Buying off-plan refers to purchasing or investing into a property development prior its completion. It offers a great investment opportunity for investors who want to make a profit or acquire property and supports capital growth for developers seeking to raise funds in the early stages of a project. But like any investment, off-plan purchases come with risks especially legal and regulatory ones that can affect whether the project finishes on time and as promised. In Kenya’s real estate market, conducting thorough due diligence and understanding the legal, regulatory and compliance approvals required is essential when buying into an off-plan purchase.
This article will guide you through what to check before you commit from vetting the developer and confirming land ownership to verifying approvals and reviewing contracts so that you can protect your investment.
a) Conducting Due Diligence
Buying off-plan requires thorough due diligence on both the developer and the property:
i. Verifying the developer’s reputation and credibility
A key part of due diligence when buying off-plan property is identifying and vetting the developer. It is important to confirm whether the developer is an individual or a registered company and whether they legally own the land on which the project is being constructed. For corporate developers, request to see their Certificate of Incorporation, and valid tax compliance certificate. Additionally, conduct an official company search (CR12) through the Business Registration Service (BRS). This search will help identify the company’s directors and shareholders. Request personal identification documents for each director or shareholder listed in the CR12, including a copy of their national ID or passport, and KRA tax certificate. These documents help confirm the legitimacy of the parties behind the development.
It’s also essential to investigate the developer’s track record. Find out if they have successfully completed similar projects in the past. Visit completed developments if possible, and speak to past clients about their experience. Additionally, confirm whether the developer has sufficient financial strength to complete the project, especially in case of unforeseen market or economic shifts. This may involve reviewing their financing arrangements or checking if they are partnering with reputable financial institutions or banks. Equally important is to check for any ongoing or past litigation involving the developer, as legal disputes or regulatory sanctions can delay or even halt project completion, putting the investment at risk.
ii. Land and Title Verification
Following the evaluation of the developer, the next step is to conduct due diligence on the ownership and legal status of the land on which the development is to be constructed. It is essential to request a certified copy of the title deed directly from the developer and independently conduct an official land search at the relevant land registry. This search confirms whether the developer is the registered proprietor of the land. If the developer does not hold the registered title, obtain formal documentation authorizing them to develop the property on behalf of the registered owner.
It is important to note the encumbrance section of the title document. Encumbrances such as charges, caveats or liens may signify existing financial obligations or legal claims on the land that could delay the project. If any encumbrances are registered against the title, it is important to engage with the relevant parties and obtain their consent and approvals before proceeding.
b) Statutory Approvals and Compliance
After verifying the credibility of the developer and confirming the land ownership, the next step involves verifying that the developer has obtained all necessary statutory approvals required for the development. These approvals ensure the project is compliant with legal and planning regulations and that it is viable from a regulatory standpoint.
i. Change of User
If the developer plans to use the land for a different purpose other than what it is originally designated for such as building apartments on land zoned for agricultural or single-dwelling residential use then they must obtain a Change of User approval from the relevant County Government. This process involves engaging a registered physical planner to prepare and submit an application, publishing notices in newspapers, public participation and obtaining official approval from the planning department. Once granted, the approval must be registered with the land authorities to update the title. Failure to secure this approval may result in the development being declared illegal and halted by regulatory authorities.
Apart from Change of User, buyers need to confirm that the project complies with county and national zoning plans under the Physical and Land Use Planning Act, 2019, which governs land development control and use classification. Development on land in violation of zoning restrictions can lead to enforcement actions, including demolition or stop orders.
ii. Extension of Lease
For leasehold properties, especially those located in urban areas it is essential to confirm the duration remaining on the lease. If the lease term is nearing expiration or has already lapsed, the developer must secure an extension or renewal from the Ministry of Lands and Physical Planning. Investors should verify that the lease has been formally renewed or extended and that the updated term is reflected on the registered title.
iii. Building permits and approved building/site plans
Before the construction of the development, the developer must obtain a valid building permit from the relevant County Government. The building permit confirms that the proposed structure complies with the building codes and land use policies. If construction has not commenced within twelve months of the date of the approval or completed within two years of such date, then the permit becomes null and void and carrying out of any work after the lapse will be in contravention of the County Laws.
The permit process typically follows the approval of architectural and structural plans and includes inspections by county engineers and public health officers. Investors should verify that the developer holds a valid building permit, approved building and site plans and that the scope of construction on-site matches what has been approved. Failure to ensure compliance with these requirements may expose investors to legal and financial risks, including potential demolition or stoppage of works by County authorities.
iv. Environmental Impact Assessment (EIA) – NEMA Approval
It has become mandatory for developers to undertake an Environmental Impact Assessment (EIA) in accordance with the Environmental Management and Coordination Act (EMCA). This assessment evaluates the potential environmental effects of the proposed project and outlines measures to mitigate any adverse impacts.
The developer must engage a licensed environmental expert to prepare an EIA report which is then submitted to the National Environment Management Authority (NEMA) for review. Upon approval, NEMA issues an EIA License which is a legal prerequisite for the commencement of construction. Investors should request a copy of the valid EIA License and ensure that it corresponds specifically to the project in question.
In addition to the EIA License, buyers need to confirm that the developer is adhering to any conditions or mitigation measures specified by NEMA in the approval. Non-compliance may result in revocation of the license or enforcement action.
v. County Government Development Approvals
Before commencing construction, the developer must obtain the necessary development approvals from the relevant County Government. The process begins with the submission of architectural plans by the project architect or engineer to the County’s Planning Department. These plans are reviewed to ensure they comply with applicable zoning regulations, building codes, and land use policies.
