Understanding Off-Plan Property Contracts in Kenya
In Kenya, no legal provisions govern the off-plan properties in real estate investment; however, they are generally regulated by the land laws and registry. Buying Off-plan property has various risks that may scare many investors into making the bold move.
The Sectional Properties Act of 2020 in Kenya is a legal framework that primarily regulates how property can be subdivided into separate units (like apartments or offices) and sold or managed individually. This act provides clarity and protection to buyers, especially in off-plan property purchases, where properties are sold before they are constructed.
Here is a breakdown of how it guides off-plan properties.
The Act permits off-plan properties to be divided into sections, and individuals can own units (apartments or offices) within a larger building or complex. Each unit owner holds a title deed for their specific unit, and the entire building/land is managed collectively by a management corporation that includes all unit owners. Under the Act, unit owners can receive title deeds for individual units, not just shares in the overall property, which provides more substantial ownership rights.
In off-plan purchases, developers must provide clear plans, approved by local authorities, showing how the units will be divided and titled once the project is complete. The Act protects buyers in off-plan purchases by legally binding developers to their promises and timelines. Developers must maintain transparency with buyers regarding project timelines, construction progress, and potential delays.
The Act promotes accountability through detailed contracts, which specify unit details, payment schedules, and buyers' rights if significant changes occur. Buyers can take legal action if developers fail to meet the agreed terms, such as construction deadlines or the standard of the units. The Act includes mechanisms for resolving disputes between developers and buyers and among unit owners within the management corporation.
The Sectional Properties Act 2020 brings transparency, accountability, and legal structure to off-plan property purchases, ensuring buyers have clear rights and access to title deeds for individual units. For off-plan buyers, the Act provides a framework that requires developers to meet promised standards and deadlines, establishing a more secure investment environment in the real estate market.
A property developer's track record should comply with the legal laws governing off-plan property in Kenya. Before selling units, a developer must get approval from relevant authorities like the National Construction Authority and the National Land Commission. Research past projects, read reviews, and consider visiting other developments by the same developer.
The construction board must approve the building materials and contractors to ensure the development complies with the act and is free of legal encumbrances. Before transferring ownership, the developer must ensure that the entire development complies with the Act, which means finalizing the property according to agreed-upon standards. Understanding the developer's track record and reviewing the contract can mitigate some risks.
When the building is completed, a management corporation is established, comprising all unit owners. This corporation is responsible for maintaining common areas and shared facilities. Once they get their units, off-plan buyers automatically become members of this management corporation, giving them a say in managing the property.
The Off-Plan Sale Agreement is a legally binding document between the developer and the buyer. It contains specific legal considerations since the buyer commits to purchasing a property based on the developer’s plans, timelines, and promises. Understanding these legalities helps ensure that the buyer’s rights are protected and that they are entirely aware of the terms and risks involved.
The agreement should contain detailed property descriptions, including the unit size, floor plan, finishes, and amenities. This information is essential as the buyer hasn’t seen the completed property and relies on these specifications to know what to expect.
The vendor must procure all necessary approvals, consents, licenses, and permits to construct the off-plan developments. The approvals, consents, licenses, and permits required or relevant to the carrying out of the works include –
Copy of the Title for the property
National Construction Authority (NCA) approval.
National Environment Management Authority (NEMA) approval;
Registered building plans.
Registered floor plans for the particular Flat No.
Management company registration documentation; and
Borehole drilling approval (if applicable).
Off-plan agreements typically outline a phased payment schedule. For example, a deposit might be required initially, with additional payments tied to construction milestones (e.g., upon completion of the foundation, structure, and final handover).
Clear payment terms help buyers manage cash flow and reduce the risk of over-committing financially before the project is complete. Key terms such as “Commencement Date,” “Certificate of Practical Completion,” “Completion Date,” “Construction Commencement Date,” and “Certificate of and “Defects Liability Period” should be clearly defined.
The contract should state a projected completion date for the property. If delays occur, the agreement may specify penalties the developer must pay or allow the buyer to withdraw without penalty if delays are significant. This clause helps protect the buyer against long or indefinite project delays.
