Introduction
The Sectional Properties Act No. 21 of 2020 is an Act of parliament that was crafted with the aim of creating sectional titles, where an individual has ownership of a unit within a development. The Act which allows for the creation of Sectional Properties on both freehold and leasehold land has been crucial in simplifying the process of registering titles for apartments, townhouses, office units among others. The sectional properties Act has aided in creating a supportive environment for investors and property owners.
The SPA provides for the division of buildings into units with separate titles to be owned by separate persons. This is done by closing the mother title in order to create new titles for each unit. It also provides for common property such as water pipes, drainage, electricity, and shared areas such as gyms, lobbies and playgrounds which are owned by proprietors of the units as tenants in common.
Sectional properties are created through the registration of a sectional plan that is prepared by a surveyor, from a building plan that has already been approved by a county government. On registration of the Sectional plan at the relevant land registry, the owners of the units in the parcel of land must establish a Corporation. This Corporation is unique as is established under Section 17 of the Sectional Properties Act and not the Companies Act. It is tasked with the management of the entire property by doing things such as maintaining the property in good condition, enforcing the bylaws, paying the premiums for any insurance policies and all other tasks that ensure that the property is properly managed.
Sectional titles on leasehold land
Section 2 of the SPA provides two criteria that must be met when creating sectional properties on leasehold land: that there is not less than 21 years still left on the lease and that there exists an intention to confer ownership to the new title holder. This provision is rooted in the fact that Section 7 of the Land Act only allows the conferring of a title on privately owned leased land if the lease exceeds 21 years. Section 5 of the Sectional Properties Act also requires that each unit has its own certificate of title, a fact that sets it apart from the previous regime of subleases.
When the lease for the property expires, each title holder for every sectional properties is now considered an individual lease holder from the government and will be required to apply for the renewal individually. According to Section 13 of the Land Act and Section 3 of the Land (Extension and Renewal of Leases) Rules 2017, the title holder/ lessee has the preemptive right to apply for extension of that lease.
How will you know it is time to renew the lease for your sectional property?
The law requires that the National Land Commission notifies the lease holder 5 years before the expiry of the leasehold that it is about to expire. It should also point out the date of expiry and to inform them about their preemptive right of renewal. If the lessee does not respond to the notice within 1 year, the NLC shall publish the notice in 2 newspapers of nationwide circulation. If the lessee still does not apply for renewal, then the consequences include forfeiture of the preemptive right over the title and the automatic reversion to the National or County Government as with any other type of lease.
Impact of The Sectional Properties Act
The SPA has solved the problem of the previous ownership regime that utilized subleases. Previously, a developer would buy the land, develop the property and then form a company pursuant to the provisions of the Companies Act. The company would own the mother title to the property. The developer would then sublease the apartments/ units to purchasers. These sub-lessees would be shareholders in the company and be granted certificates showing the shares they had in the company, however the title of the property still belonged to the company. This meant that no individual ownership of units could exist, the sub-leases were born of the mother title and could not exist outside of it. The company managed the units and if the lease expired, the company would be responsible for renewal.
This system of subleases created challenges such as:
a) The sub-lessees could not own the properties. They therefore had to seek the consent of/ be accountable to the company in their decisions regarding the property.
b) Repossession of units from sub-lessees where developers took out loans from banks to complete the construction and sometimes failed to discharge the said units from the banks.
c) Developers would sometimes fail to include a renewal clause in the sublease or fail to renew the lease of the mother title from the government hence putting the interests of the sub-lessees in jeopardy.
The SPA solves these problems in the following ways:
a) Each unit has its own title and hence the unit owner has control over their unit, can organize for its lease and enjoys all the benefits of being a title holder.
b) The Corporation established under this Act is not subject to the provisions of the Companies Act, hence there are no filing fees, incorporation costs and tax obligations in the manner of a regular company.
c) The Act allows the Corporation to form a Dispute Resolution Committee to hear and determine disputes between unit owners hence cutting on costs regarding dispute resolution.​
Through these changes and ease of conversion of subleases and long term leases to sectional properties the SPA has created an enabling environment for investors and property owners, giving them more power over the properties they own.
For more insights pertaining to this matter, you can reach the writer at annegathirwalaw@gmail.com . You can also contact us at MMS Advocates, Lower Duplex Apartments, LOWER HILL ROAD, or email us at info@mmsadvocates.co.ke ,,