Why Banking Industry argue that Land Act hinders Business

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 Introduction The current Land Act tends to protect borrowers more than financial institutions. Drafters must have been of the view that financial institutions have the potential of exploiting borrowers hence the need to protect their interests. This article seeks to examine sections of the Lands Act that hinder business and propose amendments thereafter in order to strike a balance between effective lending and protection of borrowers’ interests.

Section 79 (3) of the lands Act. The requirement for spousal consent has been enshrined into the lands Act much to the dismay of the banks. It places upon them the burden of ensuring that whenever they lend to persons funds on the strength of security of certain land, they have to ensure that such land, if a matrimonial home, then the spouse of the chargor executes the document.1 One may argue that, considering article 40 (2)(b) provides that of enjoyment property rights should not be restricted or limited by virtue of the provisions of article 27 (4) which provides for non-discrimination on several grounds including sex and marital status.

There are two competing interest. On the one hand, there is the freedom to deal with land in the market and on the other hand, the protection of the users and occupiers of the land.

Land in Kenya is seen mostly as an older male domain. Cultural practices of excluding women from property ownership were carried forward into land ownership. In the beginning, in an attempt to have land registered under the RLA, sometimes families selected one person usually the son/ father/ husband to be the registered. Some of these registered persons in mischief took the land as personal. A germane case was Hosea Njiru (1976 E.A.L.R.) where the judge recognised that the legislation from parliament must not be construed to have been intended to expropriate family land.

The National Land Policy, s.221, s.222 and s.223 (a), (d) recognised issues plaguing women as: non consultation in land disposal, the fact that few have land registered in their names and recommendations on what government should do to address the issue, respectively. The recommendations under s. 223 were to enact legislation to protect women’s rights and joint spousal registration and consent to land disposal.

Firstly, logistical challenges may arise in seeking to ascertain whether or not the property is a matrimonial home. The banks cannot take the borrowers word for it at their own peril therefore they would have to ascertain nature of the property.

Secondly, it may be hard to track spouses in polygamous and traditional marriages which may not be registered as much as the law requires all marriages to be registered.

Furthermore, in polygamous marriages where the property is matrimonial property of all the spouses, then one spouse may veto the decision to borrow to the detriment of the others.

There may also be issues of undue influence. One of the vitiating factors of a contact is undue influence. It is easy to see a situation where a spouse is bullied or intimidated into executing a contract. The matrimonial properties Act provides that there should be informed consent- meaning the bank has the obligation to educate the spouse on the kind of deal they are getting into.

Looking at all the obstacles this provision puts on the way of banks, one sympathises but then the legislature is justified and the detriments occurring to the banks is outweighed by the benefit to the spouses thereby protected. Consequently, a utilitarian sort of justice is achieved.

Section 90 of the Lands Act Notice to a chargor who has defaulted Section 90(2)2 of the land act stipulates that banks are required to inform and explain to the borrowers who have defaulted in payment that they have three consecutive months to rectify and redeem via notice. Some lenders might give a period of ninety days which is also acceptable as construed in Albert Mario and another v Vishram Shamji .3

In Jimmy Wafula Simiyu v Fidelity Commercial Bank (2012),4 the judge said, “…if a letter of notice is returned to the sender(in this case it was the chargee) he should take further steps to serve the notice to the chargor for the notice to be effective…”

The chargee is limited in sending a notice to only that which the chargor must pay in order to correct the default and not in recovery of the full loan as in David Gitome Kuhiguka v Equity Bank (2013).This means that a chargee has no right per se in demanding for the full loan, a chargor who shows no intention of paying his debt is as such afforded more protection that the person (chargee) who is bound to make losses by way of bad debts.

90(2) The notice required by subsection (1) shall adequately inform the recipient of the following matters the nature and extent of the default by the chargor;

if the default consists of the non-payment of any money due under the charge, the amount that must be paid to rectify the default and the time, being not less than three months, by the end of which the payment in default must have been completed;

if the default consists of the failure to perform or observe any covenant, express or implied, in the charge, the thing the chargor must do or desist from doing so as to rectify the default and the time, being not less than two months, by the end of which the default must have been rectified;

the consequence that if the default is not rectified within the time specified in the notice, the chargee will proceed to exercise any of the remedies referred to in this section in accordance with the procedures provided for in this sub-part; and

The right of the chargor in respect of certain remedies to apply to the court for relief against those remedies.

