The importance of conducting due diligence and thorough checks in land transactions in Kenya cannot be gainsaid. A while back, the Court of Appeal underscored the importance of due diligence by describing the land market in Kenya as “a minefield” where “only a foolhardy investor would purchase land with the alacrity of a potato dealer in Wakulima market”.
It behoves any investor in the Kenyan land sector to undertake thorough background checks before putting their money in any venture. This call is not only to land buyers but also to lending institutions who accept land as collateral.
A judgment delivered by Justice Naikuni of the Environment and Land Court in Mombasa on February 13, 2024, is a practical depiction of how a lending institution can be caught in the crossfire of fraudulent land transactions.
In the case, Co-operative Bank of Kenya Limited had granted a loan to a borrower using a piece of land located in Mtwapa, Kilifi county, as collateral. The court found that the bank created a charge over the property without consent or even knowledge of the owner.
The documents used to register the charge were forged and had glaring discrepancies with the original documents held by the landowner. For instance, the court found that the title deed used for the charge did not belong to the owner of the property and the serial number was different from that of the genuine title deed. Further, the signature on the form used to apply for the consent of the Land Control Board was different from the signature of the landowner.
The bank was faulted by the judge for failing to conduct high-level due diligence.
“…in this era of high information technology and where financial institutions are being duped through hacking, the court would have expected a rather higher standard of risk management measures by them, particularly on their customers’ documents and security to be used for collateral reasons. The level of due diligence by the bank should have been higher than what was casually depicted here,” ruled the judge.
What is more intriguing is that the judge not only faulted the bank but also impugned the actions of the land officials who handled the transaction, describing their action as “pathetic”. Ideally, the Land Registrar is meant to be the legal and government custodian of all land documents for safekeeping in the country.
According to the judge, the Land Registrar “is an office entrusted with so much wealth related documentations and information” and its mandate under section 14 of the Land Registration Act is “to exercise a high standard of care, resilience, prudence and diligence in dealing with such valuable property”.
The judge was not happy with the conduct of the Land Registrar and did not hesitate to chastise the official.
“…it is rather pathetic and disappointing the manner in which the [Land Registrar] conducted himself. He acted without any colour of right, unlawfully…intentionally, deliberately, illegally and without due regard to the law proceeded to register a charge without following the due process of law and while knowing well that the title deed used for registration was forged title deed…this was deliberate and was part of the syndicate working close collusion and cohort with the [bank] and [the borrower]. I strongly hope one day the truth will be revealed to set all of us free as it is stated from the Holy scripture – John 8:32. I will not hesitate to chastise this Land Registrar, personally for acts of Misfeasance as a Public Officer.”
The judge ordered the two Land Registrars who handled the transaction to personally pay Sh7 million to the landowner for their acts of misfeasance in public office while the bank stood on the brink of losing Sh11.3 million.
The judgment sends a strong message to lending institutions and land officials that it is no longer business as usual. Lending institutions must make sure that the documentation used to secure credit facilities is proper. They must conduct thorough due diligence rather than mere cosmetic ones.
At the same time, land officials who act negligently or fraudulently while discharging their duties have been put on notice.
“I am sending airwaves early enough that these acts of omission and commission of forgery of documents in all public offices and particularly the Land Registry has to stop once and for all,” stated the judge.
Recent court decisions are a stark pointer that corrupt land officials will be personally held liable for their actions, whether they are still serving or have quit office and that they will not hide or seek refuge under the ambit of their offices by claiming that they acted in official capacities.
In February last year, the Environment and Land Court in Mombasa ordered Sammy Mwaita, the former Commissioner of Lands, to personally pay Sh5 million for abuse of office and breach of tort of misfeasance in office.
In November last year, Justice Makori of the Environment and Land Court in Malindi painted a gloomy picture of our Land Registries when he stated that a land buyer should seek out a local drunkard because he is likely to mirror the land title better than our Land Registries. That was a profound indictment of our Land Registries.
Advocate of the High Court of Kenya practising in Mombasa
