Real estate investment is an expensive undertaking, and quite many investors spend their entire life savings on purchasing real estate assets such as land or a house.
When one therefore ends up losing money that they spent so much time accumulating in a real estate deal gone bad, it can be a very painful experience.
Late last year, in a heartbreaking turn of events, residents of Mavoko in Machakos County watched helplessly as their houses were demolished after it was established that the houses had been built on land belonging to the East African Portland Cement Company (EAPCC) .
The Ministry of Lands would later state that the title used to hoodwink the innocent buyers was fake and did not originate from its office, placing the responsibility of compensating eviction victims on the Aimi Ma Lukenya Farmers' Association should investigations conclude that the organisation engaged in fraudulent activities.
In their statement, EAPCC highlighted that they had consistently cautioned Kenyans against unauthorised groups claiming to sell their land and had even issued several public notices stating clearly that their land was not for sale.
However, victims insisted that they had acquired the land legally, with some claiming that they had received share certificates from Aimi ma Lukenya for ownership of the land. The Ministry, however, clarified that share certificates are not legally recognised documents to confirm land ownership.
Some of the Mavoko residents had spent millions to build houses which took years to complete. Many of the residents would later fall into depression, with others experiencing conditions such as high blood pressure, as a result of the grave losses they encountered.
A man walks past a destroyed building on the disputed Portland Cement land in Mavoko, Machakos County on October 18, 2023.
Photo credit: Wilfred Nyangaresi | Nation Media Group
Often, cases of innocent buyers losing hard-earned money in fraudulent real estate transactions have been reported. While in some instances the victims are helpless because some of the perpetrators involved are actually government officials, in many cases, loss of such investment can be avoided by prudent actions such as seeking the services of real estate professionals, who can guide one through the transactional process.
Engaging the services of a conveyancing lawyer, for instance, can help to resolve some of the common issues that come up in real estate transactions such as validity of titles, or legality of contracts.
“Contractual agreements have a binding effect on the parties. Any party entering into a contract must have a sound understanding of what they are getting into,” notes Cindy Terry, an advocate with Netsheria International.
Terry says getting contracts reviewed by an attorney can help to identify if there are any red flags in the contract.
Real estate transaction contracts are complicated documents that contain a lot of information about a single transaction, and if those contracts are not done correctly, then there is a lot that could go wrong in the transaction.
Any unclear or ambiguous language in the contract for instance can lead to disputes and disagreements down the line. A misspelling in the property description or leaving out names and details of either party could render the entire transaction null and void.
Simple phrases such as ‘possession due on sale’ if left out of the sales agreement, could make life miserable for the buyer as it could be taken to mean that the seller can hold onto the property indefinitely after closing.
“When you receive a business contract from the other party, the agreement was most likely created by their lawyer. By understanding your goals and acting to defend your best interests, your own lawyer will help you level the playing field,” says Terry.
He or she can also help to examine and review the legality of the agreement and explain it in simple and clear terms so that one becomes aware of the terms, responsibilities and risks involved in the performance of the contract.
“That in turn prevents parties to the agreement from misunderstanding what they sign, and at the end have them bound to perform to an agreement they did not understand,” says Terry.
A security officer manning part of the demolition scares some of the residents in the ongoing demolition of houses on Portland Cement land in Mavoko, Machakos county on October 17, 2023. Hundreds of homeowners are counting losses, this is after President Ruto’s directive on land grabbers.
Photo credit: Wilfred Nyangaresi | Nation Media Group
Making sure all the important terms are included in the contract and that they’re exactly what you expected to see is crucial. This includes the purchase price, deadlines for inspections and repairs, the closing date and the seller’s move-out date, among other details.
The main reason why both parties are advised to sign contracts in the presence of each other’s lawyers is to ensure that all that is agreed on is put in writing. However, when both parties make verbal agreements that are not put in writing in the contract, then this can lead to disputes after the deal has already been closed.
“It can be very hard to settle disputes when nothing is on record. This is why you should document every agreement, no matter how insignificant it may seem. The worst thing you can do is to omit any agreement between you and the other party when it comes to things such as money or moving dates from your written agreement,” says Terry.
