The Real Estate and Regulation Bill, 2023 (the Bill) has been introduced to Parliament and seeks to provide for:
the regulation of the business of negotiating for or otherwise acting in relation to the selling, purchasing or letting of land and buildings;
regulation and registration of real estate agents, land companies and developers; and
establishment of the Real Estate Board.
Brief Highlights of the Bill
The Bill seeks to establish a regulatory regime in order to deal with fraud in the real estate industry which is estimated to run over Kenya shillings one hundred billion (KES100,000,000,000) annually.
The Bill, if passed, would revoke the Estate Agents Act, Cap. 533. The Bill, however, contains transitional provisions and provides that any direction, notice, order, permit or any other document that was granted, issued or made under the Estate Agents Act, and that was valid immediately before the coming into force of the Bill, would be given effect as if granted, issued or made under the Bill.
The Bill proposes to establish a real estate board (the Board) to, among others regulate and register real estate agents and real estate projects. It also provides for the annual licensing of real estate agents and further provides timelines for registration and sanctions for failure to register.
The Bill further provides for the functions and duties of developers, obligations of developers on the veracity of an advertisement or prospectus, registration of real estate projects, entering into agreements for sale, adherence to approved plans and project specifications by developers, obligations of developers in case of transfer of a real estate project to third parties, insurance of real estate projects, transfer of title, obligations not to issue misleading representations and compensation for loss on behalf of purchasers.
The Bill also deals with rights and duties of purchasers. The Bill, if passed, would entitle the purchasers to obtain the information relating to approved plans, layout plans along with the specifications, approved by the competent authority and such other information and to know time schedule of completion of the project, including the provisions for water, sanitation, electricity and other amenities and services as agreed to between the developer and the purchaser in accordance with the terms and conditions of the agreement for sale.
Detailed Overview of the Bill
The Bill provides for the following key provisions:
Establishment of a Real Estate Board
The Bill proposes the establishment of Real Estate Board (the Board) whose functions would be to, among others:
regulate real estate agents and real estate projects;
register real estate agents and real estate projects; and
licence real estate agents.
The Bill defines “real estate agent” as a person who sells, offers for sale or offers for rent a piece of land, building or any part of a building.
The Bill defines “real estate project” as a project where (a) land exceeding five acres is subdivided and offered for sale; or (b) more than ten built units are developed for sale.
Establishment of the office of the Registrar of Real Estate Agents and Projects
The Bill proposes the establishment of the Registrar of Real Estate Agents and Projects (the Registrar). The Registrar is to be appointed by the Real Estate Board and the Registrar will be required to:
maintain a register of real estate agents and real estate projects;
receive applications for registration and, with the approval of the Board, register real estate agents and real estate projects;
on the recommendation of the Board, suspend or revoke the registration of a real estate agent or real estate project; and
perform such other functions as may from time to time be assigned by the Board.
The Registrar will also be required to establish and maintain an online digital real estate portal (the Online Portal) which shall:
facilitate the registration of real estate agents;
facilitate the registration of real estate projects;
provide platform for interaction between real estate agents and developers with the National and county governments, private institutions, investors and other relevant institutions;
provide access to finance, information, innovation and the global market for real estate agents and developers;
provide information on clearances, approvals and registration requirements for real estate agents and real estate projects; and
receive complaints and comments from members of the public and other industry stakeholders.
Registration of real estate projects
Application for registration of real estate projects: - If the Bill is passed, no developer may advertise, market, book, sell, offer for sale or invite persons to purchase any plot, apartment or building in any real estate project that is not registered. An application for registration of a real estate project would be required to include, among others, all approved plans, a brief detail of the projects launched by the developer, in the previous five years, whether already completed or being developed, as the case may be, including the current status of the said projects, any delay in its completion, details of cases pending, details of type of land and payments pending.
Response to application: - The Board would be required to grant or reject registration within 14 days of the application being made.
Revocation of registration: - The Board may revoke registration if the developer indulges in fraud, violates the Bill or any of the conditions of approval or if the developer is involved in unfair practices such as issuing false representations.
In case of revocation of registration of a project under the Bill, the association of purchasers shall have the first right of refusal for carrying out of the remaining development works.
The Bill does not, however, contain any transitional provisions on how existing real estate development are to be registered.
Developer’s Duties
The Bill defines “developer” as: - (a) a person who offers for sale built units in a real estate project; or (b) a person who offers for sale land in a real estate project.
The Bill proposes the following developer duties:
Continuous updating of the Online Portal: Developers will be required to constantly update the Online Portal with, among others:
quarterly up-to-date the list of number and types of apartments or plots, as the case may be, booked; and
quarterly up-to-date status of the project.
Acceptance of Deposits from Purchasers: Developers will not be permitted to accept deposit of more than 10% without first entering into a written agreement for sale.
Alterations to Approved Plans: Developers will be required to adhere to approved plans and project specifications, including not making any alterations or additions in the approved plans of the buildings or the common areas within the project without the previous written consent of at least two-thirds of the purchasers, other than the developer, who have agreed to take apartments in such a building.
Transfer of the project to other developers: Developers will not be permitted to transfer or assign their majority rights and liabilities in respect of a real estate project to a third party without obtaining prior written consent from two thirds of the purchasers and without the prior written approval of the Board.
