Steps in Undertaking property Due diligence in Kenya

Acquiring property in Kenya can be a very stressful, time-consuming and costly process when one doesn’t follow the right procedure. The Kenyan real estate industry is lucrative estate and very industrious with a number of fraudulent cases being reported daily.   It is therefore imperative to conduct a complete due diligence before purchasing any type of property.

Due Diligence Process

After sourcing the property that you want to purchase or rent, so many questions run through your mind on whether the property is genuine or priced correctly. Understanding how one can do due diligence will help in answering these tough questions. Here is a process or steps you could undertake before purchase;

1.      Physically visit the property to identify that the details described are accurate.

2.      Obtaining legal documents of the owner/agent authority to sell

3.      Perform a legal search at the land registry

4.      Perform a legal search at the county registry search

5.      Search in the registry of persons.

6.      Verification with the Utility Companies

7.      Revisit the Site visit to confirm Search findings.

 

1.      Physically visit the property to identify that the details described are accurate.

After filtering through a couple of properties you have been able to identify the property in which you want to invest your money. The first step is going to see the property and its features physically so that you ascertain that the property really does exist. Additionally, the site visit will help you obtain the history of the property. Here are some of the key details to check for when performing a site visit: -

                                     i.          The location of the property

The site visit helps to ensure that the location information advertised is true. Also, the buyer will see the kind of neighbouring communities near the property.

                                    ii.          The dimensions of the property

After contacting the seller, one can request the map of the land/drawing or of the building in order to confirm the dimensions of the property during the site visit. Especially when dealing with land it is important to hire a surveyor when verifying the dimensions and checking the location of the beacons.

                                   iii.          Features and amenities of the property

Some of the important features for a buyer to look out for include, the nearest schools, police station, shopping Centre, and administrative offices. The availability of transport systems such as bus stops. In the case of building site visits, one checks on the availability of water, electricity and backup generators and comfort features such as gym and swimming pools.

For purchasing an old building with the aim of renovating the house, one will need to contract a licensed Civil Engineer to inspect the integrity of the building. This will help the client in assessing the state of the building and help the buyer to make an informed decision on whether to purchase the building or not.

                                   iv.          Meeting the owner and understanding the reason for selling the property

It is very important during the site visit to talk with the owner/seller of the property so as to know why is the property being sold. Is it because the owner is looking to reinvest his/her money elsewhere, is it because the owner is pressed for money or is it cause the property is being auctioned?

                                    v.          Readiness of the title deeds for the property

This will enable the buyer to plan and know before had how long it will take for the change of ownership to occur after purchasing the property.

                                   vi.          Determining the form of payment

The buyer will be able to know the kind of payment plan the seller is accepting. This will help to know if the buyer can be able to plan a budget for the purchase. The site visit will help the buyer know which banking institutions or Saccos the owner of the property is working enabling one to plan their finances.

                                 vii.          Talking with the neighbours of the property and understanding the environment

By talking with the local people near the area, one can obtain information about the land and also understand the culture of the community that stay in that area and assess if one will fit in the community.

                                viii.          Determining if there are zoning restrictions

During the site visit, one can make sure that the land is zoned for the intended use and that there are no restrictions or limitations on the use of the property. This can be through enquiring with the owner and the locals.

It is also important to note that the seller might not facilitate for the site visit hence one needs to make their own arrangements. Additionally, it is important to tag along with a person or persons who will give you an independent opinion about the property, rather than solely relying on your own decision.

 

2.      Obtaining legal documents of the owner/agent authority to sell

 

After visiting the site, one has to prepare to do a property search. There are essential documents that one needs to obtain from the owner.

