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RECOMMENDATIONS ON THE REPORT TO ESTABLISH A REAL ESTATE DEVELOPER REGULATORY BOARD

By: IT Support November 5, 2020 no comments

RECOMMENDATIONS ON THE REPORT TO ESTABLISH A REAL ESTATE DEVELOPER REGULATORY BOARD

RECOMMENDATIONS ON THE REPORT TO ESTABLISH A REAL ESTATE DEVELOPER REGULATORY BOARD

We refer to the above matter, and the call for comments on the proposed regulations shared by the KEPSA secretariat via the email dated 8th September, 2020.

Noting that there are no existing regulations, we could not abide by the preferred structure on giving legislative proposals. Below are the recommendations from Karanja-Njenga Advocates on the report dated 14th July, 2020 by the State Department for Housing & Urban Development. In the practice directions and the policies to be adopted by the board, we propose the following to be at the core of regulation of Developers:

  1. The Board must lean on the Developers to ensure the Sale Agreement and Letter of Offer provide for safeguards for the Purchaser. The Sale Agreement must have specific conditions as relates to off-plan developments. The conditions that must be included are: a Project Implementation Timetable, Building Plan, Site Plan, schedule of finishes and a default clause in favour of the Purchaser, in the event that a developer fails to procure completion of construction works in accordance with the foregoing. This will ensure the problem of non-delivery of projects, delayed projects and failure to begin projects is mitigated.
  2. The Board should see to it that the registered Developer meets a checklist of minimum requirements. For example: the minimum capital a Developer must have to start a development. This will discourage Developers who have a motive of defrauding unsuspecting Kenyan from starting “developments” which they don’t intend to deliver.
  3. The developer’s seed capital, should be deposited into the escrow account, and should be a sufficient proportion of the total cost of putting up the project.
  4.  The Board should ensure it disseminates as much information as possible to the public. It should be public information whether a development is debt-financed or off plan- financed; the mode of financing is critical in an off-plan development, this is because financing dictates whose interest is registered against the development.

Where a developer seeks financing from financial institution, the institution has a higher-ranking interest on the development than a bona fine Purchaser who merely signs a Sale Agreement or a Letter of Offer. The Board should publish notices of approved developers as envisioned in the report.

  1. The Board must require of the Developer to share as much information as possible with regards to the development to the Board. An irreducible minimum of the information to be submitted to the board should include the Developers architect, bankers and legal advisors, total estimated project implementation cost and timetable.
  2. The defect liability period in the Sale Agreement or Letter of Offer should only be tied to the possession and occupation of the Purchaser. A bona fide Purchaser is not able to detect defects on the development within the usually provided six (6) months. The National Construction Authority (Defects Liability) Regulations, 2020 provides for a period of 12 months for patent defects and 6 years for latent defects, this should be the standard going forward.
  3. The Board needs to undertake due diligence when registering Developers and their developments. The Board needs, for example, to ascertain that the land for the proposed development belongs to the Developer and the Developer is a qualified and honest entrepreneur with no criminal record. Only developers who own the land proposed for putting up units, should be allowed to offer them to the public. Developers should also warrant that the property is not subject to competing claims, or legal disputes.
  4. The Board must put restrictions on the land that a proposed development is to be erected. After registering a scheme, the Developer cannot purport to transfer the land to a third party.
  5. The Board must undertake to implement their practice directions and policies. The Board must issue fines and strict penalties for non-compliance. For example: a Developer who does not deliver a project may be struct off from the register of Developers.
  6. The Board to ensure it works retrospectively to already existing off-plan developments which have been offered for taking up by the public, and require the concerned developers to regularise their operations so as to comply.

The establishment of the proposed board will go a long way in upholding Article 43(1) (b) of the Constitution of Kenya, 2010: “Every person has a right to accessible and adequate housing and to reasonable standards of sanitation”.

By Peris Wambui

Advocate Trainee

 

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