Before entering into a lease agreement for land in Kenya, it is critical that you have a clear grasp of the nature of the endeavor you are committing to. Private land leases are generally for extended periods of time, with some leases lasting up to twenty years or more.
Because of the commercial interests you aim to create around the land you intend to lease, you will naturally want to be confident that you will have unrestricted use of the land for the period of the lease agreement you have agreed to with its owner(s).
What is a lease?
A lease is a commercial interest in property granted by the property’s owner (proprietor/lessor) that grants the person awarded that interest exclusive possession of the property (lessee/tenant) for the time period and under the terms and conditions stipulated in their agreement.
Are you thinking about leasing land to market or build a business? So, what are the five most important things you must do before arranging to lease land from its owner(s)?
- Conduct a search for that property
Now that you’ve determined that you want to lease land for commercial purposes, you’ll go to the market to identify possible lessors ready to lease you land that meets your needs. You will have determined the why (typically the cause for which you want to lease, such as an agri-business) and the when (when you wish to commence operations and for how long you want to run the lease). And, once you’ve identified possible lessors, you’ll negotiate some basic terms (I’ve heard the expression “irreducible minimums”) before reaching a final deal.
You can get information from a variety of sources, including the internet, newspapers and other publications, real estate brokers, lawyers, local administration, and many more.
2. Conduct Additional Research
Due diligence can thus be loosely defined as the process of determining if the individual supplying you the “item” has the competence to do so. While the theory primarily applies to sales contracts, it is also applicable to leases.
This procedure should assist you in clarifying and determining the following:
The Who: Who owns the land you want to lease?
The What: What are you leasing, and how much land are you getting?
The Where: Exactly where is the land you are leasing located?
3. Have a Written Contract
As a result, it is best practice to always have a signed lease agreement.
The desire for a written agreement is to assure strict adherence to what was discussed and agreed upon by both sides, but it also benefits you who is taking on the lease by ensuring that your rights are recognizable in defense against an owner who may seek to renege on your agreement.
A written agreement also prevents messy oral debates that deviate from what was agreed upon and recorded. The legislation only recognizes oral leases that do not exceed a two-year, non-renewable duration.
Other than price and duration, the agreement will cover issues such as assignment of responsibility for government levies (ground rent and rates in the case of leasehold land), maintenance, removals, and any other responsibilities, termination of the agreement, assignment of costs for property restoration, payment of registration fees, and much more.
A written agreement enables the parties to go beyond their legally implied rights and responsibilities. The dilemma over whether to have an oral or written agreement can be resolved by asking the following question: do you want to be very clear about where both parties stand, especially in the event of a land dispute?
4. Register Your Lease Contract
If you are getting into a lease arrangement that is at least two years long and renewable, you must have the lease registered with the relevant land registration.
Seek professional advice in resolving the agreement’s terms and conditions with the lessor. If you wish to be able to renew the lease at the end of the term or have first right of purchase if the lessor decides to sell the land at the end of the lease period, you must ensure that the lease is registered.
The reason for lease registration is to safeguard both the lessor and lessee’s rights, with the implied rights, duties, and obligations of both parties taking precedence. In the case that a landowner is declared bankrupt or dies, for example, a registered lease may serve to recognize and preserve the lessee’s rights when a trustee to the bankrupt person or administrators to the estate of the deceased lessor are appointed.
5. Make an Exit Strategy
It is rarely regarded at the outset of a venture to have an exit strategy or to plan too far ahead of all the intricacies that must be worked out at the time of the lease agreement. However, for business reasons, it is vital to have a clear understanding of the end goal from the start.
On the expiration of a lease, one of the implied terms is that the lessee will hand over control of the land in the condition in which it was delivered to him by the lessor. While this may be provided for in the registered lease agreement, it is important to think clearly and plan ahead for the exit, which will include thinking about what happens to any improvements you may have made to the land while leasing it, as well as the costs associated with returning the land to the condition in which it was originally handed to you, the lessee.
Your exit strategy only addresses the period immediately preceding the lessor’s disengagement.
