Buying Off-Plan Property in Kenya: A Purchaser’s Guide
Off-Plan Sale means the sale of a future interest in real property, where the building or unit which shall make up the real property, has not yet been developed or is under development, pursuant to an Agreement. It is an affordable path to property ownership, as it allows purchasers to secure units at lower prices while paying in installments during construction. Essentially, the buyer is financing an unbuilt structure on the developer’s promises to deliver the property at a future date. The purchaser therefore relies on the architectural drawings, approved plans, and the developer’s representations regarding the finished development.
While this option is highly attractive for buyers due to the discounted prices, flexible payment plans, and the prospect of capital appreciation, the transaction carries substantial legal and financial risks ranging from extreme project delays to outright developer insolvency.
In this article, we highlight the legal framework governing Off-Plan Sales, the key risks involved and the practical safeguards every purchaser should consider before signing that Sale Agreement.
A. Legal Framework
Unlike some jurisdictions like Dubai, Kenya does not have a specific legislation governing off-plan sales and thus relies on general land and consumer protection laws, and the parties’ contractual agreement, to govern the transaction. The relevant laws include:
The Sectional Properties Act, 2020: this is the primary legislation governing modern apartment ownership by providing for the registration of sectional properties, allowing buyers to obtain sectional titles for their individual units.
The Land Act, 2012 and Land Registration Act, 2012: these regulate all the dealings in land, including the registration of interests such as transfers, charges and discharges.
The Consumer Protection Act, 2012: protects buyers against misleading, or deceptive representations by developers regarding the project’s features.
B. Common Risks in Off-Plan Transactions
Naturally, purchasing a property that does not yet exist carries inherent risks. Some of the most common pitfalls include:
Project delays and abandonment - construction timelines may end up being extended due to financing difficulties, poor project management among other factors. In certain cases, projects are even completely abandoned;
Material changes to the development – upon completion, buyers often find deviations in relation to unit sizes, layouts and finishes.
Title delivery failure - upon completion of the construction, some developers fail to issue sectional titles due to unresolved encumbrances on the mother title, or failure to obtain the relevant statutory approvals. Notably, construction completion does not mean ownership has been perfected. Purchasers should ascertain whether sectional plans have been prepared, when sectional titles will issue, and who bears the responsibility for registration.
C. Essential Due Diligence Checklist
It is common practice that developers use brochures and marketing materials promising premium finishes and amenities to help purchasers visualize the finished development in an off-plan sale. Relying solely on the developer’s representations is a recipe for legal and financial exposure.
Therefore, before paying any deposit or reservation fees, a prospective buyer must conduct an exhaustive due diligence exercise which shall include, but is not limited to, the following:
| Item | Description |
|---|---|
| Title Verification | Conducting an official search of the ‘mother title’ at the Lands Registry to confirm the registered proprietor, the land tenure, remaining term and any registered encumbrances. |
| Developer Verification | Conduct an official search at the Companies Registry to confirm the developer is a legally registered entity. A search at the Judicial Registries to confirm any litigation history. Visit and examine previous completed developments by the developer and speak to the owners if possible, to investigate the developer’s reputation. A strong developer track record considerably reduces project risk. |
| Statutory Approvals & Compliance | No construction should commence without valid regulatory approvals. Under Kenyan law, the developer must hold and produce: County Government approvals – approved building plans; National Environmental and Management Agency (NEMA) license – an Environmental Impact Assessment license confirming that the project is ecologically viable; National Construction Authority (NCA) Registration – proof that the developer is licensed and the project is duly registered with the NCA Failure to obtain the necessary statutory approvals by the developer may significantly affect the legality of the development and consequently compromise the transaction. |
D. Key Clauses in the Sale Agreement
The Sale Agreement is the ultimate shield for an off-plan purchaser. Pursuant the general principles of the Law of Contract, Kenyan courts strictly interpret the written terms agreed upon by both parties. Buyers should therefore seek independent legal advice because many developer-prepared agreements are heavily weighted in favour of the developer. Some of the key clauses requiring critical consideration and negotiation include:
Payment Schedule – buyers should never pay 100% upfront. Naturally, the developer requires an initial deposit after which the balance is paid in the course of the construction. The payment schedule should thus be tied to construction milestones e.g., 20% of the balance upon completion of foundation works, 40% upon completion of structural works, etc., instead of calendar dates.
Escrow and Trust Accounts – the purchaser should insist on having the instalments of the purchase price be deposited in escrow accounts, where funds are released to the developer in phases upon completion of the various construction milestones. This helps to ensure the purchaser’s investment is not misappropriated and exclusively used for purposes of the development.
Timelines – the agreement should clearly distinguish the timelines between practical completion of the development, completion of payment of the purchase price, registration of the sectional plans and issuance of sectional titles, as these events often occur at different stages of the transaction.
Delay clause – a robust sale agreement must address the risk of delays, which at times may occur from factors beyond the developer’s control or other times, as a result of the developer’s own actions/omissions. Developers often reserve broad rights to extend completion dates while offering limited remedies to purchasers. The agreement should therefore stipulate the grace period agreed upon beyond the agreed completion date (long-stop date), and the purchaser’s remedies in cases of extreme delays.
Default Provisions – Purchasers should understand the consequences of late payments, applicable interest, termination rights, forfeiture provisions and the refund mechanisms provided in the agreement.
Defects Liability Period – this allows the purchaser to inspect the unit upon completion and compel the developer to rectify any structural defects.
Dispute Resolution – the agreement should clearly stipulate the dispute resolution mechanisms for disputes arising in the course of the transaction.
Conclusion
Buying Off-Plan property in Kenya remains a highly viable investment strategy and avenue for affordable home ownership. However, the absence of a centralized regulatory framework places the burden of risk management squarely on the purchaser. By conducting comprehensive due diligence and securing independent legal representation, buyers can confidently navigate the off-plan landscape and safeguard their investment.