Legal ForumExample Category: LSK Kajiado ForumSectional Titles vs. Share Certif …Post Reply

Post Reply: Sectional Titles vs. Share Certificates in Kenya

<blockquote><div class="quotetitle">Quote from <a class="profile-link highlight-moderator" href="https://lawguide.co.ke/understanding-law/legal-forum/profile/lawyer/">Lawyer</a> on July 16, 2025, 7:00 am</div><div id="pl-6973"  class="panel-layout" ><div id="pg-6973-0"  class="panel-grid panel-no-style" ><div id="pgc-6973-0-0"  class="panel-grid-cell"  data-weight="1" ><div id="panel-6973-0-0-0" class="so-panel widget widget_sow-editor panel-first-child panel-last-child" data-index="0" data-style="{&quot;background_image_attachment&quot;:false,&quot;background_display&quot;:&quot;tile&quot;,&quot;background_image_size&quot;:&quot;full&quot;,&quot;background_image_opacity&quot;:&quot;100&quot;,&quot;border_thickness&quot;:&quot;1px&quot;}" ><div
			
			class="so-widget-sow-editor so-widget-sow-editor-base"
			
		>
<div class="siteorigin-widget-tinymce textwidget">
	<p dir="ltr" data-pm-slice="0 0 []">Kenya’s real estate market has experienced significant growth in recent years, particularly in urban centers like Nairobi, Mombasa, and Kisumu. With this growth, property buyers face a critical decision when investing in apartments, flats, maisonettes, or office units: whether to opt for a property with a sectional title or one backed by a share certificate. This choice significantly impacts the security, marketability, and legal standing of their investment. This article explores the differences between sectional titles and share certificates in Kenya, evaluates their respective advantages and risks, and provides guidance on why sectional titles are increasingly considered the safer option for property ownership, especially following the enactment of the Sectional Properties Act, 2020.</p>
<h2 dir="ltr">Understanding Sectional Titles</h2>
<p dir="ltr">A sectional title is a legally registered ownership document that grants an individual exclusive rights to a specific unit within a multi-unit development, such as an apartment, flat, maisonette, townhouse, or office space. Alongside ownership of the unit, the titleholder also holds an undivided share of the common areas (e.g., corridors, parking lots, gardens, or recreational facilities) proportional to the size of their unit. These common areas are managed by a Body Corporate, also known as an Owners’ Corporation, which consists of all unit owners in the development. The Body Corporate is responsible for maintaining shared spaces, enforcing by-laws, and collecting service charges to ensure the property’s upkeep.</p>
<p dir="ltr">The Sectional Properties Act, 2020, revolutionized property ownership in Kenya by replacing the outdated Sectional Properties Act of 1987. Under this new legal framework, sectional titles are registered with the Ministry of Lands and Physical Planning, and the mother title (the original title for the entire parcel of land) is closed upon registration of the sectional plan. Each unit owner receives a Certificate of Title for freehold properties or a Certificate of Lease for leasehold properties, which includes their share of the common areas. The Act mandates that all long-term sub-leases (exceeding 21 years) intended to confer ownership must be converted to sectional titles within two years from December 2020, although this deadline has faced practical challenges due to ongoing stakeholder consultations on regulations.</p>
<p dir="ltr">Sectional titles are supported by a geo-referenced sectional plan, prepared by a licensed surveyor and approved by the County Government and the Survey of Kenya. This plan precisely defines the boundaries of each unit and common areas, ensuring legal clarity and reducing the risk of disputes. The registration process involves submitting the sectional plan, building plans, proof of ownership, and other required documents to the Land Registrar, who then issues individual titles and establishes the Body Corporate.</p>
<h2 dir="ltr">Understanding Share Certificates</h2>
<p dir="ltr">In contrast, a share certificate is a document issued by a company or cooperative that owns an entire apartment block or development. Instead of directly owning a specific unit, the buyer holds shares in the company or cooperative, which entitles them to occupy a designated unit. This ownership model, often referred to as the Management Company Framework, was common in Kenya before the Sectional Properties Act, 2020. Under this framework, the developer would purchase a parcel of land, construct a building, and form a management company under the Companies Act. Buyers would receive a long-term sub-lease (typically 99 years) and shares in the management company, which collectively held the mother title.</p>
<p dir="ltr">The management company is responsible for maintaining common areas and managing the property, with shareholders (unit occupants) contributing to service charges. However, the mother title remains with the company or cooperative, meaning that individual buyers do not have direct legal ownership of their units or the underlying land. This structure creates significant vulnerabilities, as the security of the buyer’s investment depends on the integrity and solvency of the management company.</p>
