KENYA Law and Practice Contributed by: Anne Kinyanjui and Bonface Abuya, DLA Piper Africa, Kenya (IKM Advocates)
3. Real Estate Finance 3.1 Financing Acquisitions of Commercial Real Estate The acquisition of commercial real estate is usually financed as follows: • by borrowing from financial institutions, including commercial banks and savings and credit co- operatives; • through REITs; or • through joint ventures. Where the government is involved, acquisition may be financed by the government itself or by public-private partnerships. 3.2 Typical Security Created by Commercial Investors A commercial real estate investor that is borrowing funds to acquire or develop real estate will typically create the following security. • A legal charge over the real estate in favour of the lender. • Assignment of receivables: During the develop - ment, the receivables will include insurance pro - ceeds, rights in project bank accounts and/or rights and interest to contracts and agreements relevant to the project. After the development, the receivables will typically be rental income. • Direct agreements with respect to key construction contracts (required by certain lenders). 3.3 Restrictions on Granting Security Over Real Estate to Foreign Lenders There are no restrictions on granting security over real estate to foreign lenders, nor on making repayments to a foreign lender under a security document or loan agreement. However, like citizens and Kenyan cor - porations, a foreign lender or foreign security trustee would be required to have an Ardhisasa account in order for security over immovable property to be cre - ated in its favour. For security over movable assets, the foreign lender would need to appoint a Kenyan agent (typically, Kenyan counsel) to register relevant notices at the Collateral Registry on its behalf. Foreign lenders should also note the potential implications of
Transaction Costs The transaction costs typically borne by the seller are: • costs of subdivision or change of use of the land, if required (unless otherwise agreed); • costs of obtaining relevant consents, including LCB consent in the case of agricultural land; • CGT; and • legal fees (unless otherwise agreed). The transaction costs typically borne by the purchaser are: • costs for valuation of the property; • stamp duty; • registration fees for the transfer; and • legal fees. 2.11 Legal Restrictions on Foreign Investors Foreign Ownership of Land Article 65 of the Constitution prohibits foreigners from owning freehold land. Foreigners may own land based on a leasehold tenure only, and such leases are for a maximum period of 99 years. Any freehold land or lease for a term exceeding 99 years held by a foreigner is deemed to be a lease of a maximum period of 99 years from 27 August 2010. Under the Constitution, a body corporate is regarded as a Kenyan citizen only if it is wholly owned by Ken - yan citizens. Where the property is held in trust, it is regarded as being held by a Kenyan citizen if all its beneficiaries are Kenyan citizens. Dealings in Agricultural Land Sections 6 (1) (a) and (c) as read with Section 9 (1) (c) of the LCA prohibit LCBs from approving: • the sale, transfer, lease, mortgage, exchange, parti - tion or other disposal of or dealing with any agricul - tural land situated within a land control area where the beneficiary is not a citizen of Kenya; and • the issue, sale, transfer, mortgage or any other disposal of or dealing with any share in a private company or co-operative society that, for the time being, owns agricultural land situated within a land control area in favour of a person that is not a citizen of Kenya.
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