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The Basics Of Buying And Selling Land Part 3

Land transactions are very complex and usually involve large sums of money, therefore, it is necessary for buyers and sellers to be vigilant throughout the process.  Of paramount importance is exercising due diligence. This involves taking steps to verify the existence and true ownership of the subject land, its actual boundaries, its ownership history, its current market value, and the general status of the land.

Once a buyer and a seller have agreed to enter a land transaction and have exercised their due diligence, they proceed to enter into a Land Sale Agreement. Whilst parties may prepare the agreement themselves, it is advisable that they do so with the help of an Advocate, owing to the intricacies of the laws governing land transactions in Kenya. On that note, parties may choose to have a joint Advocate or have separate Advocates.  The Sale Agreement is the most important document of any land transaction especially in the event of a legal dispute. It is a legally binding contract enforceable in a Court of Law.

The Law provides that all land transactions must be in writing, must be signed by the parties to the contract and the signatures must be witnessed. .[1]  The purpose of these formalities is threefold; to avoid fraudulent dealings, to introduce an aspect of precision on the transaction and to create specific obligations between parties. A sale agreement is, basically, a contract between the buyer and the seller and it state the duties and responsibilities of both parties to one another, and has provisions on how to resolve a dispute in the event one arises, amongst others.

The agreement of sale must follow the requirements of the law of contract, however, there is no specific legal format for a sale agreement. In Kenya, we are usually guided by the Law Society of Kenya Conditions of Sale. A standard sale agreement should contain the following:

  • Details of the Buyer and the seller: – including names, postal addresses, phone numbers and National Identity card numbers
  • Particulars of the Sale: – Which includes the purchase price, the size and location of the land, the land registration number, any encumbrances as well as fixtures and boundaries.
  • Details of payment: – Including financing modalities (where a financier is involved) the agreed purchase price, the amount to be paid in deposit, the duration and mode of payment of the balance.
  • Completion details: – In legal terms, completion means the conclusion of the land transaction which is signified with the buyer paying the full purchase price and the seller providing the completion documents which include title documents, Clearance and Consent certificates, executed transfer, photos, consents, stamp duty valuation forms.
  • The duties of the buyer and the seller to one another
  • It may also include special conditions unique to the transaction, such as the right to rescind or withdraw from the contract, whether time is of the essence which essentially gives a penalty for any delays in completion by either party.

Completion documents

A very important aspect of any land agreement is the completion clause. There will be a statement in the contract that gives a completion date. The Completion is essentially the final stage of the land transaction where the seller provides all the documents to the buyer whereas the buyer pays the balance of the purchase price. The parties usually agree to payment of at least a 10% deposit at the beginning of the transaction and gives a period, usually 90 days for both parties to complete the transaction.

The Completion documents include original title of the land, land transfer signed by the seller, the seller’s ID and KRA PIN, Land rates clearance certificate, consent of the land control board (for agricultural land) and if there was any encumbrance on the land there should be proof of payment of the debt or, say, a provision in the sale agreement deducting the debt from the purchase price or otherwise. The LSK conditions of sale defines the Completion Date as the date specified in the Agreement when both parties are required to fulfil their obligations under the contract. If the agreement does not specify a date, usually the completion date is the 90th day from the date of the agreement.

Time of the Essence

Where the parties provide in the sale agreement that the “time is of the essence” then the completion date must be strictly adhered to and failure to complete in such a case will be considered a breach of contract. In the case of a breach of contract, the offended party may choose to terminate the contract and/or resort to the remedies specified in the sale agreement. In land transactions, terminating a contract is called rescinding. Ordinarily, time is only regarded as of the essence if the parties make it express term in the contract. In the case of Sagoo vs Dourado[1], the Court of Appeal, however, held that time will not be of the essence in any contract unless; parties expressly stipulate that the conditions as to time must be strictly complied with, the nature of the subject matter shows that time should be of the essence and the party subjected to unreasonable delay gives notice to the other, making time of the essence. If one party is ready to complete the transaction, they give the other party a 21-day notice to complete. If the person given the notice is not ready at that time, then they may request for an extension. In the instance of a failure to ask for the said extension and the notice period lapses, it gives the other party the right to terminate the contract.

Rescission/Terminating a Sale Agreement

The sale agreement could have a provision giving the parties the right to terminate or rescind the contract. These conditions could be specific, for example, unreasonable delay of payment of the balance of the purchase price or failure to produce the title documents by the seller. Most sale agreements are rescinded on the grounds that there was a delay in the completion, where time was of the essence. The effect of rescinding an agreement is to return the parties to status they were before entering the contract.  In some cases, however, there may be a clause stating that if the seller rescinds, then the buyer could forfeit the deposit. Courts will not usually intervene in such situations unless the rescinding of the agreement was unreasonable.

In conclusion, we emphasize that buyers and sellers should be actively involved in the land transaction process and ensure that they read and understand the terms in the agreement for sale before signing. Keep in mind that any legal disputes that arise, the agreement for sale will be a key document in the resolution of that dispute.

Research by Maurine Kerich.