Ease of Doing Business in Kenya: Key Changes Under the Business Laws (Amendment) Act, 2020
Enacted on 18th March 2020, the Business Laws (Amendment) Act, 2020 (the “Act”) amended various statutes with the aim of easing business transactions in Kenya.
We have analyzed some of the key changes introduced by the Act under the following 3 sectors:
1. Land Transaction
a). Land Rate Clearance Certificate, Land Rent Clearance Certificates and Consent to Transfer. The Act deleted sections 38 and 39 of the Land Registration Act (the “LRA”) abolishing the requirement that the Land Rate Clearance Certificates, Land Rent Clearance Certificate and Consent from the National or County Governments be produced for registration of an interest in land to be effected. In light of the above, it will now be upon a purchaser to ensure that the seller has cleared all land rent and land rates at the point of completion of a sale. The abolishment of the Land Rates and Land Rents Clearance Certificate and Consent to Transfer was aimed at simplifying land transactions. However it important to note that:
- Land Control Board Consents are still required for freehold agricultural land. The Act did not amend section 6 of the Land Control Act which provides that any transaction for the sale, transfer, lease, charge or subdivision of agricultural land is void unless the relevant Land Control Board has consented to the same;
- Land Rent Clearance Certificates and Consents to charge are still required for leasehold titles from the National or County Governments. The Act did not amend section 56 (4) of the LRA which require the production of the same where applicable for a charge to be registered; and
- Where the title document is a Lease and the Lease contains a provision requiring the lessor’s consent to transfer, sublease or charge for registration of the same to be effected, the Land Rent Clearance Certificate and the requisite consents must still be produced prior to registration. The Act did not amend sections 54 and 55 of the LRA which require production of the same.
There is need for clarification on the requirement for production of Land Rent Clearance Certificate and Consent to charge (for leasehold titles from the National or County Government) before registration of a charge. The deletion of section 38 and 39 of the LRA abolishing the same and retention of section 56 (4) requiring the same created an ambiguity that needs to be cured.
a). Digitalization of Land Transactions
- Electronic Signature
The Act amended the LRA and the Law of Contract Act, to allow the electronic execution of agreements and statutory instruments relating to land transactions which is especially helpful when parties are not within the same jurisdiction. Previously, the documents would be couriered or emailed to the parties for manual signature and the signed copies couriered back as the agreements and statutory instruments were to be in physical form.Alternatively, the party out of Kenya would have had to execute and register a Specific Power of Attorney granting his attorney power to execute documents and hold title to property on his behalf. This power often used to be abused leading to loss of property by genuine holders of title especially those in the diaspora.The Act however failed to address the issue of witnessing or attestation of electronically executed agreements and statutory instruments relating to land transactions. This is still a mandatory requirement under the Land Registration (General) Regulations, 2017 and is critical in curbing fraudulent dealings in land.
There needs to be clarity on whether the execution will have to be witnessed by an advocate physically present in the same jurisdiction as the person executing electronically or whether the attestation can be remotely done by an advocate in another jurisdiction.
- Electronic Stamping of Documents
The Act amended the Stamp Duty Act to allow for the electronic stamping of documents unlike before where documents were manually stamped by a franking machine or by affixing of revenue stamps on the document.
- Electronic Registries
The Act also amended the Registration of Documents Act to allow for creation of an electronic registry at the Principal Land Registry in Nairobi and at the Coast Registry. The Act also allowed for the electronic execution and filing of documents under Registration of Documents Act.The amendments above are in line with the ongoing digitization of land transactions in order to ensure efficiency.In addition to the above changes introduced under the Act, it is important to also note that the Kenya Revenue Authority is in the process of simplifying the I-Tax system for payment of stamp duty by the purchaser by de-linking it from the Capital Gains Tax system. Once this is done, a purchaser of land will not have to wait for the seller to pay or obtain an exemption from payment of Capital Gains Tax for him to pay stamp duty and have property registered in his name. The seller will however have to pay Capital Gains Tax on or before the 20th day of the month following the month the transfer document is registered.This is expected to improve the ease of land transactions in Kenya as the issue of Capital Gains Tax causes unnecessary delays. Further and in light of the ongoing COVID-19 pandemic, the Government of Kenya provide Legal Notice No. 35 of 2020 amended the Value Added Tax Act to reduce the rate of Value Added Tax from 16% to 14% with effect from 1st April 2020. This will reduce the costs associated with commercial leases and sale of commercial property in Kenya both of which are vatable.
2. Corporate and Commercial Transactions
- Elimination of the requirement of affixing a company seal on execution of a document by a company Under the Companies Act, 2012 (now repealed) companies executed by affixing the common seal of the company on a document in the presence of 2 directors or a director and the company seal.The Companies Act, 2015 laxed the requirement for affixing of common seal. A company had the option of executing by affixing the common seal in the presence of a director, execution by a director of the company in the presence of a witness or by execution by 2 authorized signatories.The Act has now amended the Companies Act, 2015 to altogether abolish the use of common seals in execution by companies. A document will be deemed validly executed by a company upon signing by a director of the company in the presence of a witness or upon execution by 2 authorized signatories.
- Abolishment of use of Bearer Shares A bearer share is a share certificate wholly owned by whoever holds the physical share certificate. It is not registered and dividends on the same is issued to whoever presents the physical share certificate.The Act amended the Companies Act, 2015 to abolish the use of previously issued Bearer Shares by requiring that the same be converted into registerable shares within 9 months of the date of enactment of the Act for any rights to be exercised. This is regardless of what is contained in the company’s Articles of Association.
- “Squeeze-out” and “Sell-out” Transactions
“Squeeze-out” transactions involve compulsory acquisition of minority shareholders by a successful bidder during a takeover. On the other hand, “sell-out” transactions allow minority shareholders to be bought out by a successful bidder during a takeover.The Act has amended the Companies Act, 2015 by raising the threshold for a squeeze-our or sell-out to 90% acquisition by the bidder from the previous 50% in order to protect the minority shareholders.Companies incorporated prior these amendments have to review their Articles of Association to ensure that the articles are in accordance with the amendments.You may contact our company secretarial and corporate governance arm, Bellmac Consulting via email@example.com, for further guidance on this.
3. Construction Industry
The Act has amended the National Construction Authority Act, 2011 to:
- Allow the National Construction Authority to enforce the Building Codes in the construction industry;
- Authorize the National Construction Authority to conduct mandatory inspection of construction sites; and
- Introduce a penalty for non-compliance with construction standards in order to minimize defects during and after construction of projects.
These amendments seek to streamline the construction industry which has for a long time been subject of discussion due to buildings collapsing leading to loss of lives and damage of property due to negligence, poor workmanship and disregard of requisite laws and regulations.
The Act if implemented in good faith by all stakeholders will ease business transactions in Kenya and specifically as pertains land transactions due to digitization of the process from execution to registration. This especially in light of COVID-19 which has greatly minimized physical movement of persons.
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