KENYA Law and Practice Contributed by: Anne Kinyanjui and Bonface Abuya, DLA Piper Africa, Kenya (IKM Advocates)
7.6 Liens or Encumbrances in the Event of Non-Payment Unless restricted in the construction contract, an unpaid contractor has a builder’s lien over the constructed property so long as it maintains pos - session of the property. Financiers may require a contractor to sign a waiver of a builder’s lien. Notably, the Government Proceedings Act pro - hibits the exercising of liens over government property. 7.7 Requirements Before Use or Inhabitation For a project to be inhabited, a certificate of practical completion must be issued by a quali - fied architect, and a certificate of occupation must be issued by the relevant county govern - ment. The sale of non-residential premises is subject to VAT under the VAT Act. This position has, how - ever, been challenged recently and is subject to litigation in various courts in Kenya. 8.2 Mitigation of Tax Liability Large real estate investors mitigate tax liability by: • applying for the development to be declared an SEZ under the SEZ Act, which has many tax benefits, including reduced corporate taxes and exemption from the payment of CGT on transfers of property within the SEZ, stamp duty and excise duty. Further, royal - ties, interest, management fees, professional fees, training fees, consultancy fees, agency or contractual fees paid by an SEZ developer, 8. Tax 8.1 VAT and Sales Tax
• proper risk allocation to the party best suited to manage the risk – usually the contractor; • limitation of the contractor’s liability to the price of the contract; • indemnity and warranty provisions to cushion the project proponent from construction risks; • the requirement for the contractor to take up insurance against construction risks; • force majeure provisions to cushion the par - ties from unforeseen circumstances that may delay or render the project impossible to implement; and • performance guarantees and bonds, particu - larly in government projects. 7.4 Management of Schedule-Related Risk The parties may agree to a milestone-based construction schedule. The contract may pro - vide for liquidated damages to be paid by the contractor in the event of inexcusable delays in attaining the milestones. In cases of inordi - nate inexcusable delays, the contract may also provide for termination at the discretion of the aggrieved parties. 7.5 Additional Forms of Security to Guarantee a Contractor’s Performance Project owners may call for additional security to guarantee a contractor’s performance, including: • guarantees from the contractor’s parent com - pany and third-party sureties; • performance bonds from reputable insurers; • payment guarantees from the contractor’s bankers; • letters of credit from reputable financiers; or • holding the contract sums in an escrow account, with payments being released to the contractor upon the attainment of relevant milestones.
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