State Removes Title Deed Hurdles for Developers

By Business Daily

The State has sealed a legal loophole that risked blocking investors from phased development of high-rise buildings on parcels of land where some complete units had been sold and titles transferred to owners.

A newly published policy by the Lands and Physical Planning ministry will see the Sectional Properties Act 2020 amended to allow for a phased and mixed development of properties.

“Increasingly there is a need by developers to develop their pieces of land in phases. If the land is under one title it presents a problem under Sectional Properties Act since the head title cannot be surrendered until the entire land has been developed," the policy says.

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"There is, therefore, need to ensure that the land can be subdivided into phases to allow for separate head titles to be surrendered and thus allow for the application of Sectional Properties Act."

Under the current law, once a title is committed to sectional properties, the original owner ceases to enjoy any reversionary rights which, after registration of sectional units, are enjoyed by the individual unit owners.

"In areas of mixed-use development, there is need for a mechanism of maintaining minimum economically viable parcel sizes concurrently with the ability to grant individual land rights to multiple landowners especially in high-density or high-value areas," says the policy.

The government says the change will allow issuing of titles under phased development so that developers undertake high-rise development, such as offices or residential apartments, on large parcels of land in stages.

With these changes, the developers will now be able to issue separate ownership documents for units of buildings sitting on one title deed even when the entire land is not fully developed.

Developers with huge tracts of land have faced challenges with the law since it transfers rights immediately to unit owners, who can stop them from utilizing the extra spaces.

Once a title is committed to sectional properties, the rights of use move from the original owner to the individual unit owners.

"While this is fine for small parcels of land, it would constrain developments on large parcels where the developer would want, due to logistical and financial limitations, to develop in phases. But the balance of land would risk having its reversionary rights assumed by the unit owners in the developed part of the land under the current arrangements," said Ibrahim Mwathane, chairman of the Land Development and Governance Institute Board.

"This is not practicable and constrains large-scale high-rise developments. Hence this proposal would help to introduce the necessary legal flexibility and safeguards."

Setting up buildings in urban areas has become very expensive, requiring massive investment in land, supporting infrastructure, and putting up the actual buildings.

Developers hoping to balance the cost with economies of scale buy huge swathes of land and phase out construction in order to sell the finished units to fund the rest of the area under development.

The Sectional Properties act 2020 only allows the surrender of the head title when the entire land has been developed.

This has meant that despite its rollout last year, developers have shunned using the law as a way of registering property.

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The government is keen on shifting house ownership models as it sets out to build half a million houses under President Uhuru Kenyatta’s affordable housing agenda.

The growing population around towns has led to the development of vertical units in crowded areas for sale to home and office owners.

However, most ownership documents are based on the land the building sits on, creating a need to provide deeds for each unit.

A developer wishing to sell individual plots would be forced to apply for registration of an architectural plan where each unit was serially numbered.

This, however, created problems, including the issue of multiple titles to flats on the same piece of land creating duplications at the Land Registry.

The Sectional Property Act of 1987 was reviewed because of a tedious process of registration.

Its replacement in 2020 dealt with the bureaucracy but failed to address concerns of developers seeking to build units in phases.

It also still focused on the separation of titles based on floor areas in a built-up environment, ignoring mixed-use developments.

The changes also propose a review of sizes of units that can be issued with title deeds to maintain minimum economically viable parcel sizes, especially in highly populated areas.

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