NEW LAND REGULATIONS – EXTENSION AND RENEWAL OF LEASES

By Muthoni Runji,Alex Njage Friday, July 06, 2018
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As you may be aware, Parliament recently approved a number of Rules and Regulations issued under the Land Act No. 6 of 2012 and the Land Registration Act No. 3 of 2012 relating to land. 
We have reviewed the Rules and Regulations and will highlight, through a series of alerts, the new land procedures that are now governed by the Rules and Regulations. 
In this issue, we will cover the topical issue of extension and renewal of leases.

Extension vs. Renewal

The Rules create the following distinctions between extension and renewal of leases:

Extension of Lease Renewal of Lease
The application may only be made before expiry of the lease. The application may be made either before or after expiry of the lease.
Once approved, such extension takes effect on the last day of the unexpired term and does not extinguish the unexpired term. Accordingly, if a lease expires on 31 December 2018, then the extension of lease will come into effect on 31 December 2018, for a further 99 years if the approved term for the extension is 99 years. Once approved, renewal of a lease takes effect immediately.
Results in preparation and registration of a new lease and issuance of a certificate of lease for the extended period. Results in the issuance of a new letter of allotment as well as the preparation and registration of a new lease; thereafter, a new certificate of lease is issued for the renewed term.


The application process

At all times during the application process, the National Land Commission acts on behalf of either the national government where the leasehold interest was granted by the national government or the county government where the leasehold interest was granted by the county government.

The Land Act requires the National Land Commission to notify the existing owner of a leasehold interest in land of the impending expiry of their lease at least 5 years before the lapse of the lease. 
Applications for extension or renewal of leases may be made in response to such notification or at any time before such notification where the owner of a leasehold interest in land deems it fit to apply for an extension of lease.  The Rules do not give a specific timeline after the date of issuance of a title deed for a leasehold interest, within which you can apply for a renewal of lease or extension of term on a lease.  However, in previous practice, when the owner of a leasehold interest in land has less than 50 years remaining on a 99-year lease, or less than 25 years remaining on a 50-year lease, they would then apply for a renewal of lease or an extension of the term of the lease.

Applications are made to the National Land Commission, which forwards the applications within 7 days of receipt, to the Cabinet Secretary for Lands (where the national government is the landlord) or to the County Executive Committee Member responsible for land matters (where the county government is the landlord) for consideration.

Factors considered before granting or declining an application for extension of the term of a lease or renewal of lease

The following factors are considered before the decision is made to grant or decline applications for extension of the term on a lease or renewal of a lease:

  1. the citizenship of the applicant and in the case of a company, the citizenship of persons holding shares in the company – confirmation of the citizenship of the shareholders of the company should be submitted, in the form of an official search from the companies registry:

Citizenship Consideration: Renewal of Expired Leases

    1. Kenyan Citizens: the pre-emptive right to offer the lease to the immediate past owner will apply as required by law, if the land is not required for a “public purpose.” “Public purpose” is discussed below.  Where the land is required for some public purpose, then it shall not be offered to the immediate past owner even if they are a Kenyan citizen.

      Non-citizens or companies with non-citizen shareholders: no pre-emptive rights apply and the land will revert to the national government or county government, as the case may be, and thereafter, it may be offered to the general public by way of a competitive process.

Citizenship Consideration: Extension of the Term of a Lease

    1. Kenyan Citizens: there is no restriction on the maximum number of years a lease can be extended by the National Land Commission.
    2. Non-citizens or companies with non-citizen shareholders: the aggregate number of years that may be granted cannot exceed 99 years. This is in line with the Constitutional provision that restricts the maximum tenure on land that should be granted to foreigners to a term not exceeding 99 years.

