Ownership of land in Kenya has always been an emotive issue given the colonial and political history of the country.
The large gap between the haves and the have-nots is clearly evident in how land ownership is distributed. Some individuals and institutions own very large tracts of land while the majority do not own any.
The new Constitution has provisions that overhaul land tenure in Kenya; however these provisions are yet to be enforced.
At the moment, Kenya’s real estate sector is booming.
The demand is so high in some prime areas that prices have gone up by over 100 per cent in a very short span.
Some innovative concepts that have been witnessed in Kenya’s real estate sector include; green concepts for environment sustainability, fractional holiday homes, golfing resorts, lifestyle homes and bachelor pads.
The opportunity for investment is open to everyone, even the low income sector. However non-citizens are limited on land ownership under the new Constitution.
Under Section 65 of the new Constitution, any person who is not a Kenyan citizen can only hold a leasehold interest not exceeding 99 years.
There are two types of land tenures and that is, freehold which allows the owner to hold the land for an indefinite term, while a leasehold term confers upon the owner a limited term which can be extended upon expiry. The Constitution therefore limits the tenure for non-citizens to not more than 99 years.
For the purposes of land ownership, a citizen is any Kenyan individual who has been granted citizenship and includes the natural citizens as well. It also means any company that is wholly owned by Kenyan citizens or any trust whose beneficiaries are Kenyan citizens.
Therefore a company whose shareholders are not all Kenyan citizens or a trust, whose beneficiaries are non-citizens, would be affected by Section 65 of the Act.
From the reading of this provision, it does not matter if the trustees are Kenyan citizens, such that a charitable trust formed in favour of foreign citizens will still be affected by Section 65.
Section 65 is perhaps premised on Section 60 of the Constitution which states that land in Kenya must be managed in an equitable manner and that there should be equitable access to land. Section 61 is even more specific as it states that all land in Kenya belongs to the people collectively.
A 99-year term for ownership of land may seem like a fairly long time. However what happens upon expiry? The proprietor must seek an extension of the term from the Government, a process which involves a lot of detail and regulatory approvals.
Section 65 should therefore inform a lot of decisions and strategies taken by investors. Currently there are many companies in the real estate sector who may be deemed to be “non-citizens “due to their shareholding structures.
Once this section is implemented then such companies will be limited in the kind of investment that they can undertake.
The term cannot be more than 99 years. Perhaps once this provision is implemented, then some companies may have to review their shareholding structures so as to ensure that they fall under the definition of “citizen.”
One of the ways of doing this and circumventing this provision, is to get a nominee shareholder who is a citizen, to hold the shares for the non-citizen in trust.
The documents accompanying this arrangement include a declaration of trust and a blank form of transfer of shares.
However it remains to be seen if the courts will enforce such an arrangement.
Real estate marketers and sales agents will also be affected by this provision. Particularly those whose main target market are non-citizens, in tourist destinations like Mombasa, Malindi, Kilifi, Diani, Naivasha, Nakuru and Eldoret.
Mputhia is an Advocate of the High Court of Kenya working with Muthoga Gaturu Advocates. email@example.com