Here is the big question: Is it okay to buy land with a charge? Or in other words, is it okay to buy land that has been purchased by a developer through a bank loan? It is highly likely that the portion of land or the plot of land that you are about to purchase from any of the well-established land developers in Kenya is funded by a financier.
Most of these huge developers, the world over, and across the real estate industry, usually buy huge chunks of land that is mostly funded by either: private equity, joint ventures or bank loans among other financing options.
“A land with a charged title means that the entire property at hand is funded by a bank, and the title is held by the bank as security for the loan led. Which is a good thing for you, since you are assured of thorough due diligence on the property at hand. In such a case, the property developer will always give you a bank escrow account so that once you have completed paying for your particular plot of land; you automatically get partial discharge of charge as part of your completion documents,” says George Wachiuri, Optiven Group CEO.
He adds, “This requires a trustworthy developer who does not divert the money.”
An escrow account on the other hand simply means an account that is owned by both the land owner and the bank. Once you get your partial discharge of charge, your small portion of land cannot be taken back by the bank if the landowner or developer fails to honor the loan.
Wachiuri observes that buying a property that has been financed by a loan then, is a very common thing. He also points out that the price of such property, just like any other property that has been individually financed, is independent of the bank loan associated with it and only determined by the prevailing market price and as per its valuation. He notes, “Such an arrangement is only but very in-house, only involving a developer and their financer, and does not in any way affect the retail purchasers of the plots that are hived off the main piece of land.”
A partial discharge of charge is a one page document in 3 copies and it is prepared by a lawyer, stamped and signed by the bank, and that is anchored against the lands act 2012 and the registered land act, 1963, now repealed, (cap 300).
“This document means that the buyer of a portion of land or a plot for that matter is officially, legally and safely out of the development loan and has no risk whatsoever of losing their fully paid property.
Having completed your payment, you now also have a subtitle that has your name on it and legally speaking, you are not only the rightful owner of your property, but now you are also completely out of any attachment to the developer versus their bank’s loan,” says Wachiuri.
This document comes in triplicate – one copy to the client, a copy to land Registry and one copy to the financier. The document is a proof that you are not part of the loan and financier cannot repossess your property in case the principal borrower fails to honour the loan obligations.
The CEO notes that over the years, Optiven Real Estate has undertaken a number of massive projects and partial discharge of charge is part of the completion documents. He adds: “There are very few real estate developments that are done on cash basis, save for a few smaller projects.”
Other completion documents include original title deed or certificate of title, rates and rent clearance certificate, sellers pin and a copy of a national identity card. If selling is by company, the certificate of registration, a CR 12, three copies of transfer forms, consent to transfer, among other depending on the nature of the property ownership document.
So, the only property buyer who can lose their property due to a loan that has been taken by a developer is those who have not paid through an escrow account and who have not been given a partial discharge of charge after completing their payment of their portion of land.
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