Other Considerations for Both Renewal of Leases and Extension of the Term of a Lease

  1. confirmation that land rates and rent clearance certificates have been obtained and that all outstanding land rates and rent have been settled;
  2. whether there are existing encumbrances on the leasehold title deed for which an extension of lease or renewal of lease is being sought – copies of all charges, leases, easements, wayleaves etc. registered against the title should be submitted.  In our view, having encumbrances will not adversely affect the application for renewal of a lease or extension of the term of a lease, but rather, it is meant to ensure that where there is a valid encumbrance, then that encumbrance is reflected in the new lease to be issued, in the event that a renewal of the lease or extension of lease is approved.  Where there are no encumbrances, then the new leasehold title will be issued without inheriting any encumbrances from the previous lease.  there are no encumbrances on the leasehold title deed; and
  3. evidence that the landowner has complied with the terms and conditions of the existing lease -  this would involve submission of building approvals and plans where the existing lease has a condition requiring the landowner to develop the property in accordance with plans approved by the national government or county government, and the like.

Circulation Letters Seeking Representations

  1. The guidelines on extension and renewal of leases published in the Kenya Gazette in June 2017, require that representations be sought from all relevant authorities by way of letters (commonly referred to as “circulation letters”), for both applications for extension of leases and renewal of leases.  However, the Land (Extension and Renewal of Leases) 2017 published in December 2017, require representations from the relevant government authorities to be sought only in instances where the leasehold interest has already expired.  It will be interesting to see how this requirement will be implemented, although we expect that representations from the relevant authorities will be sought in relation to all applications for extension or renewal of leases, as has been the practice previously.
  2. An approval shall only be issued where favourable representations are received.

Substantial transactions

The Rules provide additional factors to be considered in instances of applications relating to “substantial transactions”.  These factors include:

  1. whether the renewal is beneficial to the economy and the country;
  2. whether the investment is in accordance with national/regional/county policies; and
  3. whether the renewal is in the public interest, public safety, public order, public morality, public health and land use planning.

The Land Act defines a “substantial transaction" to include a transaction that involves the transfer, leasing or licensing of land to any investor to carry out developments in agriculture or whose land has: i) direct developmental benefits for Kenya through improved food security; ii) infrastructural developments which benefits the public; or iii) strong linkages to other industries in Kenya and generates substantial foreign exchange.

Approved application

When the application is approved, the National Land Commission requires the landowner to re-survey the land in order to re-value the land for determination of the new land rent payable.

  1. Extension of Lease Approval:

The National Land Commission prepares a fresh lease for the extended period and gets the lease registered by the Registrar of Land. The lease will be for the period commencing after the expiry of the existing term.

  1. Renewal of Lease Approval:

The National Land Commission issues a new letter of allotment in the prescribed form and thereafter, a new lease.

Declined application and the right of appeal

If an application for extension or renewal of lease is declined, the reasons for declining the application must be given.  

There will be instances when the reason for a decline is that the land is required for a “public purpose”.  The Land Act has a very broad description of what “public purpose” entails. It includes transportation, such as roads, railway, airports; public buildings, such as schools, factories, public housing; public utilities for water, sewerage, electricity, dams; public parks; sports facilities; cemeteries; security and defense installations; settlement of squatters; poor and landless; internally displaced persons; and any other purpose similar to those mentioned above.

In instances where the land is required for a public purpose, the National Land Commission must satisfy themselves that the land is already included in the County or National Spatial Plans, in relation to county and national governments respectively and in the Cities and Urban Areas Plans, where the land is within a city or urban area.  In addition, the national government or the relevant county government must justify the need to use the land for a public purpose.  The Rules do not provide a mechanism for determining whether a justification is acceptable or not.

Where an application for extension of leases or renewal of leases is declined, an inventory of all developments on the land will be carried out and the landowner will be required not to develop the land further.

The landowner whose application is declined has the right to appeal the decision to the Independent Appeals Committee.  If the applicant is not successful, he can  further appeal to the Environment and Land Court.

Timelines

Upon receipt of an application for extension of leases or renewal of leases, the National Land Commission must deliver the application to the national government (where the leasehold interest is from the national government) or the relevant county government (where the leasehold interest is from the county government), within 7 days of receipt.

The national government or the relevant county government must make a determination within 90 days of receipt of the application from the National Land Commission.

Where an aggrieved landowner appeals a decision declining an application for extension or renewal, the appeal must be determined by the Independent Appeals Committee within 60 days.

Our next issue in this series will cover compulsory acquisition of land and assessment of just compensation.

If you have any questions, please contact Alex Njage or Muthoni Runji.