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  • LEASES AND LICENSES

    LEASES AND LICENSES IN KENYA

    Differentiating between “leases” and “licenses” can be complex, especially within the real estate sector in Kenya. These terms are often used interchangeably, but they carry distinct legal implications that assign varying rights and responsibilities to the involved parties. For those participating in property transactions in Kenya, understanding the differences between leases and licenses is crucial. This knowledge helps in selecting the appropriate agreement type, ensuring your rights and interests are protected and legal disputes are avoided.

    This newsletter breaks down the components and classifications of leases and licenses and outlines the distinctions between them.

    A. Leases in Kenya

    According to Section 2 of the Land Act, 2012, a lease is defined as the grant of the right to exclusive possession of property for a specified period. In simpler terms, this means the lessee (tenant) has exclusive use of the property, excluding even the lessor (landlord). Leases are commonly used for property transactions in Kenya and confer significant rights to the lessee.

    Key Elements of a Lease:

    1. Exclusive possession: The tenant must have exclusive possession of the property.
    2. Defined interest: The lease must relate to a specific interest in land.
    3. Defined premises: The property being leased must be clearly identified.
    4. Definite period: The lease must specify a definite period, as per Section 56(a) of the Land Act.

    These elements are essential for establishing a lease agreement, offering security and legal protection to both parties involved.

    B. Licenses in Real Estate

    A license is defined by the Land Act as a permission to use land that would otherwise constitute trespass. Licenses do not provide exclusive possession and are often used for short-term or specific-use agreements, such as for public land or community property.

    Types of Licenses:

    1. Contractual license: Created by an agreement between parties, granting rights under specific terms.
    2. Bare license: Simple permission without formal agreement, which can be revoked at any time.
    3. License coupled with interest: A license that is tied to an interest in the land, granting more robust legal rights.

    Licenses are generally easier to revoke compared to leases, as they provide fewer legal protections.

    C. Key Differences Between Leases and Licenses

     

    LEASE LICENSE
    1. Grants a lessee a proprietary interest in the property. This is a more substantial legal interest, typically allowing the lessee exclusive possession of the property for a specific period under the lease agreement terms. A mere permission that allows the licensee to use the property for a particular purpose, but does not confer exclusive possession. It grants a personal privilege that does not amount to an interest in the property.
    2. Is granted for a fixed period, which can be short-term or extend up to several years, depending on the agreement. Tends to be more temporary.
    3. Lessees enjoy significant legal protections under the law. For instance, eviction typically requires formal legal procedures and the fulfillment of specific conditions outlined in the lease agreement. Offers less legal protection against eviction or termination of the agreement. The licensor can often terminate a license more freely, subject to the terms stated in the licensing agreement.
    4. Can be transferred or assigned to others unless the lease specifically restricts this. Generally cannot be transferred unless the license expressly allows it. This non-transferability is due to the personal nature of licenses.
    5. Creating a lease usually requires more formal documentation, which might include registration with relevant authorities, especially for longer durations. Can be created informally and typically does not require registration. Even verbal agreements can be upheld if proof of terms and licensee’s reliance can be demonstrated.
    6. Irrevocable unless the terms provide otherwise. Revocable and can be revoked by the licensor more easily unless it is irrevocable under specific conditions (e.g., a license coupled with an interest).

    Get Expert Legal Advice on Leases and Licenses in Kenya

    At WKA Advocates, our Real Estate, Conveyancing, and Construction Law department is dedicated to providing expert legal guidance on property transactions, including lease agreements and licenses. Whether you are leasing property or considering a license agreement, we ensure that your rights, obligations, and interests are fully protected under the law.

    We hope this guide clarifies the differences between leases and licenses in the Kenyan real estate sector. For further legal assistance, feel free to contact us:

    WKA Advocates
    info@wka.co.ke | wakilihub.co.ke/ | +254 798 035 580
    Nairobi Hub: Parklands, Valley View Business Park, 6th Floor, City Park Drive, Off Limuru Road

    Authors
    William Karoki, Founding Partner
    Florence Mwende, Associate
    Erick Karangatha, Candidate Attorney

  • How Can a Foreigner Own Property in Kenya?

