Commentary: Signed, Sealed… and Still Cancelled? The Imperative of Indemnity and Refund Clauses in Kenyan Land Transactions

The Supreme Court of Kenya’s ruling in Harcharan Singh Sehmi & Another v. Tarabana Co. Ltd & 5 Others (SC Petition No. E033 of 2023) has sent ripples through the Kenyan property market, fundamentally reshaping the legal landscape of land ownership. This landmark decision underscores a critical reality: a title deed, once revered as an unassailable symbol of ownership, is no longer a guaranteed shield against challenges rooted in historical irregularities. The Court’s ruling, coupled with the vulnerabilities it exposes, makes a compelling case for incorporating robust indemnity and refund clauses in land sale agreements—clauses that must endure beyond the moment of registration.

The appellants in this case held a leasehold interest in a Nairobi property (L.R. No. 209/2759/9) since 1968, with a 59-year lease set to expire in 2001. Three months before the lease’s expiry, they applied for an extension, a process acknowledged by the Commissioner of Lands and supported by letters from the Director of Physical Planning and Director of Survey, indicating no objections. Yet, inexplicably, the application languished for eight years. During this period, the appellants continued occupying the property, paying rates and rent, under the reasonable expectation that their lease would be extended.

In a shocking turn, the property was allocated to the 2nd respondent, Rospatech Limited, in 2009 by a lands officer—not the Commissioner of Lands—contrary to the procedural requirements of the Government Lands Act (repealed). Rospatech promptly transferred the property to the 1st respondent, Tarabana Company Limited, who claimed to be a bona fide purchaser for value without notice of any defects. The appellants were forcibly evicted in 2014, prompting a legal battle that culminated in the Supreme Court.

The Environment and Land Court (ELC) initially ruled in the appellants’ favor, nullifying the allocation to Rospatech as unlawful and restoring the appellants’ title, citing their legitimate expectation of lease renewal and the fraudulent nature of the subsequent transfer. However, the Court of Appeal overturned this decision, holding that Tarabana’s title was indefeasible under Section 26 of the Land Registration Act, as there was no evidence of their involvement in fraud.

The Supreme Court, in a decisive judgment delivered on April 11, 2025, reversed the Court of Appeal’s ruling. It held that:

1. The allocation to Rospatech was illegal due to procedural irregularities, including allocation by an unauthorized officer and failure to follow public auction requirements under the Government Lands Act.

2. Tarabana was not a bona fide purchaser because the root of their title was unlawful. The Court emphasized that a title derived from an illegal allocation cannot be protected, regardless of the purchaser’s good faith.

3. The appellants had a legitimate expectation that their lease would be extended, given their timely application, continued possession, and lack of objection from relevant authorities.

4. Article 40(6) of the Constitution and Section 26(1)(b) of the Land Registration Act preclude protection for titles acquired illegally, unprocedurally, or through corrupt schemes, even if held by a subsequent purchaser.

The Court ordered the cancellation of Tarabana’s title, reinstatement of the appellants as proprietors, and demolition of structures erected by Tarabana within six months.

This ruling exposes a stark vulnerability in Kenya’s land market: registration does not confer absolute security. The Court’s reliance on Article 40(6), which excludes protection for unlawfully acquired property, and Section 26(1)(b), which allows challenges to titles obtained illegally or unprocedurally, shifts the focus to the root of the title. As articulated in Dina Management Limited v. County Government of Mombasa (2023), a title’s validity hinges on the legality of its initial acquisition. If the root is tainted, no amount of good faith or due diligence by a subsequent purchaser can sanitize it.

For buyers, developers, and financiers, this is a wake-up call. A certificate of official search, which merely confirms the current registered owner, offers no insight into the historical integrity of the title. Irregularities buried in the chain of ownership—such as unauthorized allocations, as seen in this case—can resurface years later, rendering a title void. The Supreme Court’s rejection of the bona fide purchaser defense in such scenarios means that even innocent buyers bear the risk of losing their investment.

Moreover, the Court’s affirmation of the doctrine of legitimate expectation in lease renewals adds another layer of complexity. Lessees who apply for lease extensions in good time, occupy the property, and receive no objections from authorities may have a protectable interest, even after the lease expires. This creates potential competing claims that buyers must navigate, further eroding the certainty once associated with a registered title.

The Solution: Indemnity and Refund Clauses as Essential Safeguards

The Harcharan Singh Sehmi ruling underscores the urgent need for contractual protections in land sale agreements. Indemnity and refund clauses, tailored to survive registration, are no longer optional—they are critical to mitigating the risks of title cancellation.

An indemnity clause obligates the seller to compensate the buyer for losses arising from title defects, fraudulent dealings, or historical irregularities. In the context of this case, had Tarabana secured an indemnity from Rospatech, they could have sought recourse for the loss of their title and the costs of demolishing their developments. A robust indemnity clause should:

• Cover all defects in title, including those predating the seller’s ownership.

• Include legal and financial losses, such as litigation costs, lost investment, and damages from eviction or demolition.

• Survive registration, ensuring the seller remains liable even after the buyer is registered as the proprietor.

A refund clause ensures that, in the event of title cancellation, the buyer recovers the property’s current market value, not merely the purchase price. Land values in Kenya, particularly in urban centers like Nairobi, appreciate rapidly. A refund pegged to the original purchase price—Kshs. 24,000,000 in Tarabana’s case—would be grossly inadequate today. A market-value refund clause protects the buyer’s investment and accounts for appreciation, ensuring they are not left financially stranded.

The risk of title challenges does not end with registration, as this case vividly illustrates. Tarabana, a registered proprietor with a seemingly clean title, was stripped of ownership due to irregularities predating their purchase. Sale agreements must explicitly state that indemnity and refund obligations persist post-registration, binding the seller (and potentially their successors) to address future claims.

Drafting these clauses requires precision. They should:

• Define triggers for indemnity or refund, such as court-ordered title cancellations or challenges based on illegality.

• Specify timelines for claims to ensure enforceability.

• Account for third-party interests, such as financiers (e.g., Prime Bank in this case), who may hold charges over the property.

• Be supported by due diligence, including investigations beyond the registry to uncover potential historical irregularities.

Broader Implications: A Call for Systemic Reform

Beyond contractual safeguards, this ruling highlights systemic flaws in Kenya’s land administration. The unauthorized allocation by a lands officer, the Commissioner of Lands’ failure to process the appellants’ application, and the lack of transparency in reallocating occupied land point to governance gaps that fuel disputes. The Supreme Court’s directive to the Chief Land Registrar to reinstate the appellants’ title is a step toward justice, but it does not address the broader issue of accountability in land allocation processes.

The National Land Commission and the Ministry of Lands must prioritize digitization and transparency in land records to prevent such irregularities. Buyers, meanwhile, should engage forensic land experts to trace title histories, as standard searches are insufficient. Financiers, too, must reassess their reliance on titles as collateral, given the risk of cancellation.

Conclusion

In Kenya, a title deed remains a cherished symbol of achievement, but the Harcharan Singh Sehmi ruling reminds us that it is not an impregnable fortress. The Supreme Court has made it clear: a title is only as strong as its root. For buyers, the lesson is simple—frame your title if you must, but ensure your sale agreement is the true guardian of your investment.

Indemnity and refund clauses, designed to endure beyond registration, are now indispensable tools in navigating the uncertainties of Kenya’s land market. They shift the risk to sellers, protect against financial ruin, and provide a safety net in a legal landscape where even a signed, sealed title can be cancelled. As the dust settles on this ruling, one thing is certain: in Kenyan land transactions, the real heavy lifting happens in the fine print.