Section 90 (1)5 Time afforded to the chargor in default

First, the chargee is to wait a whole month before they can serve the chargor in default with a notice after which they are to wait another three months after notifying the defaulter for them to now notify the defaulter of the chargee’s intention to exercise his power of sale. The Land Act affords a chargor in default too much time there by creating a bigger risk to the chargee of incurring loss due to bad debts. Summary of the notices First, three months’ demand as per S 56(2) only if date of repayment is not provided or demand is not made on the repayment date.

Secondly, if default continues for at least one month, serve another three months’ notice under S 90(1) LA

Thirdly, forty days’ Notice under S 96(2) LA

Finally, forty-five days’ notice under the Auctioneers Act

Section 96 (2) of The Lands Act (Power to Sell Charged land)

The chargee shall serve on the chargor a notice to sell the charged land in the prescribed form and shall not proceed to complete any contract for the sale of the charged land until and at least forty days have elapsed from the date of service of that notice to sell.

There is a confusion of this provision with Rule 15 the Auctioneers Rules providing that a forty-five-day notification of sale must be served prior to a sale of immovable property. Rule 15 of the Auctioneers Act applies to sale by public action of any immovable property only.

Section 97 of The Lands Act (Duty of the Chargee To Exercise Power For Sale)

In several respects, this section may seem too demanding of the bankers. While it can be seen how important this provision is in places where land is in high demand, if a property is in an area of low demand or where people would not be comfortable buying e.g. in rural areas where the seller may be tagged an ‘outsider’ then the burden becomes heavy on the bank. It is not hard to imagine that such land while highly valuable would not attract the kind of buyer envisioned by the Act or if not so, the bank would again have to agree to sell to this new seller on a loan which would just create a stream of contracts and possibly a chain of defaulters.

The chargor could vitiate or void the sale made by the charge if the sale does not meet the threshold set out in the act.6 In Equity bank v David Gitome, the Bank intended to auction the charged piece of land which was worth Kenya Shillings 43million for the repayment of a Kenya Shillings. A chargee shall, before exercising the right of sale, ensure that a forced sale valuation is undertaken by a valuer.

If the price at which the charged land is sold is twenty- five per centum or below the market value at which comparable interests in land of the same character and quality are being sold in the open market—

there shall be a rebuttable presumption that the chargee is in breach of the duty imposed by subsection (1); and

the chargor whose charged land is being sold for that price may apply to a court for an order that the sale be declared void, but the fact that a plot of charged land is sold by the chargee at an undervalue being less than twenty-five per centum below the market value shall not be taken to mean that the chargee has complied with the duty imposed by subsection (1).

5 million loan which was only 12% of the value of the land. It cannot be right to lose 88% of the value of one’s property only because one is a defaulter. The 75% of the value requirement is quite rational given that it still gives the bank a leeway of 25%. PROPOSED REFORMS My concern with the S.97(3) provision is the recognition, as stated above, that circumstances must necessarily arise negotiations to secure the price. The bank should in such special cases be allowed to apply to the court to be enabled to sell at the highest attainable price. I do not however envision these cases to be the rule but rather the exception.

Make provision for joint spousal registration and documentation of land rights, and for joint spousal consent to land disposals, applicable for all forms of tenure. Law should cater for polygamous marriages and customary marriage. Law should disregard any transactions entered under undue influence. Article 40 (1) of the Constitution states that every person has the right either individually, or in association with others to acquire and own property, this is read with Article 27(3) and Article 65 of the Constitution of Kenya.

A matrimonial home can have a valid charge to it subject to consent of the spouse as per the land act but it is under the umbrella of the Matrimonial Property Act to the effect that it can’t be alienated in any form whether by way of sale, gift, lease, mortgage or otherwise. If a chargor has placed a matrimonial home as security and is in default of payment such a person should expressly tell the chargee that the land is his matrimonial home so that the chargee will know what precautionary measures to take.

The notices favour the chargor and this may lead to bad debts. where the bank is unable, with due diligence and within reasonable time, to find a buyer at 75% of the price or where they would have to enter into costly and delayed

Omondi Philip is a Law Student at Daystar University.

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