Insurance: Developers will be required to obtain all insurances as may be required by the Board, including but not limited to insurance in respect of (a) title of the land and building as a part of the real estate project; and (b) construction of the real estate project. Developers shall be liable to pay the premium and charges in respect of the insurance and shall pay the same before transferring the insurance to the association of the purchasers.
The Bill further requires that the transfer of insurance be done within three months from date of issue of occupancy certificate.
Not to Mortgage/Charge a Booked Apartment: after a developer executes an agreement for sale for any apartment, plot or building, as the case may be, it may not mortgage or create a charge on such apartment, plot or building, as the case may be, and if any such mortgage or charge is made or created then notwithstanding anything contained in any other law for the time being in force, it shall not affect the right and interest of the purchasers who has taken or agreed to take such apartment, plot or building, as the case may be.
Compensation: The Bill proposes that if the developer fails to complete or is unable to give possession of an apartment, plot or building, the developer shall be liable on demand to the purchaser, in case the purchaser wishes to withdraw from the project, without prejudice to any other remedy available, to return the amount received by the developer in respect of that apartment, plot, building, as the case may be, with interest at such rate as may be prescribed in their behalf including compensation.
Where a purchaser does not intend to withdraw from the project, they shall be paid, by the developer, interest for every month of delay, till the handing over of the possession, at such rate as may be prescribed by the Board.
Developer’s Statutory Declaration: The Bill, if passed, would require the Developer to issue a statutory declaration (the Statutory Declaration) indicating:
that the developer has a legal title to the land on which the development is proposed along with legally valid documents with authentication of such title, if such land is owned by another person;
that the land is free from all encumbrances, or as the case may be details of the encumbrances on such land including any rights, title, interest or name of any party in or over such land along with details;
the time period within which the developer undertakes to complete the project or phase thereof, as the case may be;
that seventy per cent (70%) of the amounts realised for the real estate project from the purchasers, from time to time, shall be deposited in a separate account to be maintained in a scheduled bank to cover the cost of construction and the land cost and shall be used only for that purpose;
that the developer shall withdraw the amounts from the separate account, to cover the cost of the project, in proportion to the percentage of completion of the project;
that the amounts from the separate account shall be withdrawn by the developer after it is certified by an engineer, an architect and a chartered accountant in practice that the withdrawal is in proportion to the percentage of completion of the project;
that the developer shall get their accounts audited within six (6) months after the end of every financial year by a chartered accountant in practice, and shall produce a statement of accounts duly certified and signed by such chartered accountant and it shall be verified during the audit that the amounts collected for a particular project have been utilised for that project and the withdrawal has been in compliance with the proportion to the percentage of completion of the project; and
that the developer shall take all the pending approvals on time, from the competent authorities.
Purchasers Rights and Duties
The purchasers shall be entitled to:
obtain the information relating to approved plans, layout plans along with the specifications, approved by the competent authority;
know the time schedule of completion of the project, including the provisions for water, sanitation, electricity and other amenities and services as agreed to between the developer and the purchaser in accordance with the terms and conditions of the agreement for sale;
claim the possession of apartment, plot or building and the association of purchasers shall be entitled to claim the possession of the common areas, as per the Statutory Declaration;
the refund of amount paid along with interest at such rate as may be prescribed and compensation in the manner as provided under the Bill, from the developer, if the developer fails to comply or is unable to give possession of the apartment, plot or building, in accordance with the terms of agreement for sale or due to discontinuance of their business as a developer on account of suspension or revocation of his registration;
have the necessary documents and plans, including that of common areas, after handing over the physical possession of the apartment or plot or building as the case may be, by the developer.
The purchasers’ duties under the Bill include:
taking physical possession of the apartment, plot or building as the case may be, within a period of two months of the occupancy certificate issued for the said apartment, plot or building.
participating towards the formation of an association of the purchasers.
Offences
Non-registration of real estate project – The Bill provides that a person who undertakes a real estate project that is not registered commits an offence and would, upon conviction, be liable to imprisonment for a term not exceeding three years or to a fine of not less than five million shillings, or to both.
Giving false information -The Bill provides that a person who provides false information to the Board commits an offence and would, upon conviction, be liable to pay a penalty of five per cent of the estimated cost of the real estate project, as determined by the Board.
Failure to comply with orders of the Board - The Bill provides that a person, who fails to comply with, or contravenes any of the orders or directions of the Bill, would be liable to a penalty for every day during which such default continues, which may cumulatively extend up to Kenya Shillings twenty million or ten per cent of the estimated cost of the real estate project, whichever is higher, as determined by the Board.
Failure to comply with orders of court - The Bill provides that a person who fails to comply with, or contravenes any of the orders or directions of the court issued under the Bill commits an offence and would, upon conviction, be liable to imprisonment for a term not exceeding three years or to a fine not exceeding Kenya Shillings ten million, or to both.
General Penalty - The Bill provides that a developer convicted of an offence under this Act for which no other penalty is provided shall be liable to a fine not exceeding Kenya Shillings one million.
Conclusion
These are the key features of the Bill which we hope you have found insightful. The Bill has just been introduced to the Senate and is yet to be subjected to public participation.
For further information please contact Walid Khan or your relationship partner at Africa Law Partners.