Before You Sign: What Every Property Sale Agreement Should Cover

 

Many property disputes in our courts start with a sale agreement that was rushed, copied from the internet or never written down. A well-drafted agreement is the cheapest insurance a buyer or seller can buy.

The legal minimum. Under section 3(3) of the Law of Contract Act, a contract for the sale or other disposition of an interest in land must be in writing. It must be signed by all parties, and each signature must be attested by a witness who was present. An oral land deal, however sincere, is generally unenforceable.

Clauses that matter most.

• The parties and the property: full names, ID or registration numbers, and an exact description of the property as it appears on the title.
• Price and payment: the deposit, how the balance will be paid, and who holds money pending completion, often the advocates as stakeholders.
• Completion: the completion date, and what each party must deliver, such as the original title, signed transfer, consents, clearance certificates and keys.
• Conditions: any consents needed, such as Land Control Board consent for agricultural land or spousal consent for matrimonial property, and what happens if they are not obtained.
• Encumbrances: whether the property is charged to a bank, and how the charge will be discharged, usually through professional undertakings between advocates.
• Default: remedies if either side fails to complete, including completion notices, forfeiture of part of the deposit, refund terms and interest.
• Costs and taxes: who pays legal fees, stamp duty, valuation and registration fees.

The Law Society Conditions of Sale. Many agreements incorporate the Law Society of Kenya Conditions of Sale. These fill in gaps the parties did not expressly cover, but the specific terms should still be spelt out.

Involving all stakeholders. Where several people have an interest, such as co-owners, spouses or financiers, sharing drafts early avoids last-minute objections that derail completion.

Takeaways. Do not pay a deposit before the agreement is signed and searches are done. Never hand over money directly to a seller you have not verified. Have an advocate draft or review the agreement, because a few hours of careful drafting can save years of litigation.

Sued for Trying to Help: Getting a Wrongly Named Party Out of a Claim

A shop owner introduces a customer to a supplier, or offers to help two people resolve a disagreement over a purchase. The deal then goes wrong, and the disappointed buyer sues everyone they can think of, including the person who simply tried to help. Being named in a suit you have nothing to do with is stressful, but the law provides a way out.

Who can properly be sued. A claim must disclose a cause of action against each defendant or respondent. There must be facts which, if proved, would make that person legally liable. In a sale gone wrong, liability ordinarily lies with the party who sold the goods, received the money or made the promise. It does not lie with someone who merely introduced the parties or offered to mediate afterwards.

The mediator's position. Offering to help resolve a dispute does not make a person a party to the original transaction, nor a guarantor of its outcome. Treating peacemakers as defendants would discourage the informal dispute resolution the courts encourage.

How a wrongly named party responds.

• File a response on time. Even if the claim is baseless, failing to respond risks judgment by default.

• Apply to be struck out. Where the claim discloses no cause of action against them, the party can ask the court to strike out their name early, saving time and costs.

• Present the documents. Payment records showing who received the money, messages showing who made the deal, and evidence of the limited role the respondent played.

• Ask for costs. A party dragged into litigation without basis may seek costs against the claimant.

In the Small Claims Court. The Small Claims Court Act aims for quick, fair decisions, and the court can deal with the issue of a wrongly joined respondent early. Raising it at the first opportunity is important.

Takeaways. If you broker introductions or help resolve customer disputes, keep a record of your role and avoid handling money on behalf of either side. If you are sued anyway, do not ignore the papers. A prompt, focused response usually ends your involvement quickly.

"The Title Is in My Brother's Name, but the Property Is Ours": Family Property and Trusts

 

In many families, property is bought or developed together but registered in the name of one person. That might be the eldest sibling, the one who happened to be present at the land office, or the one trusted to hold it for everyone. Years later, relationships change, and the registered owner claims the property as solely theirs.

Registration is strong, but not everything. A registered proprietor's title is generally conclusive. But the Land Registration Act recognises that a title can be subject to trusts. Section 28 lists trusts, including customary trusts, among the overriding interests that bind registered land even if they are not noted on the register.

Kinds of trust the courts recognise.

• Resulting trust: where one person paid, wholly or partly, for property registered in another's name, the law may presume the registered owner holds it for the person who paid.
• Constructive trust: where it would be unconscionable for the registered owner to deny another's interest, for example after promising a share that the other relied on.
• Customary trust: particularly for ancestral or family land held by one member on behalf of the family.

Proving the claim. The burden lies on the person asserting the trust, and the evidence decides most cases. Useful proof includes payment records, family agreements and correspondence, evidence of who built, occupied and developed the property, and testimony from relatives or others who know the history.

