Legal considerations when starting a real estate business in Kenya

Kenya offers immense opportunities for growth and investment, fueled by a growing population, urbanization, and increasing demand for housing. With the right strategies and insights, investors and developers can capitalize on this thriving market, making Kenya a key player in Africa’s real estate landscape.

Real estate is a vast field with numerous investment opportunities. Depending on your interests and professional expertise, you can select a specific area in which to specialize. With that in mind, let’s explore the legal aspects of the real estate business in Kenya, starting with the various sub-sectors and the key legal considerations for each.

1. Property development

Real estate development in Kenya includes residential (apartments, townhouses, villas, gated communities) and commercial properties (office buildings, retail centres, industrial spaces). The sector is rapidly growing, driven by urbanization, particularly in cities like Nairobi, Mombasa, and Kisumu.

Legal considerations:

Land Ownership & Title: Developers must verify land ownership through the Land Registry to ensure clear titles and comply with the Land Act 2012 and Land Registration Act 2012 to avoid disputes.
Zoning & Planning: Developers must obtain zoning and planning approvals from county governments to meet local regulations as outlined in the Physical Planning Act.
Building Codes & Standards: The National Construction Authority (NCA) Act sets building safety, design, and environmental standards, and developers must secure construction permits before starting projects.
Tax Compliance: Buyers must pay stamp duty (4% for residential) and adhere to property tax laws to avoid penalties or loss of property rights.
Lease Agreements (Commercial): Commercial leases must comply with the Landlord and Tenant Act, covering terms like rent, maintenance, and lease duration.
Environmental Impact: Commercial projects must conduct Environmental Impact Assessments (EIAs) as per the Environmental Management and Coordination Act before proceeding, especially in sensitive areas.

2. Real Estate Investment Trusts (REITs)

Key Businesses: REITs enable investors to pool funds and invest in real estate without direct property ownership. Introduced on Kenya’s Nairobi Securities Exchange (NSE) in 2015, companies like Cytonn Real Estate and HassConsult offer various REIT products.

Legal Considerations:

Securities Regulations: REITs must comply with the Capital Markets Authority (CMA) regulations, ensuring transparency and investor protection, and must be listed on the NSE.
Taxation: REITs enjoy tax exemptions on some income but must adhere to the Income Tax Act and Capital Gains Tax Act for property and capital gains income.
Corporate Governance: REITs must follow CMA governance guidelines, ensuring proper financial reporting and transparency.

3. Property Management and Real Estate Agencies

These businesses manage, lease, and sell properties. Property management companies oversee day-to-day operations, while real estate agencies facilitate transactions.

Agents must be licensed by the Estate Agents Registration Board (EARB) and follow the Estate Agents Act. Property managers must comply with the Landlord and Tenant Act, handling rent control, eviction, and lease termination legally.

They must also ensure compliance with tax laws for property rates and rental income, and adhere to Occupational Health and Safety Act regulations, ensuring buildings are safe and accessible.

4. Land and Agricultural Real Estate

This involves the acquisition, leasing, and development of agricultural land for farming, ranching, or other large projects. Agricultural land must be registered with the Land Registry to ensure clear ownership, per the Land Act 2012.

Developers need zoning approvals from county governments for land use. Agricultural leases must comply with local laws regarding compensation, contract duration, and land restoration. Additionally, agricultural activities must adhere to the Environmental Management and Coordination Act (EMCA) for sustainable practices like pesticide use and soil conservation.

5. Tourism and Hospitality Real Estate

This sector includes hotels, resorts, and other accommodations, particularly in popular tourist areas like the Kenyan Coast and Maasai Mara. Hospitality businesses must secure operating licenses from the Kenya Tourism Board (KTB), health and safety certifications, and sometimes alcohol licenses. Foreign investors face restrictions on land ownership, limited to leasehold agreements of up to 99 years, as governed by the Land Control Act. The Employment Act also governs worker rights, wages, and conditions, alongside adherence to health and safety regulations for employees.

Other investment opportunities in real estate include but are not limited to real estate investment, consultancy and advisory services, financing, construction and building services, property renovation, and maintenance. The regulations across these areas are largely similar.

For detailed information on your area of interest, kindly reach out at +254707280366 or email us at clientservice@afrilinkconsultants.com.

Other key considerations when starting a Real Estate Company in Kenya;

a) Register your business

Register your business with the Registrar of Companies under the appropriate law (Business Names Act or Companies Act), based on your business structure (sole proprietorship, partnership, or limited company).
Obtain a PIN (Personal Identification Number) from the Kenya Revenue Authority (KRA) for tax purposes.
Register for VAT if your turnover exceeds the VAT threshold of KSH 5,000,000 annually.
Apply for a business permit from the local county government.

b) Obtain necessary licenses and permits

Real Estate License: If starting a real estate agency, you must obtain a license from the Estate Agents Registration Board (EARB).
NCA Certification: For property construction, comply with the National Construction Authority (NCA) for building permits.
Environmental and Health Permits: Secure necessary permits, including Environmental Impact Assessments (EIA) for large projects.
And building permits from county governments before starting any development.

c) Set Up an Office

Establish a physical office in a strategic location or a virtual office if operating online.
Equip your office with the necessary tools, such as computers, phones, and property management software, to run the business smoothly.

d)Build a network of professionals

Build relationships with lawyers, surveyors, contractors, architects, and other professionals for smooth property transactions and development, For example, the Kenya Property Development Association (KPDA)
Establish connections with financial institutions and investors for better financing options.

NB;

Insurance policy

Real estate businesses need insurance policies to protect against various risks such as property damage, tenant disputes, accidents, and legal claims. Insurance ensures financial security by covering potential losses, legal fees, and repairs. It also helps businesses stay compliant with legal requirements, especially for workers’ compensation and liability coverage.

Foreign Investment Laws

If dealing with foreign investors, understand restrictions on land ownership (foreigners can only hold leasehold interests of up to 99 years) as outlined in the Land Control Act and the Constitution of Kenya.

In a nutshell, Navigating the legal landscape is crucial when starting a real estate business in Kenya. By understanding zoning laws, registration requirements, and property rights, entrepreneurs can avoid costly pitfalls and ensure long-term success. With the right legal framework in place, your real estate venture can thrive in Kenya’s growing market.