Sometimes old is gold but other times it is weather-beaten, rusty and badly in need of replacement. The latter was arguably the state of our former land laws before their recent repeal. The Land Act, the Land Registration Act and the National Land Commission Act have been hailed as the legal messiahs for the country’s real estate law. Just how well do they fit into such large shoes? I do not know. Not yet anyway. But I can tell you what I do know.

Land is extremely valuable as collateral. In fact, I would go as far as to say that for a borrower, it is an asset worth much more than its actual value.  A land parcel worth 2 million could be used to acquire several consecutive loans worth a little less than the 2 million and the total amount of the loans may be far more than the actual value of the land. On the part of the lender, it is a security unlikely to lead to losses as it is an appreciating asset. Provided it is correctly valued at the time of entering the financing contract, chances are that in case of default on repayment, the lender will recover the entire debt from sale of the land.

Since borrowing - though discouraged by a previous article in this publication - is a mode of operation for many Kenyans and many Kenyan businesses, I am of the opinion that the effect of the new laws on land as collateral is one of the yard sticks to determine the level of positive impact. The Land Act and the Land Registration Act have some interesting provisions in this regard.

One of these is section 38 of the Land Act which requires that for a contract for a disposition of an interest in land to form the basis of a legal suit, that contract must be in writing, must be signed by all the parties to it and the signatures must witnessed. In more precise legal terms, such contracts must be executed and attested. The only exceptions given are for contracts made in public auctions and those creating a resulting, implied or constructive trust.

The Land Registration Act then goes on to give very specific indications on how these contracts are to be executed. Each of the parties consenting to a disposition in land must execute it. The implication of this provision is that not only does a spouse have to consent to a transaction involving matrimonial property, they must also execute the document to signify such consent. In another provision the Land Registration Act confers spouses with interests in land even in instances where such interests are not explicitly registered. The overall effect is to give spouses power over the property even in some instances where only one spouse is cited by the register as the owner. Banks and other lenders will have to exercise diligence to ensure that this requirement is fulfilled or else their rights over the security given for a loan may be nullified by the invalidity of the underlying contract.

The execution should be done by appending a signature or affixing a thumb print on the document. For organisations, execution has to be done in the presence of an advocate, a judge, a magistrate or a notary public. If a document is executed outside Kenya, it has to be endorsed with a certificate in the prescribed manner. There are also requirements to enclose copies of identity cards or passports, PIN numbers, marriage certificates where applicable and passport photographs. In addition, the person executing such a document shall appear before the Registrar, public officer or other prescribed person together with a credible witness for purposes of identification and a certificate identifying the executor and stating that the execution was done voluntarily must also be endorsed on the contract.

These requirements are more stringent than was the case before. They apply to a wide range of documents including facility letters for credit. Case law is yet to determine whether failing to fulfil any of these requirements will render the document fatally defective but since the law is very explicit, it is likely that courts will strictly enforce it. What this means is that while land still remains a lucrative security, the process of creating the contract is now more rigorous and there is now the risk of having a lender’s security being rendered ineffective if the new regulations are not followed.