Revised Harmonized Draft of the CONSTITUTION OF KENYA
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Attached here for your information is a copy the Harmonised Draft of the proposed new Kenya Constitution as has just been delivered to the Parliamentary Select Committee prior to being published as a bill.
If you have any ownership interest whether direct of through a company, trust or club, in freehold or long (more than 99 years) leasehold land in Kenya your attention is drawn to Article 78 and Paragraph 8 of the Sixth Schedule of the Draft Constitution and it may be appropriate for you to consider what action might be appropriate to take so as to mitigate the threat to the land title.
Appended below is our brief commentary on the proposals and implications of Article 78 of the revised draft, which is more onerous than the draft constitution published late last year.
Articles 19 & 20 will be of particular interest to those interested in acquiring / retaining / restoring dual nationality.
The timing for implementation of the necessary legislative enactments is unknown.
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COMMENTARY ON ASPECTS OF DRAFT CONSTITUTION OF KENYA - WITH
REFERENCE TO HOLDING OF LAND BY NON-CITIZENS AND ENTITLEMENT TO
COMPENSATION
1. Landholding by non-citizens (Article78)
The draft proposes that:
(1) A person who is not a citizen may hold or use land on the basis of leasehold tenure
only, and such a lease shall not exceed ninety-nine years.
(2) An instrument which confers on a person who is not a citizen an interest in land
greater than a ninety-nine year lease is void.
(3) A company or a body corporate is a deemed to be a citizen only if fully owned by
Kenya citizens.
The effect of Article 78 is to prevent non-citizens from owning an interest in land greater than
a leasehold term of ninety nine years.
Paragraph 8 of the Sixth Schedule of the Draft provides that
(1) “On the effective date any freehold interest in land in Kenya held by a person who
is not a citizen shall revert back to the Republic of Kenya to be held on behalf of the
people of Kenya, and the State shall grant to that person a ninety-nine year lease at a
peppercorn rent (on otherwise unknown terms - e.g. as to user).
(2) On the effective date, any other interest in land in Kenya larger than a ninety-nine
year lease held by a person who is not a citizen shall be converted to a ninety-nine
year lease.
The “effective date” is the date on which the Constitution comes into force upon its
promulgation by the President.
The implementation of these provisions on the effective date in the absence of
well considered enabling legislation is going to result in a chaotic state of land
ownership.
The following are some of the issues requiring clarification:
(i) Article 78 is silent on what will happen in circumstances where a citizen and a noncitizen
jointly own an interest greater than a ninety-nine year lease immediately
before the effective date. Also, what happens if the citizen co-owner dies first?
(ii) How are sale and purchase contracts entered into prior to the effective date for the
acquisition by non citizens of freehold/long leasehold interests exceeding ninety-nine
years (including options and trusts) to be treated?
(iii) Inheritance: Some citizens have children (and spouses) who are not citizens - how
will their land inheritance rights be affected ?
(iv) How will testamentary devises of land to non-citizens by citizens be dealt with?
(v) Dual citizens (when permissible) - what is their position? Presumably they will
remain unaffected. However, what about those non-citizens who as at the effective
date are (as per the Draft Article 19(5)) to be entitled to Kenya citizenship? What of
non-citizens who lost their title on the effective date but who subsequently acquire
citizenship - will they be entitled to a restored title?
(vi) How are financial transactions secured on freehold and long leasehold interests to be
affected?
(vii) How will the land assets of pension funds with non-citizen beneficiaries, banks,
insurance companies and other publicly listed companies with shareholders of
unknown or non-Kenyan citizenship be affected?
(viii) How are the Kenya shareholders of affected companies with non-citizen shareholders
to be compensated for any consequential loss in asset value?
(ix) What is the effect on a long leasehold title held by a citizen that was issued from out
of a freehold / leasehold (exceeding ninety-nine years) head title owned by a noncitizen?
2. Corporate ownership of Land
The word “person” is to be defined as including a company, association or body of persons
corporate or incorporate unless the context otherwise requires. A “citizen” is to be defined as
meaning a natural born person who is citizen of Kenya.
For the purposes of Article 78 a company or a body corporate is a citizen only if fully owned
by citizens.
What does “fully owned” mean? Will this phrase have to be determined by the proposed new
Constitutional Court?
