By Joan Ogeto
Kenya’s Legal Framework for Land Charges Ensures Lender Security While Safeguarding Borrower Rights
In property financing, particularly when land is used as collateral, the concept of a charge is fundamental. It serves as a legal mechanism through which lenders secure the repayment of money or the performance of an obligation. According to Section 2 of The Land Act, 2012 and the Land Registration Act, 2012, a charge is defined as:
“An interest in land securing the payment of money or money’s worth or the fulfilment of any condition, and includes a sub-charge and the instrument creating a charge.”
Simply put, a charge is a form of security that confers certain rights to the lender (the chargee) from the borrower (the chargor). However, it does not transfer ownership of the land. The chargor retains legal title, while the charge serves only as a protective interest to ensure repayment. For professionals involved in estate administration, asset valuation, or loan recovery, understanding the operation of land charges, particularly in cases of default or death of the borrower, is crucial for accurate reporting and risk mitigation.
Initiating the Securitization Process
The process of securitizing a loan through a charge typically begins with a loan application made by the borrower to a lending institution. Before formalizing the charge, the lender undertakes an internal due diligence process, which includes a credit assessment of the borrower, verification of ownership, and valuation of the proposed security property.
While much of this occurs internally, when a legal counsel is engaged in the process, they are expected to guide the lender on engaging relevant professionals, such as registered land valuers, surveyors, or environmental assessors, depending on the complexity of the transaction. In practice, banks usually involve their legal advocates after issuing and executing the offer letter, which outlines the terms of the facility and the intention to secure it with a charge over the borrower’s land.
Legal practitioners play a critical role in the securitization of land-based loans, ensuring that all legal, procedural, and documentary requirements are met to create an enforceable charge. The roles of advocates differ depending on whether they represent the lender (chargee) or the borrower (chargor).
Duties of the Chargee’s (Lender’s) Advocates
Once the offer letter is executed, the lender’s advocates take over formalization of the charge. Their duties typically include:
- Advising the lender on the appropriate form of security and confirming the adequacy of the asset to secure the loan;
- Conducting a due diligence and thorough title investigation to ensure the chargor holds valid and unencumbered ownership rights;
- Assessing the chargor’s legal capacity to create the charge. For companies they assist in confirming chargor’s capacity to transact through assessment of Articles and Memorandum of Association; For trustees they verify powers under the trust deed, and finally if the chargor is a spouse they ensure proper consent and independent legal advice was obtained before charging the property;
- Drafting and overseeing execution of the charge instrument, ensuring legal compliance in attestation and witnessing;
- Where the charge was created by a company, coordinating stamping and registration of the charge at the Lands Registry and the Companies Registry (within 30 days under Section 884 of the Companies Act, 2015);
- Preparing and forwarding a final report on title and confirming proper registration;
- Confirming disbursement of loan proceeds to the borrower and following up on professional fees.
Duties of the Chargor’s (Borrower’s) Advocates
Advocates for the borrower ensure their client understands and legally complies with the obligations imposed by the charge. Key duties include:
- Reviewing and explaining the offer letter, clarifying the implications of the loan and the charge;
- Obtaining all necessary consents and clearances, especially where the property is jointly owned or subject to prior encumbrances;
- Securing professional undertakings to safeguard title documents and ensure proper registration prior to disbursement;
- Approving the draft charge and advising the client on its terms and legal effect;
- Facilitating payment of stamp duty and ensuring the client is adequately funded for all associated registration costs.
What Happens When a Borrower Dies Before Repaying a Secured Loan?
The death of a borrower does not erase their financial obligations, particularly where a charge had been registered over land as security for a loan. In such cases, the outstanding loan becomes a liability of the deceased’s estate. Responsibility for settling the debt falls to the personal representative of the estate, either an executor named in a will or an administrator appointed by the court.
According to the Law of Succession Act (Cap. 160), section 79 vests personal representatives with the authority to manage the estate, including the obligation to deal with any debts. Further, section 88 of the Act makes it clear that settling debts takes priority over distributing the estate to beneficiaries. The loan, therefore, must be repaid before any inheritance is passed on.
