Foreigners form dummy firms to keep Kenyan land

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Lawyers plan to transfer land held by the non Kenyan citizens to the newly incorporated companies, whose owners are indicated as locals at the companies’ registry. Photo/FILE

Business Daily | 4 August 2010

By James Makau

Foreign land barons are using millions of shillings to hire elite law firms for advice on how to protect their property should Kenyans pass the proposed Constitution — that bars them from owning land — in Wednesday's vote.

Commercial lawyers said the number of clients seeking land ownership advice under a new constitution has risen steadily in the past three months to peak at the end of July as the referendum drew closer.

The proposed law bars non-Kenyan citizens from having freehold entitlement to land and instead caps it at 99 years.

This provision has sparked fear among foreigners with freehold titles to large tracts and who will be required to surrender their titles in exchange for leasehold ownership.

Kenya has a large number of foreign individuals and companies who own large tracts of land with 999 freehold titles that the colonial government granted them at the beginning of the 20th Century.

The fine print of the new law on land ownership is set to come from future legislation but the Lands ministry has signalled its intention to bring the leasehold titles rule into force with the new Constitution should it pass.

Thousands of foreign owners of ranches, beach plots and plantations are rushing to commercial lawyers for protection, causing a sharp rise in activity at the companies’ registry where new firms are being incorporated as part of the plan to help foreigners shield their property from seizure.

“The issue is that we are not certain what exactly the new legislation will set out,” said a senior partner at a law firm that has been handling queries from concerned foreign landholders.

One plan is to incorporate private limited companies with at least two Kenyan shareholders each.

That should enable the land owners to comply with the legal provision that says the nationality of the rest of the directors is irrelevant, besides helping the transactions pass through the Land Control Board for consent to transfer.

Should the proposed constitution pass the vote, the Land Control Boards will be required to stop the transfer of agricultural land owned by public companies or non Kenyan citizens.

To overcome this obstacle, the lawyers plan to transfer land held by the non Kenyan citizens to the newly incorporated companies, whose owners are indicated as locals at the companies’ registry.

Protection of the foreigners’ interests however lies in the fact that the Kenyan shareholders are being made to sign a declaration of trust (DoT) agreement, stating that they are the legal but not the beneficial owners of the shares during incorporation and allotment of shares.

That keeps the foreigners in the background as the beneficial owners of the land.

The DoT is never lodged at the companies’ registry and is instead held by company secretaries making it impossible for the State to discover its existence and the real owners of any given property.

“This means that in the event the land is later sold the proceeds will be paid to the beneficial owners and not the legal owners,” said a Nairobi lawyer who cannot be named because of involvement in the transactions.

The rule also applies in the event that shares in the company are sold.

Land remains one of the contentious issues in the proposed constitution and has been used by opponents of the new law to campaign for the No vote.

The document defines the various categories of land ownership, defining the proprietary rights, and how ownership may be transferred to other parties.

It defines public land as parcels that are lawfully held, used or occupied by any organ of the state and community land as parcels owned by communities on the basis of culture or any other special interests.

Private land is identified as parcels of land held by an individual under a freehold and leasehold tenure or parcels that have been declared private by an Act of Parliament.

Lawyers however said uncertainty over the provisions of the proposed constitution on land does not lie in the categorization, but the powers and functions of the National Land Commission that is to be established once it comes into force.

Apart from managing public land, setting land policy, the commission is expected to address historical land injustices and assess taxes to be levied on the property.

It will exercise these powers based on the laws that parliament will pass to fix the minimum and maximum acreages an individual can own and how idle land should be taxed.

The current Constitution prohibits compulsory acquisition of property (including any interest in or right over property) except for defined public purposes and subject to the prompt payment of full compensation.

Kenya has also enacted protective legislation under bilateral agreements which prohibit the nationalisation or expropriation of property.

Expropriation can take various forms.

It can be indirect or direct through nationalisation, formal transfer of titles or outright physical seizure.

Indirect expropriation includes measures such as trade restrictions that curtail investments or a series of acts which over time amount to expropriation.

The issue of a short term lease in substitution for a long-term lease or freehold amounts to indirect appropriation prompting lawyers to ready themselves for possible litigation against the government should land seizures forge ahead.
Original source: Business Daily
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1 Comments


  1. Shamita Omote
    07 Aug 2010

    I believe lad should be distributed equally. Secondly, the citizen should get it first and then foriegners should get if the Kenyanized.

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