Memorandum of Charge (Kenya)

A Memorandum of Charge in Kenya records the items or particulars it lists for the purpose it serves.

Section 77 of the Land Act No. 6 of 2012 provides that a charge is a security interest created by a chargor over land or a lease as security for the payment of money or the performance of an obligation. A charge under the Land Act does not transfer ownership of land to the chargee — it creates a right to enforce the security in the event of default, including the statutory power of sale under Section 90 of the Land Act No. 6 of 2012. The charge must be in the prescribed form — Form LRA 36 under the Land Registration (General) Regulations 2017 — and must be executed by the chargor before a Advocate of the High Court of Kenya or, in certain cases, before a Commissioner for Oaths.

The Land Registration Act No. 3 of 2012 governs the registration of charges. A charge over land must be registered at the relevant Land Registry — whether the Nairobi City County Land Registry, a county Land Registry, or the Deeds Registry for older title documents — to acquire priority over subsequently created interests. Section 37 of the Land Registration Act provides that registration is conclusive evidence of the matters shown in the register. An unregistered charge is void against a liquidator, administrator, or a secured creditor who subsequently registers their charge, under Section 93 of the Land Act No. 6 of 2012.

Stamp Duty Act Cap. 480, administered by the Kenya Revenue Authority (KRA), imposes stamp duty on Memoranda of Charge. The rate is 0.1% of the amount secured where the security is over real property. Stamp duty must be paid and the instrument duly stamped before it is presented for registration at the Land Registry. Failure to stamp an instrument renders it inadmissible as evidence under Section 19 of the Stamp Duty Act Cap. 480.

The Land Act No. 6 of 2012 also governs the rights of the chargor — the landowner giving the security. Section 82 of the Land Act provides that a chargor has the right to redeem the charged land at any time before the chargee completes a sale under the power of sale, upon payment of the outstanding loan and all costs. This equity of redemption is a fundamental protection for land borrowers in Kenya and cannot be contractually excluded in the Memorandum of Charge.

A Memorandum of Charge in Kenya is required whenever a landowner borrows money from a bank, financial institution, microfinance institution, or private lender and grants a registered security interest over land or a leasehold title as collateral for the repayment of the loan.

A Memorandum of Charge is required when a commercial bank licensed by the Central Bank of Kenya (CBK) under the Banking Act Cap. 488 advances a mortgage loan to an individual or company for the purchase of residential or commercial property. The bank requires the chargor to execute a Memorandum of Charge over the purchased property, which is then registered at the relevant Land Registry under the Land Registration Act No. 3 of 2012 before the loan is disbursed.

A Memorandum of Charge is needed when a company registered under the Companies Act No. 17 of 2015 secures a working capital loan or term loan from a bank by charging its freehold or leasehold land assets. The charge must also be registered in the company's charges register under Section 862 of the Companies Act No. 17 of 2015 and filed with the Registrar of Companies at the Business Registration Service (BRS) within 30 days of creation, failing which the charge is void against the liquidator and creditors.

A Memorandum of Charge is required when a SACCO regulated by SACCO Societies Regulatory Authority (SASRA) accepts land as security for a member loan. SACCOs advancing substantial land-secured loans must register the charge to confirm enforceability against the member's estate in the event of default.

A Memorandum of Charge is needed when a private lender advances a significant sum to an individual borrower against land security, as the registered charge gives the lender priority over unsecured creditors and subsequent chargees who register after the first chargee.

A Memorandum of Charge is required when a developer obtains a construction finance facility from a financial institution and charges the development land as security, with the charge released in tranches as construction milestones are completed and units are sold.

Parties in Kenya should prepare a Memorandum of Charge (Kenya) proactively rather than waiting for a dispute to arise. Courts interpret agreements based on the written terms rather than oral representations. Under the Central Bank of Kenya Act (Cap. 491), the Central Bank of Kenya (CBK) regulates banking. The Capital Markets Authority (CMA) regulates securities under the Capital Markets Act (Cap. 485A). Section 84 of the Bills of Exchange Act (Cap. 27) governs promissory notes. The Kenya Revenue Authority (KRA) administers tax obligations. The Microfinance Act No. 19 of 2006 regulates microfinance institutions. The Hire Purchase Act (Cap. 507) governs credit sale agreements. Where the transaction involves regulated activities, prior approval from the relevant authority may be required before execution.

A Kenya Memorandum of Charge under Section 77 of the Land Act No. 6 of 2012 and the Land Registration Act No. 3 of 2012 must contain the following essential elements to be registrable and enforceable.

Parties and Identification: Full legal names and addresses of the chargor (the landowner providing security) and the chargee (the lender receiving the security); for corporate chargors, the Companies Act No. 17 of 2015 registration number and registered office address; for individual chargors, the National Identity Card (NIC) number, KRA PIN, and residential address. The KMPDC registration number is not required for land charges but the chargor's identity documents must match the registered proprietor's details on the title.

Description of Charged Land: The title number (or Land Reference Number for older titles), the land type (freehold absolute, freehold commons, Government lease, or private lease), the registered area in hectares or square metres, the physical location (county, sub-county, and ward), and the registered proprietor's name as appearing in the land register. The description must exactly match the Land Registry records to confirm the charge can be registered against the correct parcel.

Secured Amount and Loan Details: The principal sum secured, the interest rate, the repayment schedule or reference to the underlying Loan Agreement, and the maximum sum secured — including principal, interest, and costs — known as the 'all monies' or 'specific sum' charge. The Memorandum of Charge should cross-reference the Loan Agreement between the parties.

Charge Conditions: The covenants by the chargor — to pay the secured sum as required, to insure the property in the joint names of the chargor and chargee with an insurer acceptable to the chargee, to keep the property in good repair, not to alienate or further charge the property without the chargee's written consent, and to pay all land rates, rents, and outgoings. Breach of these covenants constitutes an event of default.

Power of Sale and Enforcement: The chargee's statutory power of sale under Section 90 of the Land Act No. 6 of 2012, which becomes exercisable when the chargor is in default and the chargee has served a statutory notice requiring remedy and the chargor has failed to comply within the prescribed period. The notice period under Section 90(2) is three months for residential charges or such shorter period as the court may allow. The chargee must exercise the power of sale in good faith and take reasonable care to obtain the best price reasonably obtainable.

Equity of Redemption: The chargor's right to redeem the charged property under Section 82 of the Land Act No. 6 of 2012 at any time before the chargee completes the sale, on payment of all amounts secured. A Memorandum of Charge cannot contractually exclude or restrict this right, which is a statutory protection for chargors.

Stamp Duty and Registration: The obligation to pay stamp duty under the Stamp Duty Act Cap. 480 at 0.1% of the amount secured before presenting the charge instrument for registration; and the obligation to register the charge at the relevant Land Registry under the Land Registration Act No. 3 of 2012 within a reasonable time after execution. For company chargors, registration with the Registrar of Companies under Section 862 of the Companies Act No. 17 of 2015 within 30 days of creation is also required.

Discharge of Charge: The procedure for discharging the charge upon full repayment — execution of a Discharge of Charge instrument in Form LRA 38 under the Land Registration (General) Regulations 2017, presentation to the Land Registry, and endorsement of the discharge on the register. The forms-legal.com Kenya Memorandum of Charge template incorporates all elements required under the Land Act No. 6 of 2012 and the Land Registration Act No. 3 of 2012 to confirm the instrument is registrable at any Kenyan Land Registry.