The right court. Disputes over land are heard by the Environment and Land Court. Magistrates' courts also hear such disputes within their pecuniary limits, which keeps many family land cases closer to home and less costly.

Takeaways. If family members contribute to buying or developing property, record each person's share in a written agreement, or register the property jointly. If you already find yourself in this situation, collect every record of your contribution now and take advice before the property is sold or charged to a bank.

One Plot, Two Owners: Double Allocation by Local Authorities

 Across Kenya's growing towns, many people hold plots first allocated by the old municipal and town councils. When those councils were replaced by county governments, records were not always transferred cleanly. A common result is double allocation: the same plot allocated to two people, sometimes decades apart, each holding papers that look genuine.

Allotment letter vs title. An allotment letter is an offer to allocate land, usually subject to conditions such as paying stand premium and rates within a set time. Accepting the offer and meeting the conditions creates an interest that the courts will protect. A title, once issued, is generally conclusive proof of ownership. But section 26 of the Land Registration Act allows a title to be challenged where it was obtained by fraud or misrepresentation, or acquired illegally, unprocedurally or through a corrupt scheme.

How courts resolve competing claims. The Environment and Land Court, which has jurisdiction under Article 162(2)(b) of the Constitution, examines the root of each party's title. Key questions include:

• Who was allocated first, and did they meet the conditions of allotment?
• Was the plot available for allocation when the second allotment was made?
• Do the council minutes, receipts, survey plans and registry records support each claim?
• Did the later allottee know, or ought they to have known, of the earlier interest?

The county government's role. As successor to the former council, the county holds the records and is often a necessary party. Its officers' evidence on how the plot was handled can be decisive.

Patience and preparation. These cases are document-heavy and can take years, especially where the original records are incomplete. Success depends on assembling the full paper trail and witnesses who can explain it.

Takeaways. If you hold an allotment letter, pay all charges promptly, keep every receipt and follow through to a title. Before buying a plot, search county records and the land registry, and visit the site. If someone else claims your plot, seek advice early, before structures go up and positions harden.

You Owe the Money but Need Time: Settling a Debt Claim on Workable Terms

 

Not every defendant in a debt claim disputes the debt. Often a business owner accepts that money is owed but simply cannot pay it all at once. Burying the claim in a weak defence wastes money and goodwill. A negotiated, documented settlement is usually the smarter path.

Why engage rather than ignore. A defendant who ignores the demand or the suit risks a default judgment. That can bring interest, costs and execution against business assets or bank accounts with little warning. Engaging early, through an advocate, keeps control of the timetable in the debtor's hands.

What a good settlement covers.

• the agreed amount, including any reduction of interest or costs;
• a realistic instalment schedule matched to the business's cash flow;
• what happens if an instalment is missed, such as a default clause allowing judgment for the balance;
• whether the claimant will withdraw the suit, or record a consent judgment payable by instalments; and
• an undertaking that no execution will issue while payments are honoured.

Using the court's process. Settlements are often recorded in court as consent orders, which gives both sides certainty. Even after judgment, Order 21 Rule 12 of the Civil Procedure Rules allows the court, for sufficient reason, to order payment of a decree by instalments. That can provide breathing room where negotiation has failed.

Dealing with the other side's advocates. Settlement talks between advocates should be candid and without prejudice. Proposals should be backed by something credible, such as a first payment or evidence of expected income.

How we assist. We review the claim for any genuine dispute over the amount, then propose terms the client can actually meet. We record the settlement so the client is protected from sudden execution.

Takeaways. If you owe money, respond to demands promptly and propose a realistic plan. Only commit to instalments you can pay, since a missed payment often brings the whole balance due at once.

You've Won by Default. Now Get Paid: From Default Judgment to Execution

When a defendant is properly served but does not enter appearance or file a defence, the claimant may obtain judgment in default. It feels like the end of the case, but a judgment is only paper until it is enforced. What happens next decides whether the client actually recovers anything.

How default judgment works. Order 10 of the Civil Procedure Rules allows the court to enter judgment where a defendant fails to appear or defend within the prescribed time. This applies only if service is proved, usually through an affidavit of service. For liquidated claims of a fixed sum, judgment can be final. For other claims, the court may enter interlocutory judgment and then assess damages.

Step one: extract the decree. The decree is the formal document that embodies the judgment. Execution cannot begin without it. The claimant's advocate drafts it, shares it with the other side where required, and has it signed and sealed by the court.

