0

Reasons why you need to carry out proper Due diligence before executing a Land Sale agreement or Transfer

A title deed/ certificate of title is recognized as the main way of proving ownership of land in Kenya.

The Kenyan legal system has adopted the Torrens System [FA1] which necessitates the land register to have the accurate record of all current interests ( E.g partial owner, tenant, licensee, collecting profits from activities in the land , e.t.c) in land.in summation, the registered land owner acquires conclusive title over the land, which can only be defeated by proof of fraud or misrepresentation that the buyer is party to.[1]

The Torrens system ensures that only the interests of a person who has acquired title in a legal manner are protected and puts in place parameters to solely  protect the proprietary interests of land owners. However, this does not stop phonies from conning innocent potential land owners into purchasing illegally or corruptly acquired land.

.

Section 26 of the Land Registration Act clearly states that a certificate of title is prima facie proof that person named as proprietor is the absolute and indefeasible owner of the land except where the land was acquired through fraud or misrepresentation which the person is proved to be a party, or the certificate of title was acquired un-procedurally, illegally or through a corrupt scheme.

So how are innocent parties (bona fide buyers without notice )protected by the law?[FA2] 

For one to claim that they were a bona fide buyer without notice, they need to show:

  • that they honestly bought the property in exchange of some consideration, and
  • that they were not aware of any defects.

In the landmark case Katende v Haridar & Company Limited the court held that for a purchaser to successfully rely on the bona fide doctrine, he must prove that:

  1. He holds a certificate of title
  2. He purchased the property in good faith
  3. He had no knowledge of the fraud
  4. He purchased for valuable consideration
  5. The vendors had apparent valid title
  6. He purchased without notice of any fraud; and
  7. He was not party to any fraud.

The courts have held the position that proving these elements are a question of fact and not law. The innocent purchaser therefore needs to show evidence to the effect that they compensated the seller and that they were not aware of any fraud after carrying their proper due diligence. In order to prove the first, the purchaser needs to show

  • proof of payment on the basis of an agreement of sale between the seller and purchaser.

For the final part,

  • the innocent purchaser needs to show that they carried out an official search at the registry showing the seller as the registered proprietor of the land, and that they followed the required process to have their interests registered.

In fact, in David Peterson Kiengo & 2 Others v Kairuki Thuo, the court found that a purchaser is not required to do anything more than search the official register to establish ownership. The rationale is that, in part, the Torrens System is a guarantee that the land register is an accurate of land ownership and in the event that there is an error on it, the land owner holds a claim against the State and not a bon a fide purchaser without notice.

In the event an innocent buyer effectively proves that they are a bona fide purchaser, then the Court can uphold their claim over the land despite the impropriety relieve them from any   action against the State for recovery of damages and not against the innocent buyer.

Given the fact that this can result in an unfair result to the original owners of the land, Courts are hesitant to make such a finding. The innocent buyer is often put to strict proof and failure to show proper documentary evidence of the transfer process could lead to their ownership rights being extinguished and the courts ordering rectification of the land register as per Section 80 of the Land Registration Act. In such instances, the innocent buyer’s respite lies in instituting a claim against the fraudulent seller for fraud or misrepresentation under contract law for recovery of damages. [FA3] This often proves difficult as it becomes difficult to trace the fraudsters.

It is our view that the only sure way to curb against falling victim to such fraudulent schemes is ensuring that proper due diligence is carried out prior to executing any sale agreement or transfer. We cannot overemphasise the importance of seeking proper legal services prior to making any purchase to safeguard yourself from such risks.

For more information, please contact

Benson Ngugi benson.ngugi@attorneysafrica.com

Hellen Waithira hellen.waithira@attorneysafrica.com

Rushmi Matete rushmi.matete@attorneysafrica.com


[1] Charles Karathe Kiarie & 2 Others –vs- Administrators of Estate of John Wallance Muthare (deceased) & 5 others


 [FA1]Torrens system

 [FA2]Has the meaning changed?

 [FA3]Add hyperlink for Contract law for recovery of damages

Leave a Reply

Your email address will not be published. Required fields are marked *