Supreme Court’s Daniel Arap Moi land ruling sends banks, buyers into a panic

Banks holding thousands of title deeds as collateral for loans have been thrown into a panic after a landmark Supreme Court ruling returned to the public a plot of land that had traded several times from the late President Daniel arap Moi since 1989.

The country’s supreme court said in April that even more than 30 years later can stop the seizure of public lands that have gone through multiple disputes in private hands returning to the public.

The ruling, which also raised the level of due diligence required of buyers and the need to comply with the land acquisition process, appears to affect banks holding title deeds such as securities for loans worth billions of shillings.

The five-judge panel of the High Court said that the land in Mombasa illegally acquired by Mr Moi meant that the former chief, now deceased, could pass no valid title to any subsequent purchaser and that all other ensuing legacies were unlawful. legal.

“Essentially, the Supreme Court places the burden of researching the entire history of the land on the buyer,” said Kimani Njane, a corporate and commercial attorney who is also a partner at Mboya Wangong’u & Waiyaki Advocates.

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“The purchaser is now expected to investigate title starting at the initial allotment of land, regardless of status in the Land Registry and regardless of the length of history of land transfers.”

In a similar case in Kakamega last week, three judges at the Kisumu Court of Appeal ruled that land of a public primary school that had been seized, appropriated to third parties and sold to Yako and Kheteya supermarkets should be returned to the school.

Ibrahim Mwathen, chair of the Institute of Land Development and Governance, says governance in land associated with the Ministry of Interior carries far-reaching implications for investments given that many plots of land developed now are derived from government land in the 1980s and 1990s in major urban areas of Kenya. You may have experienced similar practical gaps.

“On this precedent, its titles, some of which were used as collateral for loans, can be similarly challenged and revoked,” said Mr. Mwathen.

Commercial banks’ loan book stood at Sh3.85 trillion at the end of March, part of which is secured by customer assets such as land, developed property and cars.

Now legal experts say the Supreme Court ruling means banks may want to do fresh research on the title deeds they hold as security to reduce their risk.

“Banks must do their collateral due diligence again to ensure the legitimacy of their interest in the land,” Mr. Najani said.

“In cases where banks may have granted loans on the basis of questionable title, they could seek to amend the terms of their guarantee agreement. Alternatively, they could recover the amounts borrowed through litigation by citing misrepresentation on the part of shippers.”

However, Mr. Ngani cautioned that suing clients for allegedly misrepresenting ownership of property in order to obtain loans may not be held if such clients prove that they were unaware of the questionable property at the time the asset was used as collateral.

The Supreme Court ruled that the provisions in Section 40 of the Constitution that give every person the right to property do not extend to any property found to have been acquired illegally.

“Having found that the registered first owner (Moi) did not regularly acquire title, the title to the claim property by Dina Management Ltd could therefore not be protected under Section 40 of the Constitution. The root of ownership was challenged and Dina could not benefit from the principle of real buyer.

With the decision, one cannot fail to do due diligence on the grounds that it is an innocent purchaser for value, said Muthumi Thiankulu, a Supreme Court advocate and legal scholar.

“What the court said is that you cannot ignore the red flags and later claim that you are a value-add,” Dr. Thianculu said.

While annulling the title deed to Dina Management, the Supreme Court ruled that there were no documents supporting the land allotment to Mr Moi.

The documents included a letter of application from Mr Moi addressed to the Land Commissioner seeking appropriate land allotment and a Partial Development Plan (PDP) showing claim ownership in respect of adjoining plots of land.

“We hasten to add that, by its very nature as a beach property, the suit property has always been attractive and profitable. Dina should have been more careful in doing her due diligence,” the judges said.

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Ibrahim Kittu, a lawyer, and Karitha Mwendwa, a law student at Strathmore University, argue in an opinion piece in The daily business Last week that decision meant that the hurdle of due diligence and the need to comply with the land acquisition process had been lifted.

“Due diligence may include, but is not limited to, requesting an allotment letter, performing routine land searches at the land registry, checking Ndongo’s report on illegal/irregular public land allotments, and engaging a land surveyor,” the duo wrote. .

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