3. Lease Provisions and Extensions
The Draft is silent on the provisions that will be contained in the ninety-nine year leases to be
granted to non-citizens (other than that the rent shall be peppercorn rent in the case of
freehold land that is converted to leasehold).
If it is unlawful for the State not to have to pay compensation under the Constitution (see
paragraph 4 post) then the State would have to pay compensation to the owner of a property
in the event that the provisions of the new lease depreciate the value of the present interest in
the property. The question of how the compensation payable is to be determined is more
puzzling as it will be in respect of a diminution of an interest rather than an absolute
appropriation of an interest. Under the present Government Lands Act, in certain cases the
State is required to grant lease extensions or freeholds. These provisions will presumably be
repealed at some point in the future.
4. Compensation for consequences of loss of title
The current Constitution (Section 75(1)) enacts that no property of any description shall be
compulsorily taken possession of, and no interest in or right over property of any
description shall be compulsorily acquired, unless various conditions are satisfied - being in
particular that in the case of land it is required for a public purpose, that the public interest
outweighs the detriment to the person dispossessed and that full compensation is paid.
Whilst similar provisions are contained within the Draft, it appears that Article 47(3)(a) of the
Draft envisages that Article 78 (as implemented by Paragraph 7 of the Sixth Schedule) will
be effected without having to satisfy the conditions of the current Constitution.
This provision is questionable and legal proceedings are likely to arise as whether it is lawful
for the State to ignore the existing obligations under the Constitution when implementing the
Draft.
Section 3 of the Current Constitution states that it is the Constitution of the Republic of
Kenya and shall have force of law throughout Kenya and, subject to Section 47, if any
other law is inconsistent with this Constitution, this Constitution shall prevail and the other
law shall, to the extent of the inconsistency be void. Section 47 provides for the manner in
which the current Constitution may be amended.
Although the Draft states that the current Constitution will be repealed and have no
continuing effect once the New Constitution is in force, Paragraph 2 of the Sixth Schedule of
the Draft states that All rights and obligations, however arising, of the Government or the
Republic and subsisting immediately before the effective date shall continue as rights and
obligations of the national government or the Republic under this Constitution.
Thus it is likely to be asserted that the State will have a continuing obligation to comply with
the obligations imposed by Section 75(1) of the old Constitution notwithstanding provisions
to the contrary contained in the New Constitution.
Further, Kenya has entered into several international treaties in which it has undertaken to
protect the other contracting States’ nationals’ and companies’ interests in Kenya and under which legal recourse may be had if the State expropriates interests in land from the
nationals/companies of the other contracting party in circumstances where the expropriation is
made without proper, adequate and effective compensation. Kenya has entered into several
such treaties including with the UK, France and Germany.
Implementation of Draft Article 78 will amount to an expropriation for these purposes.
In addition to the treaties, Section 8 of the Foreign Investments Protection Act (CAP 518)
also states that: No approved enterprise (a company holding a foreign investor certificate)
or any property belonging thereto shall be compulsorily taken possession of, and no interest
in or right over such enterprise or property shall be compulsorily acquired, except in
accordance with the provisions concerning compulsory taking of possession and
acquisition and the payment of full and prompt payment of compensation contained in
Section 75 of the Constitution.
This section underscores the need for full and prompt payment of compensation as well as the
assertion that the State may have to comply with the obligations imposed by Section 75 of the
current Constitution.
Our view is that the Draft Constitution should provide that Parliament should enact the
legislation to provide for the manner in which the provisions of Article 48 are to be put into
force before they come into force. This will include addressing the many issues which are
uncertain (examples of some of which we have mentioned above).
Parliament should also set out the principles to govern payment of compensation to those
whose interests in land will be affected. Under international law, any legislation will amount
to expropriation of assets owned by foreigners - though a State has the right to take the assets
of non-citizens in exercise of its sovereignty, international law requires that prompt and
adequate compensation should be provided.
Failure to do this and to provide in the Transitional Clauses for management of existing rights
may expose the Government to endless and expensive litigation both locally and in the
international courts for settlement of investment disputes.
Our opinion (which we believe is shared by many in the private sector) is that this legislation
should be left to Parliament in order to avoid a situation where the Constitution is entirely too
prescriptive. When constitutional provisions are too prescriptive, history has shown that it
becomes very difficult in future to respond to specific issues by changing those provisions.
13th January 2010
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