Step two: choose the right mode of execution. Depending on the debtor's assets, the options include:

• attachment and sale of movable property through a licensed auctioneer;

• garnishee proceedings to seize money held by third parties, such as bank balances;

• attachment of immovable property; and

• a notice to show cause why the debtor should not be committed to civil jail, where there is evidence they can pay but refuse.

Expect a fight. Defendants who ignored the suit often reappear at execution and apply under Order 10 Rule 11 to set the judgment aside. Courts will consider whether service was proper, whether the defendant has a defence that raises triable issues, and the reason for the delay. Solid proof of service from the start is the best protection.

Takeaways. Keep careful records of how and when the defendant was served. After judgment, move quickly to extract the decree and enforce it, before assets are moved. Investigate the debtor's assets early so that execution targets something real.

LIFTING THE VEIL OF INCORPORATION

There are two areas that allow a company’s veil of incorporation to be lifted thus exposing the members to liability.

These can be found in Common Law and in Statute

At Common Law

Illegality

At common law, if a company engaged in an illegal business e.g. terrorism, the Courts have held that the veil could be lifted, This is now codified in a number of statutes such as the Anti Money Laundering and Proceeds of Crime Act, Environmental Management Act, Tax procedure Act.

Where Company is acting as an agent of members

This instance can be described by the case of Daimler Co -vs- Continental Tyres – German Co. In this case, a company was incorporated in England to sell tires made in Germany by a German company. The shareholders were all German except one who was born in Germany and had become a naturalized British citizen. 

After the outbreak of the first world war between England and Germany, continental tire being the German company did not pay any amount claiming that it would amount to trading with an enemy nation thus violating trading with enemy act 1914. The secretary initiated an action against the same. The same was adjudged in favor of the German company meaning that the company had an enemy character. The secretary approached the house of lords against the decision of the court of appeal.

The house of lords allowed the appeal and held that though the company is a separate artificial person from its shareholders when the shareholders or the agents who are having the control of the company are from the enemy country, then the company will assume an enemy character and not otherwise. 

The court thought that the character of individual shareholders cannot affect the character of the company when everything is at peace or when it is not wartime, but when it is wartime, the agents or anyone who is taking instructions from such shareholders who is from an enemy country is important to consider to determine the character of the company as a whole. The court very strongly held that in this case, it is presumed that the company had enemy character, being the secretary holding just 1 share out of 25000 shares who is from England and the rest being from Germany, the court held that the onus is one the company to prove that the secretary was not taking orders from other shareholders from an enemy country. 

The Ratio decidendi, in this case, is that the Court established that the action and character of the shareholders can influence the actions of that particular company and the company can acquire enemy character because if the shareholders who are from the enemy country take decisions for the company[1].

Further reference can be found in the case of Firestone Tires Co -vs- Llewellyn.

Improper conduct/Fraud

A company’s veil may be lifted due to improper or fraudulent conduct. In the case of Jones -vs- Lippman Jones agreed to sell land to Lippman. He changed his mind. He thereafter formed a company and transferred the land to the company in a bid to avoid the sale. 

The Company refused to transfer the land to Lippman. The matter went before the Court for specific performance, the Court, in ordering specific performance ruled that: “the defendant company is the creature of the first defendant, a device and a sham, a mask which he holds before his face in an attempt to avoid recognition by the eye of equity.”

Another instance where a Company was used as a sham is to be found in the case of Gilford Motors Company -vs- Horne.

For the protection of revenue

For tax purposes and for purposes of discharging various tax burdens a Company’s veil may be lifted to prevent tax evasion.

By way of Statute

 

A company’s veil will be lifted if it is trading in a name other than its registered name

 

A company’s veil can be lifted if the Company failed to publish names as prescribed /required by Act.

 

For purpose of group accounts, group of company, the Act requires each of the members be dissolved and accounts done separately before the group.

 

Investigating membership- a company’s veil may be lifted by the state when undertaking investigations and inspections under the Companies Act. This can also appear in the investigations of affairs of the company by the registrar of Companies or the Court. If the registrar has reason to believe the company is being used for improper use. The veil may lifted for investigation

 

Failure to file relevant tax returns;

 

A company’s veil may be lifted during takeovers and mergers where approvals are required- who are the significant shareholders as the Competition Authority considers this.

 

The veil of a company may be lifted during Dissolution/consolidation, especially where part of issued share capital has not been paid up.

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[1] https://indianlawportal.co.in/daimler-co-v-continental-tyre-and-rubber-co/