate to hold as stakeholder, while the original documents are given to the buyer’s advocate to verify their authenticity. Professional undertakings may then be issued by the respective advocates i.e. by the seller’s advocate, not to release the funds to the seller before successful registration of title in favour of the purchaser; or, by the buyer’s advocate (if holding the funds), to release the funds upon receipt of all the original documents.
An important document to be obtained by the seller or their advocate, is the Letter of Consent from the Land Control Board. This shows that the area Land Control Board has considered and ideally seen the seller prior to transfer of the property. The seller ideally covers the cost of obtaining the consent of the Land Control Board unless the parties agree otherwise
Once completion documents have been given to the buyer’s advocate, the buyer’s advocate engages in the process of valuation of the property for purposes of stamp duty. Stamp duty is presently provided at 2% of the value of the land in rural/agricultural areas and 4% in urban areas. Valuation is conducted by the Government Valuer.
Upon payment of stamp duty, the buyer’s advocate then files the transfer forms at the land registry together with all the completion documents for the registry to effect registration of title in the name of the buyer.
A vital step most buyers fail to do after receiving the title deed is doing a second search at the registry. We recommend this search is done just to ensure that the documents on the back end (at the registry) have been updated to show the buyer as the new owner.
Feel free to reach out to us; whether as the buyer or seller!!