Charging Property in Kenya: How Charges Are Created and Discharged

Almost every mortgage or bank loan secured on land in Kenya involves a charge. Understanding charging property in Kenya, meaning how a charge is created, what it gives the lender and how it is discharged once the loan is repaid, protects lenders and borrowers from costly registry disputes. This guide explains the framework under the Land Act, 2012 and the Land Registration Act, 2012.

What Is a Charge?

A charge secures a loan or other obligation against land or a lease. The chargor keeps the registered title and the lender, the chargee, takes an interest as security. Section 80(1) of the Land Act provides that a charge has effect as security only and does not operate as a transfer of any interest or right in the land from the chargor to the chargee. Section 56(5) of the Land Registration Act says the same.

Creating a Charge

Under section 56(1) of the Land Registration Act, a proprietor may charge land or a lease by an instrument in the prescribed form to secure an existing, future or contingent debt. Unless the chargee’s remedies are expressly excluded, the instrument must contain a special acknowledgement that the chargor understands the effect of the section, signed by the chargor or, for a company, by those attesting the affixing of the common seal.

Several requirements follow:

• Registration. The charge is completed by its registration as an encumbrance and by registering the chargee as its proprietor (section 56(3)).
• Rent clearance. The Registrar must not register a charge unless a land rent clearance certificate and the consent to charge have been presented, unless the land is freehold (section 56(4)). No certificate is required for a unit in a condominium, an office in a building, or certain sub-leases (section 56(5A)).
• Matrimonial home. Under section 79(3) of the Land Act, a charge of a matrimonial home is valid only if the chargor and any spouse living in the home executed the charge documents, or the documents show that the spouse assented.
• Land control consent. A mortgage, which the Land Control Act defines as including a charge, of agricultural land in a land control area is void unless the land control board consents (section 6(1)(a) of the Land Control Act). The Registrar must refuse to register an instrument without the required consent (section 20).

Priority, Second Charges and Further Advances

Unless the charge instrument provides otherwise, charges rank in the order in which they are registered (section 81(1) of the Land Act). Section 57 of the Land Registration Act lets a proprietor create a second or subsequent charge in the same manner as the first, but the first chargee’s consent must be obtained before the later charge is created (section 57(2)). Any sale under a later charge must be expressed to be subject to all prior charges unless they have been discharged.

On further advances, section 82 of the Land Act allows a charge to provide for further advances on a current or continuing account. A further advance does not rank ahead of a subsequent charge unless the provision is noted in the register or the subsequent chargee consents in writing, and there is otherwise no right to tack (section 82(2) and (3)). Paying instalments of the principal sum is not a further advance (section 82(4)).

Consolidation and Variation

Unless the charge instrument clearly provides otherwise, a chargor with several charges in favour of one chargee may discharge any of them without redeeming all (section 83(1) of the Land Act). A chargee that reserves consolidation must record that right in the register against the charges consolidated (section 83(2)), and the equitable rules on consolidation no longer apply (section 83(3)). On variation, where interest was contractually agreed to be variable, the chargee may change the rate only on written notice of at least thirty days (section 84).

The Chargor’s Right to Discharge

Section 85(1) of the Land Act entitles the chargor, on payment of all money secured and performance of the charge’s other obligations, to discharge the charge at any time before the charged land is sold by the chargee or a receiver. A term in the charge that is inconsistent with that right is void to the extent set out in section 85(2). A chargee may, however, require one month’s notice of intention to discharge early, or payment of not more than one month’s interest in lieu (section 85(3)). A discharge includes a re-conveyance, a re-assignment or any other instrument extinguishing the interest created by the charge (section 85(5)).

The Discharge Process in Practice

In practice the borrower should:

• obtain a written settlement or clearance letter from the lender once the debt is repaid;
• ask the lender’s advocates to prepare the discharge, identifying the charge being released;
• have an authorised signatory of the lender execute it; and
• lodge it at the land registry and confirm that the charge entry is removed from the register.

Until the discharge is registered, the charge remains on the public record even if the debt is settled, which can block a sale or refinancing. Request the discharge in writing as soon as the final payment is made, and do not wait until a transaction is under time pressure. Section 79 of the Land Registration Act allows the Registrar to rectify the register only in the circumstances it lists, so errors in a discharge are best prevented at the outset by checking the consents and settlement documents before lodging.

Charging Co-Owned and Family Property

Where title is jointly held, held by a family company or subject to succession proceedings, lenders will require the consent of all registered co-owners and, for a company chargor, proof of proper board authority. Take advice on the ownership structure before signing, because defects are hard to cure after the loan is disbursed.

Frequently asked questions

This article is general information on Kenyan law as at its publication date, not legal advice. Reading it does not create an advocate and client relationship.