<h2 dir="ltr">Comparing Security: Sectional Titles vs. Share Certificates</h2>
<h3 dir="ltr">Legal Ownership and Protection</h3>
<p dir="ltr">Sectional titles offer superior legal protection compared to share certificates. With a sectional title, the owner holds a registered title deed or certificate of lease, which is recognized under the Land Registration Act, 2012, and recorded in Kenya’s official land registry. This provides clear proof of ownership, making it easier to sell, transfer, or use the property as collateral for financing. The closure of the mother title upon registration of the sectional plan prevents unscrupulous developers from encumbering the property without the consent of unit owners, further safeguarding their rights.</p>
<p dir="ltr">Share certificates, on the other hand, do not confer direct ownership of the property or land. Instead, the buyer’s rights are tied to their shares in the company or cooperative, which holds the mother title. If the company is mismanaged, becomes insolvent, or is dissolved, the buyer risks losing their right to occupy the unit. Additionally, any legal disputes or encumbrances on the mother title (e.g., loans taken by the developer) can jeopardize the buyer’s investment, as they lack a direct legal claim to the property.</p>
<h3 dir="ltr">Financing and Marketability</h3>
<p dir="ltr">Sectional titles significantly enhance the marketability and financing potential of a property. Most banks and financial institutions in Kenya require a registered sectional title as collateral for mortgages or loans, as it provides a clear and legally enforceable asset. The ability to transfer a sectional title follows the standard land transfer process, which is straightforward and well-regulated, making it easier for owners to sell or lease their units. Furthermore, sectional titles enhance property value due to their legal clarity and compliance with modern regulations, making them more attractive to prospective buyers.</p>
<p dir="ltr">In contrast, share certificates are generally not accepted as collateral by most financial institutions, as they represent ownership in a company rather than a tangible property asset. This limitation restricts buyers’ access to financing, which can be a significant drawback for those seeking to leverage their investment. Additionally, transferring a share certificate involves complex processes, such as transferring shares in the management company and amending sub-lease agreements, which can deter potential buyers and reduce marketability.</p>
<h3 dir="ltr">Regulatory Compliance</h3>
<p dir="ltr">The Sectional Properties Act, 2020, mandates that all new multi-unit developments in Kenya must be registered as sectional properties, and existing long-term sub-leases must be converted to sectional titles. This legal requirement makes share certificates obsolete for new developments and non-compliant for older properties that have not undergone conversion. Failure to comply with the Act can result in penalties, including fines of up to Kshs. 250,000 for property owners and up to Kshs. 20,000,000 or one year’s imprisonment for developers who sell or rent units without registering sectional plans.</p>
<p dir="ltr">Share certificates, being a remnant of the pre-2020 regime, are increasingly discouraged under Kenyan law. Properties held under share certificates are considered less secure and less compliant with current regulations, which can lead to legal and financial complications. For instance, if a management company fails to initiate the conversion process, unit owners may face disputes or delays in obtaining legal ownership.</p>
<h3 dir="ltr">Management and Governance</h3>
<p dir="ltr">Sectional titles are managed by a Body Corporate, which is automatically established upon registration of the sectional plan. This entity comprises all unit owners and operates under by-laws that govern the management of common areas, maintenance responsibilities, and dispute resolution. The Body Corporate is not subject to the Companies Act, reducing administrative complexities and ensuring that its primary focus is on property management rather than corporate governance.</p>
<p dir="ltr">In contrast, share certificate properties are managed by a company or cooperative, which is subject to the Companies Act or cooperative laws. This introduces additional layers of bureaucracy, as the management company must comply with corporate regulations, hold annual general meetings, and maintain financial records. If the company is poorly managed or faces financial difficulties, it can lead to mismanagement of the property, disputes among shareholders, or even loss of occupancy rights.</p>
<h3 dir="ltr">Conversion Challenges and Opportunities</h3>
<p dir="ltr">The Sectional Properties Act, 2020, requires that long-term sub-leases exceeding 21 years be converted to sectional titles by December 2022, although practical implementation has been delayed due to the need for clearer regulations. The conversion process involves preparing a geo-referenced sectional plan, obtaining approvals from the County Government and Survey of Kenya, and submitting the plan to the Land Registrar. Upon approval, the mother title is closed, and individual titles are issued to unit owners. Owners who have already paid stamp duty on their sub-leases are exempt from additional stamp duty during conversion, reducing costs.</p>