Once the architectural plans receive approval, the structural engineer submits detailed structural drawings. These drawings outline the technical aspects of the proposed construction, including specifications for foundations, columns, slabs, and overall building integrity. The structural designs must adhere to both county standards and national building regulations.
Following the approval of the structural plans, the architect is required to submit hard copies of all approved plans to the County Government for official stamping. The stamped documents serve as formal evidence that the project has been duly authorized and is compliant with the law.
It is advisable for investors to request copies of all stamped plans and approval letters as part of their due diligence. This ensures that the development is being undertaken in accordance with legal and technical requirements.
vi. National Construction Authority (NCA) Project Registration
All construction projects in Kenya must be registered with the National Construction Authority (NCA) in accordance with the National Construction Authority Act. This regulatory process ensures that construction is carried out by qualified professionals and in compliance with nationally recognized safety and quality standards.
The contractor, on behalf of the developer, is required to complete a project registration form providing key project details, including approved architectural and structural plans, as well as the names and valid registration details of the contractor, project consultants and the supervising architect or engineer. Once the submitted documents are reviewed and approved, the NCA issues a Project Registration Certificate together with a unique NCA project ID.
Following registration, the NCA conducts periodic site inspections to ensure that construction is proceeding in line with the approved plans and that the necessary environmental and safety standards are being maintained. After an inspection, the NCA may issue an invoice for inspection fees, which must be settled as part of compliance.
Investors should request a copy of the NCA Project Registration Certificate to confirm that the project is duly registered and is being undertaken by certified professionals.
vii. Infrastructure Approvals and Utility Connections
Infrastructure and utility connections are critical to the viability and long-term functionality of any off-plan development. Developers must obtain all necessary approvals from the relevant authorities to facilitate the provision of essential services, including roads, water, sewerage, and electricity. These approvals ensure that the development will be fully functional, habitable, and compliant with regulatory requirements upon completion.
Investors should exercise due diligence to confirm that the developer has secured all requisite approvals and clearances from utility providers and infrastructure authorities. These include:
- Kenya Power – for electrical connections and supply;
- Kenya Urban Roads Authority (KURA) – for developments located near major roads or highways;
- Water Resource Management Authority (WRMA) – for developments requiring water supply approvals or located near water bodies, where applicable.
The timely acquisition of these ancillary approvals guarantees that essential services will be in place by the time possession is granted to purchasers.
viii. Occupational Safety and Health Act (OSHA), 2007 Approvals and Requirements
In addition to the above, developers are legally required to comply with the provisions of the Occupational Safety and Health Act, 2007, which governs workplace health and safety standards on construction sites. Key requirements include:
- Registration of the construction site with the Directorate of Occupational Safety and Health Services (DOSHS) before commencement of works;
- Appointment of a qualified Health and Safety Advisor to oversee safety measures on-site;
- Preparation and implementation of a Health and Safety Policy Statement;
- Regular safety audits and inspections conducted by DOSHS officials to ensure compliance;
- Provision of Personal Protective Equipment (PPE) to all workers;
- Establishment of clear procedures for reporting and managing workplace injuries or incidents.
Investors should request evidence that the developer has duly registered the project site with DOSHS and is implementing an effective safety management plan. Non-compliance can lead to work stoppages, legal sanctions and increased liability in the event of workplace accidents.
c) Insurance coverage verification
It is advisable to confirm that the developer has obtained adequate insurance coverage for the project, including Contractor’s All Risk insurance, public liability insurance and work injury benefits cover for construction workers. Lack of insurance exposes both workers and investors to significant risks in the event of accidents or project disruption.
d) Contract Review and Legal Documentation
Once the above verifications are complete, it is crucial to engage your lawyer to review the Agreement for Sale to ensure that your interests as a buyer are adequately protected. The agreement should contain fair and balanced terms that do not unduly favor the developer. Your lawyer should confirm that the property is accurately described in accordance with the title documents, that the purchase price and payment terms are clearly outlined and practical, and that the agreement specifies a definite project completion and handover date.
The agreement must also address the consequences of any delays or defaults in project completion, providing for adequate remedies and safeguards for the buyer. Where the property is currently charged to a financier, the agreement should require that payments be made into an escrow account jointly managed by the developer and the chargee. This ensures that the chargee executes a partial discharge of charge over the specific property upon full payment of the purchase price. In such cases, buyers should also confirm that the chargee’s consent is either endorsed in the agreement or provided separately through a letter of no objection to the sale.
It is equally important for the agreement to contain a clearly defined dispute resolution clause, specify the nature of the title to be issued upon registration (whether freehold or leasehold), and include a comprehensive termination and refund clause. This clause should outline the circumstances under which a buyer may lawfully exit the contract and the process for recovering any deposits or payments made.
Your lawyer should provide an approximate breakdown of all costs associated with the transaction. This includes the purchase price, stamp duty, registration fees, valuation costs, legal fees for both parties, service charges, and any other applicable expenses. Having a clear understanding of these costs upfront helps ensure transparency and informed decision-making.
Upon signing the agreement, your lawyer will work with the developer’s legal team to oversee the preparation, execution and attestation of the transfer documents at the point of completion. These documents are then lodged with the relevant land registry for registration. Once registration is complete, a certificate of title or lease is issued confirming legal ownership. Your lawyer should also supervise the physical handover of the unit to ensure it aligns with the agreement and that any outstanding obligations by the developer, such as rectification of defects are addressed.
Conclusion
By thoroughly conducting due diligence and verifying these approvals, buyers can effectively protect their investment and minimize the risk of unforeseen issues. Taking the time to address these important steps upfront may require effort, but it ultimately saves significant time, money and stress in the long run. Being diligent and informed is key to making a secure and successful off-plan property purchase.
Authors
Lynda Mokaya
Joyce Mwaura
