Property ownership in Kenya is categorized into two forms of tenure: Freehold and Leasehold. The distinction between these two types of ownership is significant. Whether you are an investor, developer, or homeowner, it is essential to understand the differences, as they affect ownership rights, and the responsibilities tied to the property.
This article will explore these differences, relying on critical laws such as the Constitution of Kenya (2010), the Land Act (2012), the Land Registration Act (2012), and the Sectional Properties Act (2020). Additionally, we will examine the advantages and disadvantages of each type of ownership. However, the law recognizes that there shall be equal recognition and enforcement of land rights arising under all tenure systems and non-discrimination in ownership of and access to land under all tenure systems.
1. Freehold Property: Absolute Ownership
Freehold, also known as absolute ownership, means the unlimited right to use and dispose of land in perpetuity subject to the rights of others and the regulatory powers of the national government, county government and other relevant state organs. This means the owner has complete control over the property, including the right to transfer it to heirs indefinitely. Freehold property is typically used for residential and agricultural purposes and offers more flexibility in terms of land use.
Legal Framework for Freehold:
- Constitution of Kenya (2010): Article 40 guarantees the right to own property, including freehold land, protecting property owners from arbitrary deprivation.
- Land Act (2012): This act regulates the acquisition and transfer of freehold land and specifies that only Kenyan citizens can hold freehold titles.
- Land Registration Act (2012): Ensures proper registration and documentation of freehold titles.
Advantages of Freehold:
- Perpetual Ownership: The owner holds indefinite rights to the land.
- No Annual Rent: Unlike leasehold, there are no recurring rental payments to the government or any third party.
- Flexibility: Freehold property owners have more freedom to develop and use their land, subject to zoning regulations.
Disadvantages of Freehold:
- Higher Initial Cost: Acquiring freehold land can be more expensive compared to leasehold.
- Limited Availability: Freehold land is rare in urban areas, as most city land is held on leasehold terms.
2. Leasehold Property: Time-Limited Ownership
A lease means the grant, with or without consideration, by the proprietor of the land of the right to the exclusive possession of his or her land, and includes the right so granted and the instrument granting it, and also includes a sublease but does not include an agreement for lease. Accordingly, leasehold ownership grants the right to use and occupy land for a specific period, usually 33, 50, or 99 years. The land remains under the ownership of the government or another entity, and leaseholders must comply with the terms of the lease, including paying annual land rent.
Parties Involved in Leasehold Property:
- Lessor (Landowner): The individual, entity, or government body that owns the land and grants the lease to the lessee. The lessor retains ownership of the land but gives the lessee the right to use the property for a specific period.
- Lessee (Leaseholder): The individual or entity that holds the leasehold title and has the right to use and develop the land during the lease period. The lessee must comply with the terms of the lease, including payment of annual land rent and adherence to any use restrictions.
- National Land Commission: Plays a significant role in the oversight of leasehold properties, especially for public land leases. The Commission ensures that leaseholders comply with the terms of the lease and oversees the renewal or termination of leases.
- County Governments: In leasehold properties, county governments impose land rates and, in some cases, have a role in leasehold renewals, particularly when the land is government-owned.
Legal Framework for Leasehold:
- Constitution of Kenya (2010): Allows for leasehold tenure and caps the maximum lease period for non-citizens at 99 years.
- Land Act (2012): Outlines the procedures for lease agreements and renewals.
- Land Registration Act (2012): Ensures leasehold titles are legally binding and properly registered.
- Sectional Properties Act (2020): Enables the subdivision of buildings into units, allowing individual ownership of sectional properties (e.g., apartments) even if the land is leasehold.
Advantages of Leasehold:
- Lower Initial Cost: Leasehold properties generally require less upfront capital than freehold properties.
- Urban Availability: Most urban land, including land for commercial and residential developments, is leasehold, making it more accessible for investors and developers.
Disadvantages of Leasehold:
- Limited Ownership Period: Ownership is restricted to the lease term, after which the land reverts to the lessor unless renewed.
- Annual Rent: Leaseholders must pay annual rent to the government or the freeholder, which can increase over time.
- Restrictions: Lease agreements may include specific restrictions on how the land can be used or developed.
3. Key Differences Between Freehold and Leasehold Property
(a) Ownership Duration
- Freehold: Perpetual ownership, lasting indefinitely.
- Leasehold: Limited to the lease period, which could be up to 99 years, after which the lease must be renewed.
(b) Cost
- Freehold: Higher initial acquisition cost but no recurring annual rent.
- Leasehold: Lower initial cost, but with recurring annual rent payments to the lessor, the respective County Government and Land rent to the National Government through the National Land Commission.
(d) Legal Restrictions
- Freehold: Only Kenyan citizens can hold freehold titles.
- Leasehold: Available to both citizens and non-citizens, with lease periods for non-citizens capped at 99 years.
(e) Sectional Properties and Leaseholds
Sectional Properties Act, 2020: For multi-unit developments like apartments, the Sectional Properties Act allows for ownership of individual units even on leasehold land. Each unit has a separate title, and the common areas are managed collectively.
4. Renewal and Conversion of Leasehold Titles
Leasehold titles must be renewed upon expiry, typically under the oversight of the National Land Commission. Leaseholders can apply for renewal and provided they have complied with the terms of the lease, renewal is often granted.
In certain cases, leasehold land can be converted to freehold, especially for urban and agricultural land, subject to the approval of relevant authorities and compliance with the law.
Conclusion
Choosing between Freehold and Leasehold property in Kenya depends on various factors, including the purpose of the property, budget, and long-term plans. Freehold offers perpetual ownership with minimal restrictions, making it ideal for personal residences and long-term investments. On the other hand, Leasehold provides easier access to urban land but comes with time limitations and annual rent obligations.
For individuals and investors, understanding these distinctions, as well as the legal framework governing both types of ownership, is crucial in making informed decisions about property acquisition in Kenya. Legal advice is highly recommended to navigate these nuances and ensure compliance with the various laws regulating land ownership. Contact us at Njaga & Co. Advocates for personalized advice and reliable legal support. Let us simplify your property journey!