It is very common for people to enter into real estate transactions with parties who do not have the authority to sell the property in question. For instance, the child of the property owner may assume they have the right to sell the property when the owner has either passed away or has become unable to make their own legal decisions.
“Even a child that has secured a power of attorney might not have the authority to sell the property because of limitations put in the power of attorney,” explains Terry.
Ideal real estate contracts are the ones where sellers disclose details about the property that could affect its value or performance. Failure to make accurate and complete disclosures can constitute a breach of contract.
For example, in a land transaction, if a seller fails to disclose that the property involved is charged to a bank, it could lead to a breach of contract.
If it is a house involved and the seller fails to disclose a significant structural issue or environmental hazard such as faulty electrical wiring, previous flood or fire damage, or a recent termite infestation, it may lead to a breach of contract claim by the buyer.
Parties to a contract also ought to disclose any confidential information that may be relevant to the contract, such as proprietary information, legal issues that may affect the contract, such as any legal disputes or regulatory requirements, as well as any financial issues that may affect the contract, such as creditworthiness or bankruptcy.
Disclosure can protect both parties involved in the agreement. It ensures that all parties involved in the agreement understand what they are getting into and especially helps the buyer to make an informed decision. This helps to avoid any legal disputes and reduces the risk of future misunderstandings.
If a real estate agent or seller fails to disclose crucial information and the buyer finds out, the buyer has the right to take legal action against the seller or real estate agent. But the legal system also has some loopholes, which rogue agents and real estate companies take advantage of.
“Non-disclosure clauses can be helpful in protecting confidential information, but they may also limit your ability to share or use certain information,” says Terry.
This makes it possible for rogue real estate firms to get away with failing to disclose crucial information to unsuspecting buyers. It is why it is advisable to seek the services of a legal practitioner, who can protect one from these legal loopholes.
Serious contract negotiations can get difficult and heated, creating tension between the parties before the parties ever reach an agreement. Having an impartial third-party present can allow for negotiations to proceed smoothly.
A bodaboda rider past a demolished house on the disputed Portland Cement land in Mavoko, Machakos County on October 18, 2023.
Photo credit: Wilfred Nyangaresi | Nation Media Group
Professionals can also help to ensure that the agreement drawn up is favourable to the parties involved, or suggest changes to a contract in their best interest. They can also offer advice on how to exit contracts in case one of the parties involved is in breach of contract.
“A lawyer will identify clauses in a contract that can be renegotiated ahead of time and suggest language you might use in the negotiation discussions,” notes Terry.
Lawyers have the legal knowledge and experience to evaluate contract conditions and identify potential problems that could lead to loss of funds. At times, one of the parties involved for instance may make excessive or unreasonable demands, such as requesting a payment be made without signing the contract, or requesting that work commences without signing a contract.
“Often, what that means is that the other party is not willing to commit or may not pay for the services offered to them and you shall have no proof of an agreement because it was not signed,” notes Terry.
A contract should be a mutually beneficial agreement. If one party is getting a significantly better deal than the other, then that is a red flag and one is advised to walk away if the deal cannot be rectified.
An arbitration clause is a provision in a contract that requires the parties involved to resolve any disputes that may arise through arbitration rather than through court litigation. Being less formal, arbitration helps to resolve disputes faster than if the case was taken through a court process. It also helps to avoid the expense associated with court litigation.
“Arbitration proceedings are generally private and confidential, which can be beneficial if the dispute involves sensitive or proprietary information,” says Terry.
Arbitration awards are also generally easier to enforce than court judgments. If the losing party refuses to comply with the decision, the winning party can obtain a court order to compel compliance.
“It is important that when parties are drafting a contract, they should include a dispute resolution method clause in the document. There are several dispute resolution methods, but arbitration is among the best, however, it is important to consult with legal counsel to ensure that an arbitration clause is appropriate for your specific situation,” adds Terry.
The parties can select an arbitrator with expertise and experience in the subject matter of the dispute, to achieve a more informed and neutral resolution.