Land Search Copy Documents include the following: -

•         Copy of the National ID of the owner
•         Proof of Land ownership that is the title deed
•         Foreign national registration certificate- alien card (copy) For foreigners who are residents in Kenya
•         Mutation Certificate
•         Mother Title
•         General Power of Attorney certificate if the purchase was through GPA

Building Search Documents include the following: -

•         Sale deed. This is the most important piece of paper required for property purchase. ...
•         Completion/Occupancy Certificate
•         Building Plans
•         Encumbrance Certificate
•         Mutation Certificate
•         General Power of Attorney
•         No Objection Certificate
•         CR12 certificate if dealing with a real estate developer
•         Neema Certificate
•         Approved Structural and Architectural plans

Despite having all the necessary paperwork to transfer the land, one might not have the legal right to do so. For example, a son or daughter cannot sell the home of their parents. Even in cases when the parents have passed away, the children must get letters of administration from the courts before they may manage the estate.

Partial authority is another possibility. For instance, the bank would need to approve the purchase if it had a charge on the property.

A Power of Attorney may also be used to obtain the necessary authorization to sell the property. Therefore, it is crucial to ensure that the person claiming to sell you the property is fully authorized to do so and, in cases where partial power is held by a third party, that the third party has given their approval.

Another illustration is the situation of a lease, where the property may only be subleased with the owner's permission. Ensure you do not lease from any other person except the owner of the property.

3.      Perform a legal search at the land registry

In order to verify the eligibility of the copies obtained a search at the land registry is required. Depending on where the property is located a search can be done online or by visiting the lands office. If the property is located within Nairobi one can use the land registry platform www.https//ardhisasa.lands.go.ke to perform a search which will cost ksh 500. For property outside Nairobi, one will need to go to the relevant land county offices to request for a search to be done. Within a day or two, the search results will come out. The results will contain the following information:

•                  The name of the registered proprietor/owner of the land.
•                  Any encumbrances over the land such as charges, (where the land had previously been charged or mortgaged to a financial institution), registered caveats, cautions, or restrictions on the land, as well as other third-party rights such as existing easements and licenses.
•                  If the property is a government lease, the remaining duration of the lease.

There are situations that may require a historical search of the property especially when there is a dispute regarding ownership. This type of search will bring to light all the transactions related to the property and all the previous owners of the property in question.

 

4.      Perform a legal search at the county registry search

After completing the formal search indicated in the previous section, the buyer will go to the county government registration and go through the records kept there. After the buyer pays the required fees, the county government registrar will provide the following information about the property:

       i.          Whether or not land rates have been paid and are up to date.

Prior to receiving the title, the buyer will need to provide a Rates Clearance Certificate, thus it is crucial for them to be aware of whether or not the rates have been cleared. The land seller is responsible for paying all taxes.

      ii.          The registered “user” of the land.

Land is always split into separate zones with various "users" and categorized accordingly. The word "user" in this context refers to the permitted uses of the property. For instance, land that is categorized as "agricultural" may only be utilized for agriculture. On property that is classified as "residential," a factory cannot be built. A county registry search will help the buyer determine the classification of the land and determine whether their intended use of the land is in line with that designation. The buyer will have the choice of either cancelling the transaction or asking the seller to submit an application for a "change of user" if it does not fit the intended purpose

5.      Search in the registry of persons.

In recent years, this has grown to be a crucial stage. Many cases exist where con artists pretend to be the real owner of certain property in order to con unwary members of the public. The fraudsters create fake identity cards with their photos while the name one the ID is that of the legitimate landowner. They go ahead and sign a contract and get deposits and in some cases the full amount.

Thus, before finalizing the sale of the land, the buyer must confirm with the registrar of people that the seller's identification documents are genuine.

6.      Verification with the Utility Companies

When dealing with buildings one has to ensure that there are no pending unpaid utility bills by the seller this will help to avoid taking over bills that he/she did not incur.

7.Revisit the Site visit to confirm Search findings.

After completing the land search, a Deed Plan will be purchased from the applicable county surveyor's office by the buyer. A Deed Plan is a plan that depicts the dimensions of the land as well as the numerous measures, sizes, and bearings. The buyer will next employ a surveyor to personally examine the land to ensure that the demarcation beacons are in the correct locations and have not been tampered with.

For purchasing an old building with the aim of renovating the house, one will need to contract a licensed Civil Engineer to inspect on the integrity of the building. Obtain approvals from the public health office on sanitation and housing standards. Last but not least, one will need to request for inspection by the National Environmental Management Authority

 

 

 

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