    How Can a Foreigner Own Property in Kenya?

    Understanding Property Ownership for Foreigners in Kenya

    For foreigners looking to invest in property in Kenya, it’s essential to understand the legal framework governing land ownership. Under the Constitution of Kenya (2010), the Lands Act (2012), and the Land Registration Act (2012), foreigners can own property but with certain restrictions. This article will clarify how foreigners can acquire property, the limitations in place, and common pitfalls to avoid.

    Limitations on Property Ownership in Kenya for Foreigners

    Foreigners can own property in Kenya only under leasehold tenure, with a maximum lease term of 99 years, as outlined in Article 65(1) of the Constitution. Any lease beyond 99 years is automatically considered a 99-year lease. Additionally, companies are regarded as Kenyan only if they are 100% owned by Kenyan citizens. Companies with foreign shareholders are classified as foreign entities and cannot own freehold land. Trusts cannot bypass these regulations, and any freehold interest held by a foreigner will revert to the state, which will grant a 99-year lease at a nominal rate.

    Agricultural Land Ownership for Foreigners

    According to the Land Control Act, transactions involving agricultural land are categorized as “controlled transactions” and require consent from the Land Control Board. This board cannot authorize sales, leases, or transfers of agricultural land to foreigners. However, foreign investors can apply for exemptions through a presidential notice in the Kenya Gazette. Public companies with foreign shareholders may also acquire agricultural land under specific conditions.

    How to Avoid Legal Pitfalls When Acquiring Property as a Foreigner

    Some foreign investors attempt to bypass ownership restrictions by using local shareholders or nominees. These strategies often lead to legal complications. It’s crucial to consult a legal expert to ensure full compliance with Kenyan law.

    Types of Property Ownership in Kenya

    1. Public Land: Owned by the government for public use (e.g., national parks, public infrastructure) as defined in Article 62 of the Constitution.
    2. Community Land: Held by communities based on ethnicity or common interests, intended for communal benefit (as per Article 63).
    3. Private Land: Owned by individuals or entities under freehold or leasehold tenure (according to Article 64). Freehold land grants absolute ownership, while leasehold land is held for up to 99 years.

    When purchasing property, it is essential to verify that the land is not listed in the Ndung’u Land Report, which records illegally acquired land.

    Who Can Sell Property in Kenya?

    Property in Kenya can be sold by:

    • Private developers
    • Licensed estate agents and brokers
    • Saccos, churches, and Chamas
    • Cooperatives and financial institutions
    • Trusts, companies, individuals, and communities

    Recent Changes in Property Ownership Laws: The Sectional Properties Act 2020

    The Sectional Properties Act 2020, in alignment with the Constitution of Kenya 2010, facilitates the division of buildings into individually owned units, with shared common property. This law streamlines property transactions, reduces costs, and enhances protection for unit owners.

    Tax Implications When Acquiring or Selling Property in Kenya

    • Stamp Duty: The buyer is required to pay stamp duty, which is 4% for properties in cities and municipalities and 2% for properties in rural areas.
    • Capital Gains Tax (CGT): Sellers must pay a 15% CGT, effective from January 1, 2023, on the transfer of property, land, buildings, securities, and shares.
    • Value Added Tax (VAT): Commercial building sales are subject to VAT at 16%.
    • Miscellaneous Costs: Include loan-related bank fees and mobile money transfer charges.

    Legal Assistance for Foreigners Buying Property in Kenya

    At WKA Advocates, we offer a dedicated Conveyancing and Real Estate department to assist foreign investors. Whether you’re purchasing residential, commercial, or agricultural property, our team provides comprehensive legal guidance to ensure a smooth transaction.

    Contact Us:

    • Email: info@wka.co.ke
    • Website: wakilihub.co.ke/
    • Phone: +254 798 03 580
    • Address: Valley View Business Park, 6th Floor, City Park Drive, Off Limuru Road, Nairobi

    Authors:

    William Karoki, Founding Partner, WKA Advocates