A good off-plan contract will include specifications for materials, finishes, and any amenities the developer promises to provide. This detail protects the buyer, as they can hold the developer accountable for delivering a property that meets agreed-upon quality standards. Example: “Certificate of Practical Completion” means the certificate issued by the Architect to the effect that, in the Architect’s opinion, the Works have reached a stage where they can be used for the purpose they were built.
“Certificate of Occupation” means the certificate issued by the relevant County Government or any other competent authority that the Property is fit for occupation.
Most off-plan sales agreements include a warranty or defects liability period, during which the developer is responsible for repairing structural or material issues after handover. This period typically lasts a year or two, ensuring the buyer has recourse if legal complications arise once they take possession.
The agreement should specify the conditions and timing for transferring the title deed to the buyer. The title deed may not be immediately available in off-plan sales until the development is completed and fully registered. Buyers should ensure they understand when and how they will receive legal ownership of the property.
A force majeure clause addresses what happens if unforeseeable events (e.g., natural disasters, political unrest) delay or prevent the project’s completion. This clause helps manage risk for both the buyer and developer, clarifying each party's obligations in such cases.
The contract should outline conditions for the buyer or developer to terminate the agreement. For instance, if a developer fails to deliver the project within a specified timeframe, the buyer might have the right to cancel the agreement and receive a refund.
Many contracts include a dispute resolution clause that specifies how conflicts will be handled, such as through mediation, arbitration, or legal action. This can save both parties time and money if disagreements arise.
The conditions for handing over the property should be specified. Example: On the Completion Date, after the Purchaser has fully paid the purchase price and costs delineated in Schedules 2 and 3, the Vendor shall hand over the keys to the Premises to the Purchaser.
Investing in off-plan properties in Kenya can be rewarding when approached with careful legal planning and thorough due diligence. The buying process involves multiple steps, from initial research of the developer's reputation to legal, due diligence, structured payment schedule, and regular visits to the development site to monitor progress.
Understanding the legal framework, particularly the Sectional Properties Act of 2020, is crucial in ensuring your investment is secure and all regulatory requirements are met. Our expertise in Real Estate Law ensures that your interests are protected and your investment journey is smooth and successful.
Off-plan property in Kenya is regulated primarily by the Land Act and the Sectional Properties Act.
Buying off-plan refers to purchasing property before construction is complete, often based on architectural designs or plans.
Buyers of off-plan properties can seek legal recourse through the Land and Environment Court in Kenya if the developer fails to deliver. They may file for breach of contract, seek refunds, or pursue compensation for losses. Mediation or arbitration are also options, as outlined in many agreements.
Off-plan investment risks include potential completion delays, project cancellations, substandard construction, developer bankruptcy, and changes to the final design that may differ from the original plans.
Admin. (2024, January 8). Important considerations buying off-plan. Sarange Mwaniki & Company Advocates. https://smc-legal.com/2024/01/08/important-considerations-buying-off-plan/
Administrator. (2024, August 2). Securing off-plan properties in Kenya. Njaga & Co. Advocates. https://njagaadvocates.com/securing-off-plan-properties-in-kenya/#:~:text=Off%2DPlan%20Properties-,Definition%20and%20Context,in%20that%20property%20development%20concept.
Conveyancing ( OFFPLAN transactions) - kenya school of law advocates training programme page: 1. Studocu. (n.d.). https://www.studocu.com/row/document/kenya-school-of-law/conveyancing/conveyancing-offplan-transactions/73877026
Ndungu, D. (2024, January 22). A lawyer’s guide on how to secure an off-plan investment. Diana & Jacklyne Partners Advocates. https://www.dnjlaw.co.ke/blog/uncategorized/a-lawyers-guide-on-how-to-secure-an-off-plan-investment/
What land-owners and developers should know about the sectional properties act, 2020 (“The act”) and the Sectional Properties Regulations, 2021 (“The regulations”). What land-owners and developers should know about the Sectional Properties Act, 2020 (“the Act”) and the Sectional Properties Regulations, 2021 (“the Regulations”) | A.B. Patel & Patel LLP. (n.d.). https://www.abpateladvocates.com/sectional_properties_act_2020_and_sectional_properties_regulations_2021.php
