The Kenyan real estate market has seen a surge in off-plan property developments, offering buyers the allure of acquiring prime real estate at discounted, early-bird rates. However, purchasing a property that does not yet exist in physical form carries inherent risks. When an off-plan transaction fails, whether due to a developer’s delay, a buyer’s financial default, or a fundamental breach of contract, disputes inevitably arise over refunds, liabilities, and the forfeiture of deposits. Essentially, when an off-plan transaction collapses, the consequences can be severe, and many purchasers are shocked to learn that they may lose up to 10% of the purchase price.
What is the primary legal framework governing an off-plan sale relationship in Kenya?
The primary legal framework is the contractual documentation between the parties: the reservation form (if any), the letter of offer/booking form, and the formal agreement for sale (often incorporating the Law Society Conditions of Sale).
What is the place of a Letter of Offer in an off-plan transaction?
The Letter of Offer is the foundational document outlining the fundamental terms of the purchase, including the property particulars, purchase price, payment schedule, and completion date.
While it is often issued “Subject to Contract“, a properly drafted Letter of Offer, which outlines all the essential terms of the transaction, even the mode of completion, is a legally binding agreement in its own right. It commits the purchaser to the transaction by requiring the payment of a reservation fee and outlining the penalties for early withdrawal.
Kenyan courts have increasingly scrutinized Letters of Offers where developers attempt to treat them as binding yet deny buyers contractual protections. The determining factor is the intention to create legal relations. The prevailing law is that the parties to the letter of offer remain in negotiations pending the settlement of terms and the execution of the formal contract by way of an agreement for sale. Once the formal Agreement for Sale is executed, its terms supersede the Letter of Offer.
Between a letter of offer and an agreement for sale, which document prevails?
As a rule, the executed agreement for sale supersedes the letter of offer once it is signed, because it is the fuller, later, and more detailed bargain.
Most modern letters of offer from developers expressly state that they are legally binding, but also that “upon execution of a formal Agreement for Sale, the terms of the Agreement for Sale shall supersede this Letter of Offer,” reflecting the prevailing practice in Kenyan off-plan developments where letter of offers create intention to create legal relations which are elaborated in the subsequent sale agreements.
Do general LSK Conditions of Sale apply automatically to off-plan projects?
They do not apply automatically; they apply only if the agreement for sale expressly adopts them, in whole or in modified form, as the parties’ agreement provides.
However, courts frequently refer to LSK Conditions by analogy (especially in relation to completion notices and rescission) when construing completion and forfeiture provisions in off-plan and other land sale contracts.
How do the Sectional Properties Act and its Regulations fit into off-plan governance?
For apartment developments, the Sectional Properties Act and the Sectional Properties Regulations govern the creation of sectional plans, the issuance of sectional titles, and the establishment of a management corporation.
In most off-plan developments, the vendor undertakes to geo-reference the development, procure a sectional plan and process sectional titles, and to create a management corporation whose bylaws will bind purchasers.
How does forfeiture work in an off-plan transaction?
Forfeiture is a contractual remedy invoked when a purchaser breaches the agreement, most commonly by failing to make scheduled instalment payments or unilaterally withdrawing from the transaction. Instead of the developer having to prove the exact financial loss caused by the buyer’s default, the contract pre-estimates this loss as “liquidated damages.”
If the purchaser fails to comply with a default notice within the specified time (often 21 days), the vendor has the right to rescind the agreement. Upon rescission, the vendor can forfeit the agreed-upon liquidated damages from the monies already paid by the purchaser. Any remaining balance is typically refunded to the purchaser only after the property has been successfully resold to a third party.
Should the vendor retain 10% of the purchase price or 10% of the deposit if the transaction does not go through?
This is a highly contested issue in Kenyan property law. Legally and practically, forfeiture clauses in standard off-plan agreements are pegged to 10% of the total Purchase Price, not just 10% of the deposit.