Personal representatives are also under a duty to disclose all relevant information about the estate to the court, including any claims by creditors. Importantly, section 45 prohibits any dealings with a deceased person’s property unless expressly authorized under the Act. Only individuals holding a grant of representation have the legal mandate to transact on behalf of the estate, and only within the powers set out which govern how personal representatives may handle estate property. In short, the creditors, including those with secured interests over property, have a legitimate claim on the estate, and their interests must be addressed before any distribution to heirs or beneficiaries can occur.
Where a deceased person passes away intestate, that is, without leaving a valid will, the court retains final discretion in appointing the person or persons to administer the estate, always acting in the best interests of all concerned. Although this discretion is wide, the Law of Succession Act provides a general order of preference to guide the court in making such appointments.
The first priority is given to the surviving spouse or spouses, with or without the involvement of other beneficiaries. This is followed by other beneficiaries entitled under the intestacy rules, who are ranked in accordance with their respective beneficial interests as set out under the Act. If none of these parties are available or willing to act, the court may appoint the Public Trustee, and lastly creditors of the deceased’s estate may be considered for the grant.
This ranking is particularly important in the context of a deceased person who had outstanding debts, such as a secured loan. While creditors have enforceable rights against the estate, they are last in line when it comes to applying for letters of administration. Moreover, under Section 45 of the Law of Succession Act, no person, not even a creditor, can take possession of, dispose of, or otherwise intermeddle with the free property of a deceased person unless they are expressly authorized and have a valid grant of representation. Any contravention of this provision amounts to an offence, punishable by a fine, imprisonment, or both, and the offender is also civilly liable to the rightful administrator for the assets interfered with.
That said, in cases of partial intestacy, where the deceased left a valid will but it does not cover the entire estate, the executors who prove the will may be granted letters of administration over the undisposed portion. This framework ensures a balance between orderly succession and protection of lawful claims, giving those most closely connected to the deceased priority in managing the estate, but still requiring that all debts, including loans secured by a charge over land, be settled before any distribution to heirs or beneficiaries occurs.
Enforcement of Security by Chargee After Death of Chargor
While the personal representative of a deceased estate is legally responsible for settling debts including secured loans, practical delays often arise from obtaining grants of representation, beneficiary disputes, or willful obstruction. In these cases, lenders (chargees) are not required to wait indefinitely, as the law provides a structured enforcement process protecting secured creditors.
Under Section 90 of the Land Act, the chargee must first serve a 90-day written notice specifying the default’s nature and extent. If unresolved within the timeline, the chargee may pursue statutory remedies including filing suit for the debt, appointing a receiver, taking possession, leasing the property, or exercising power of sale.
When exercising power of sale, the chargee must serve an additional 40-day redemption notice to the personal representative before proceeding with any sale of the charged land. This provides the estate a final opportunity to settle the debt or make alternative arrangements.
If the estate fails to act and the default remains unresolved, the chargee may proceed with sale while observing strict obligations such as; conducting a professional valuation, ensuring the sale price meets is not less than 25% of its market value, and applying proceeds according to section 101’s priority order, first covering outstanding rents and rates, then discharging prior charges, settling enforcement expenses, repaying the principal debt, with any surplus going to subsequent encumbrances or the estate.
Crucially, before any sale, the chargor or in cases of death, the personal representative may still discharge the charge by full repayment. For public auctions, full compliance with the Auctioneers Act and Land Act is required, including proper public notice of sale date, time, venue and conditions.
The enforcement of land charges in Kenya presents a carefully structured legal framework that balances lender protection with borrower rights, particularly in cases of borrower death. For financial institutions and estate administrators, understanding this framework is essential. Lenders must meticulously follow statutory requirements, while personal representatives must be vigilant in addressing estate liabilities. he system ultimately serves to maintain confidence in Kenya’s property financing sector by providing clear, equitable solutions for debt recovery while protecting the interests of all parties involved. Proper adherence to these procedures not only ensures legal compliance but also contributes to the stability of Kenya’s credit market.
References
Auctioneers Act (Cap. 526)
Law of Succession Act, 2012 (Cap. 160)
Companies Act No. 17 of 2015(Cap. 486)
The author is a Law graduate (LLB Keele University UK) and writer. She is pursuing the Advocates Training Program (ATP) at the Kenya School of Law.
