Legal Due Diligence When Buying Property Off-Plan in Kenya

Legal Due Diligence When Buying Property Off-Plan in Kenya

Are you planning to buy a property off-plan? Many people are drawn to this option because it often offers a chance to purchase at a lower price than a completed property. However, while this can be an excellent investment, it comes with risks that demand careful due diligence. Here’s a detailed guide on conducting legal due diligence to safeguard your investment.

One of the most critical steps in off-plan property purchases is verifying ownership. The principle of Nemo dat quod non habet — “no one can give what they do not have” — highlights the importance of ensuring that the seller has legal rights over the property.

Questions to Ask:

• Who owns the property? Confirm that the company selling the off-plan property has legitimate ownership rights.
• Is there a joint venture agreement? If the developer works with a landowner, ensure the joint venture agreement is properly documented.
• What does the property title say? Conduct a title search to verify ownership and check for any encumbrances.
• Is the property charged to a bank? If the property is under a bank charge, determine what would happen if the developer fails to settle their financial obligations. Understand the remedies available to protect your interests.

It’s advised to hire a legal professional to conduct proper legal due diligence on the Property.

The reputation and legal standing of the property developer play a significant role in the success of your investment. Here’s what to look for:

• Ownership Structure: Obtain a CR12 from the Companies Registry to confirm the ownership and directorship of the developer company.
• Legal History: Investigate whether the developer is involved in any ongoing or past legal disputes that could affect the project’s completion. You can check this on Kenya Law Website. 
• Track Record: Look into the developer’s history. Have they completed similar projects on time and to standard?

Before you commit, ensure that the land use aligns with the intended development. Off-plan properties are often sold for residential or commercial purposes, and this needs to be legally approved.

• Has the user been changed? Verify whether the land has been approved for multi-dwelling developments, as required for most off-plan projects.
• Zoning Restrictions: Check local zoning laws and planning permissions to ensure compliance with the proposed use.

For off-plan properties, the development is often built on a larger parcel of land, commonly referred to as the “mother title.”

• Lease Period: Confirm the number of years remaining on the lease. A short lease may impact the property’s value and your ability to secure financing or resell in the future.
• Subdivision Approvals: If the property will be subdivided, ensure the developer has obtained the necessary approvals from relevant authorities.

The final step in off-plan property development is obtaining an occupation permit, which confirms that the construction meets all legal and safety standards.

• Has an occupation permit been issued? Ensure that the developer intends to and is capable of obtaining the necessary permits before handing over the property.

1. Work with Professionals: Engage a qualified lawyer to review all contracts and agreements. They can also help conduct searches and liaise with authorities to ensure compliance. Work with Architects to ensure that architectural plans have been properly approved.
2. Understand the Payment Plan: Familiarize yourself with the payment schedule and ensure it aligns with the milestones set out in the agreement.
3. Insurance Coverage: Check whether the property is insured during construction and if the developer has warranties in place for structural defects.
4. Read the Fine Print: Carefully review the sale agreement to understand the terms of purchase, timelines, and remedies in case of default.

It’s essential to obtain proper legal advice when buying property off plan or any property for that case.