However, courts will not allow vendors to automatically retain this 10% if the vendor themselves is at fault. In Ogutu v Anjichi (2025), the High Court declined to award the vendor the 10% forfeiture claim. Because the vendor breached the contract by failing to issue the required statutory notice before reselling the property, the court ordered the full restitution of the deposit to the purchaser. Furthermore, under Kenyan case law, forfeiture clauses must represent a genuine pre-estimate of loss; if a court deems the retained amount to be an exorbitant penalty rather than liquidated damages, it may intervene.
What happens when the purchaser is in default? What steps should a vendor take before terminating?
Best practice, often mandated by the contract or LSK Conditions, is:
- Serve a written default/ completion notice specifying the breach, giving a defined cure period (e.g. 21 days) and stating that time is of the essence.
- On failure to comply, issue a formal rescission notice, compute the sums to be forfeited under the clause, and arrange refund of any surplus only after resale if the contract so provides.
What happens when the vendor is in default? What remedies are available to the purchaser?
The common vendor defaults include:
- Delay in completion,
- Failure to obtain a sectional title,
- Failure to deliver completion documents,
- Material deviation from approved plans.
If any such default occurs, the purchaser may seek:
- Rescission and refund of all sums paid together with interest, arguing that any forfeiture clause should not benefit a defaulting vendor and may be an unenforceable penalty in the circumstances.
- Specific performance (where completion is still realistic), or damages for delay, breach of specification, or misrepresentation, especially where marketing materials painted a materially different picture from the delivered unit.
What actually happens to money already paid if the off-plan deal fails?
The answer turns on the wording of the contract and which party is in breach: a well-drafted agreement will set out forfeiture, refund timelines, and whether refunds are conditional upon resale.
In many Kenyan off-plan contracts, the purchaser forfeits a stated 10% of the purchase price, while any additional sums are refundable without interest only after the unit has been resold and fully paid for.
Is it time for Kenya to enact a law to govern off-plan transactions?
Absolutely, yes! While the Sectional Properties Act of 2020 has streamlined the issuance of sectional titles, Kenya currently lacks a dedicated, comprehensive regulatory framework strictly for off-plan developments. Buyers are heavily reliant on general contract law and on the developer’s integrity. Also, there is unequal bargaining power, with standard form contracts drafted entirely by developers and little room for negotiation, particularly on forfeiture, delays, and variations.
The enactment of a specific Off-Plan Real Estate Act is long overdue. Such legislation should mandate the use of independent escrow accounts to hold purchaser deposits, ensuring that developers only access funds as construction milestones are met. It should also enforce strict statutory penalties for developers who abandon projects or egregiously delay completion, moving beyond the standard contractual force majeure protections that currently shield developers from liability for delays.
Countries like the UAE, UK, Singapore, and South Africa have strong off-plan regulation, including:
- Escrow accounts
- Developer licensing
- Mandatory project insurance
- Strict timelines and reporting
Kenya urgently needs similar protections.
Key Considerations for Purchasers Before Entering an Off-Plan Transaction
Before buying any property in Kenya, please conduct extensive due diligence on the property and the developer. You can read our previous articles on Property Due Diligence Guide and A Simplified Guide to Property Due Diligence in Kenya
Generally, the key considerations are: –
- Conduct due diligence on the developer
- Review the LOO carefully; it is binding
- Understand the forfeiture clause
- Confirm project approvals and titles
- Ensure payments are made to a controlled account
- Engage an independent advocate (not the developers)
- Understand timelines and force majeure clauses
- Confirm refund timelines and conditions
How Njaga & Co. Advocates LLP Can Assist You
At Njaga & Co. Advocates LLP, we provide end-to-end legal support in:
- Off-plan property purchases
- Real estate due diligence
- Reviewing and negotiating Letters of Offer
- Drafting and negotiating Agreements for Sale
- Advising on forfeiture and refund disputes
- Representing purchasers or developers in court
- Structuring compliant off-plan projects for developers
- Advising diaspora investors on safe property acquisition
Our goal is to protect your investment, reduce risk, and ensure you enter every transaction with clarity and confidence.
Disclaimer: This article provides general information and does not substitute legal advice on specific circumstances of any individual or organization. While the information is accurate as of the date published, we cannot guarantee it remains accurate at the time you read it or that it will stay current. Before acting on any of this information, please seek professional legal advice tailored to your situation.
