Registration of Leases: How to Secure Your Rights & Interests Over Leased Property

The registration of leases could be described as a process that giving legal credence to leases by having them registered with the Department of Lands, more specifically with the Registrar of Lands for the particular jurisdiction in which the property falls.

A lease only transfers possession of a property but not ownership. For a fixed term and price, a lease confers usage rights of property to the person to whom the lease is granted (lessee) from the owner of the property (the lessor).

Section 47 of The Registered Land Act Chapter 300 of the laws of Kenya requires that where a lease is (a) for a specified period exceeding two years, (b) for the life of the lessor or of the lessee, or (c) if it contains an option whereby the lessee may require the lessor to grant him a further term or terms which, together with the original term, exceed two years, that the lease shall be in the prescribed form, and shall be completed by:

1. opening a register in respect of the lease in the name of the lessee; and
2. filing the lease; and
3. noting the lease in the encumbrances section of the register of the lessor’s land or lease.

Subsequent sections (Sections 48 to 64) of The Registered Land Act Chapter 300 of the laws of Kenya define various aspects of leasing of land including issues such as the lessor’s consent to dealing with the lease, lease of charged land, the duration of leases, what happens in the event of hold-over, implied agreements by both the lessor and lessee when they enter into a lease agreement and much more.

Why Does the Registration of Lease Agreements Matter?

It is important to note that while the registration of leases is not a legal prerequisite for the recognition of a legal contract between a lessor and lessee, an unregistered lease may be valid between the parties but will offer no protection against third parties to the agreement.

The Land Registration Act, 2012, in S.36(2) essentially confirms that nothing shall be construed as preventing any unregistered instrument (lease) from operating as a contract. There is also legal precedent to support this position.

If the law does not demand the registration of leases, why should a lease be registered? A formal lease document is important for several reasons

Strengthening the Formal, Written Record Provides Legal Recognition of the Lease:

First, registering the written record of the agreement between the lessor and lessee provides irrefutable proof and evidence of the agreement. In the event of any dispute, it is easier to clarify the agreement and find a resolution.

Recognition and Protection of The Rights & Interests of Both Parties

Second, the formal registration of leases can help to protect the rights and interests of both the lessor and lessee. A registered lease confirms the agreement between the parties, and the rights and responsibilities of each party, as well as offering them protections they would otherwise be unable to claim. This can help ensure that both parties are treated fairly and their rights are respected, more so where third-party rights are entered against the property.

Protection Where Third-Party Rights Subsist

Third, registration of leases may not only facilitate transactions that may require collateral against property but also creates legal, evidentiary support proof of the agreement between the parties. The registration of a lease may also inform the parties to the agreement of any prior or superseding rights that may take precedence over the property. For example, the lease may include provisions that protect the landlord from liability if the tenant causes damage to the property or that protect the tenant from being evicted without cause. For the lessee, attempting to register the lease may expose an undeclared prior right over the property, for example, a charge or a preregistered encumbrance on the property.

Professionalism

Finally, the registration of leases can help in establishing or asserting good governance measures in the conduct of business affairs that may be necessary, especially in corporate setups. This can be beneficial for both parties, as it can help to ensure that the agreement is conducted in a smooth and orderly manner.

A simple illustration of the importance of registering lease agreements is that a registered lease creates an encumbrance on the property, the effect of which is that the lessee cannot, for example, sub-let, charge or part with possession of the land leased or any part thereof without the written consent of the lessor.

Likewise, the lessor cannot interfere with the lessee’s rights created under the registered lease. For example, the lessor cannot arbitrarily transfer ownership of the property to a third party where the encumbrance subsists.

To register a lease, the parties submit the relevant documents in the prescribed form identifying the parties to the agreement, the specific property that is the subject of the lease including information such as the tenure, size, location and any other pertinent details of the property, the duration or tenure for lease, the specified lease amount agreed upon and any other information as prescribed.

Upon registration, the lease becomes a matter of public record entered against the title deed of the property. Registering a lease helps to ensure that the lessors ownership rights are recognized and that the lessee’s rights to occupy the property are enforceable.

The Process of Registration of Leases

Lease registration is an important legal process that varies depending on the jurisdiction. In some regions, lease agreements must be registered with the local authorities to gain legal validity and protection. Invariably, the registration process typically involves the following steps:

1. Prepare the Lease Agreement:

Before registration, the parties will draft a comprehensive lease agreement that includes all the essential elements. It is never a good idea to just go online and download a template and customize that, not least of all if you intend to take out an agreement for longer than two years. Take legal counsel!

2. Pay Stamp duty and Registration Fees:

Typically, it is the lessee who pays stamp duty for the lease agreement at the applicable rates (4% within municipalities and 2% outside of those areas). Generally, these levies will also vary based on the lease duration and local regulations.

3. Submit Lease Registration Documents:

Provide all necessary documents, including the original lease agreement, identification documents of both parties, property title deeds, and any other required paperwork.

4. Verification and Approval:

Local authorities will review the lease agreement to ensure compliance with applicable laws and regulations and register the lease. Once approved, they will stamp and seal the document.

5. Registry Record Keeping:

The registered lease agreement is kept on record at the local land registry. This will be beneficial in case of any legal disputes or conflicts in the future.

6. Renewal or Termination:

Lease registration may require renewal after a certain period, depending on the nature of the agreement, especially for long-term leases. Because registering a lease has the same effect as placing an encumbrance on the property, registered leases will also require specific termination procedures at the local land registry.

Conclusion

The necessity of registering leases may be arguable, depending on which side of the coin you’re staring at. For both the lessee and lessor, the hassle and additional costs associated with the registration of leases, on the one hand, may seem needless. On the other hand, at the risk of running into the headwinds that could result from commercial disputes, registering a lease agreement seems like a worthwhile endeavour. Neither party would want to enter into an agreement and then find themselves at the mercy of court-based adjudication that may not be guided by a formal, written agreement recognized in law. Additionally, the parties would not want to be unduly conscripted into any other commercial disputes that may arise from the actions of either party.

It is not just good practice, it also makes a lot more sense to ensure that any long-term lease arrangements are duly registered, in the interests of both parties to the agreement.

Ps: Did you know that you can register a lease agreement that is for a shorter duration than 2 years if you wanted to?