<p dir="ltr">However, the conversion process can be complex, particularly for older developments where developers may be uncooperative or unavailable, or where documentation is incomplete. In such cases, unit owners or the management company can initiate the conversion, and the Land Registrar may register a restriction on the mother title to prevent further dealings if the developer fails to comply. Legal assistance from experienced advocates is often necessary to navigate these challenges and ensure compliance.</p>
<h2 dir="ltr">Why Sectional Titles Are Safer</h2>
<p dir="ltr">Sectional titles are widely regarded as the gold standard for apartment ownership in Kenya due to their numerous advantages:</p>
<ul class="tight" dir="ltr" data-tight="true">
<li>
<p dir="ltr"><strong>Legal Clarity</strong>: Sectional titles provide registered proof of ownership, reducing the risk of disputes and fraud.</p>
</li>
<li>
<p dir="ltr"><strong>Financial Flexibility</strong>: Owners can use sectional titles as collateral for loans, enhancing access to financing.</p>
</li>
<li>
<p dir="ltr"><strong>Market Appeal</strong>: Properties with sectional titles are more marketable due to their compliance with modern regulations and ease of transfer.</p>
</li>
<li>
<p dir="ltr"><strong>Regulatory Compliance</strong>: Sectional titles align with the Sectional Properties Act, 2020, ensuring long-term legal protection.</p>
</li>
<li>
<p dir="ltr"><strong>Protection Against Developer Risks</strong>: Closing the mother title prevents developers from encumbering the property without owners’ consent.</p>
</li>
<li>
<p dir="ltr"><strong>Simplified Governance</strong>: The Body Corporate focuses solely on property management, avoiding the complexities of corporate governance.</p>
</li>
</ul>
<p dir="ltr">Share certificates, while still in use for some older properties, pose significant risks:</p>
<ul class="tight" dir="ltr" data-tight="true">
<li>
<p dir="ltr"><strong>Lack of Direct Ownership</strong>: Buyers do not own the unit or land, only shares in a company, making their investment vulnerable to the company’s stability.</p>
</li>
<li>
<p dir="ltr"><strong>Limited Financing Options</strong>: Most banks do not accept share certificates as collateral, restricting owners’ financial options.</p>
</li>
<li>
<p dir="ltr"><strong>Legal Vulnerabilities</strong>: If the management company is dissolved or the mother title is encumbered, owners may lose their occupancy rights.</p>
</li>
<li>
<p dir="ltr"><strong>Non-Compliance</strong>: Share certificates are no longer compliant with new developments and are discouraged for existing properties.</p>
</li>
</ul>
<h2 dir="ltr">Practical Steps for Buyers and Developers</h2>
<p dir="ltr">For buyers, it is critical to conduct due diligence before purchasing a property. Always verify that the development complies with the Sectional Properties Act, 2020, by requesting a sectional plan and title deed. A title search through the Ministry of Lands or a reputable law firm can confirm the property’s legal status and identify any encumbrances. Avoid properties that offer only share certificates, as they offer less protection and are harder to finance or sell.</p>
<p dir="ltr">Developers must ensure that new multi-unit projects are registered as sectional properties from the outset. This involves engaging a licensed surveyor to prepare a geo-referenced sectional plan, obtaining county approvals, and registering the plan with the Land Registrar. For existing developments with share certificates, developers or management companies should initiate the conversion process promptly to avoid penalties and enhance the property’s marketability.</p>
<h2 dir="ltr">Conclusion</h2>
<p dir="ltr">In Kenya’s evolving real estate landscape, sectional titles offer a safer, more secure, and legally compliant form of property ownership compared to share certificates. The Sectional Properties Act, 2020, has shifted the paradigm by prioritizing individual ownership, financial flexibility, and regulatory compliance. While share certificates may still exist in older developments, their vulnerabilities and lack of compliance make them a riskier choice for buyers. By opting for sectional titles and ensuring proper registration, property owners can protect their investments, enhance marketability, and secure their rights for the long term.</p>
<p dir="ltr">For expert legal guidance on sectional title registration, conversion from share certificates, or real estate transactions in Kenya, contact us at +254 716 808 104 or info@lawguide.co.ke.</p>
</div>
</div></div></div></div></div>

Cancel

Legal Forums

Post Reply: Sectional Titles vs. Share Certificates in Kenya

Recent Posts

Crisis at Kenyatta National Hospital: Senators Demand Action on Overcrowding and Security Failures

Court Orders Equal Pay for UHC Nurses Amid Absorption Plan