Before you put pen to paper, ensure the company you are entering into a contract  with is registered . File

Before you put pen to paper, ensure the company you are entering into a contract with is registered . File 


I entered into an agreement with a certain company, for the sale of land at Sh8 million. But this firm immediately entered a deal with another buyer for Sh20 million. In the subsequent agreement, the company claimed that it was the owner of the property yet it had not yet paid me the full purchase price.

It eventually paid me to transfer ownership . Do I have a claim against the company for the loss of Sh12 million?

Such complaints are becoming common in the real estate sector. The sector presents the stakeholders with an opportunity to earn a lot of revenue as the case above illustrates but it also gives room for fraud.

The real estate sector needs more stringent regulation and perhaps even an oversight body to regulate the activities of stakeholders. These include the real estate agents, commission agents, advocates, developers, contractors and property managers amongst others. There is an Estate Agents Board and the law is that nobody can present himself as an estate agent without the necessary licensing from the board.

This law, however, remains to be enforced. This is why the public needs to be extra careful when dealing with agents and brokers.

Back to your query, the case highlighted above can either be legal or illegal depending on the drafting of the agreement entered into between the parties.

There is little room for illegality in the agreement between you and the company as you were the registered owner of this property. As long as the company had the capacity to enter into the contract then it would be difficult to claim illegality. It is important to ensure that the company has capacity to enter into this kind of contract by perusing the memorandum of association.

The agreement should be dated and also signed correctly by the company and that is under seal and witnessed by two directors or a company secretary.

But the deal between the company and the subsequent buyer might be illegal depending on the drafting of the agreement.
Firstly, one cannot sell what they do not own. If the company entered into an agreement with a third party before fully owning the property then the subsequent contract may be nullified by the new buyer.

However if the company clarified to the buyer that it was entering into the subsequent agreement as a beneficial owner then there is no illegality with that.

Legally, a beneficial owner has capacity to contract for the sale of land.

If the company had disclosed to the subsequent buyer that it was the beneficial owner then there would be no illegality in the contract and you would have no claim against the company even if it did not disclose to you that it would sell the property to a third party for a much higher price.

Due to increasing cases of fraud and misrepresentation in land transactions, parties to a real estate transaction need to ensure that they do the proper due diligence to avoid losses.

Due diligence

The Seller should ensure that the potential buyer has the capacity to enter the contract. If it is a company then it must be authorised by its memorandum of association to enter into such a contract.

The seller should ensure that the buyer has the ability to pay the purchase price before transferring title to the purchaser. Usually most agreements provide for a deposit payable at the start and a balance to be deposited with the Seller’s lawyer pending transfer of title to the buyer.

Buyer’s due diligence: This is more detailed than the seller’s. The buyer should ensure that the company has capacity to sell the land. He must either be the registered owner of the title or the beneficial owner.

But whether you are the buyer or seller your lawyer should assist you in the process.

Ms Mputhia is an Advocate of the High Court.