Introduction
The statutory power of sale is one of the most potent remedies available to a chargee under Kenyan banking and finance law. It allows a lender, upon default by a borrower, to sell charged property without recourse to court, provided strict statutory requirements are complied with. Because the remedy directly interferes with proprietary rights, Kenyan courts have consistently held that the power must be exercised strictly in accordance with the law. Any deviation renders the sale vulnerable to challenge.
This article sets out the process and pre-requisites of the statutory power of sale in Kenya, guided primarily by the Land Act, 2012, the Auctioneers Act and Rules, and established judicial principles.
Definitions
For purposes of this article, and as used under the Land Act, 2012:
“Chargee” refers to a lender or creditor in whose favour a charge or mortgage is created as security for the repayment of a loan or performance of an obligation. The chargee holds a proprietary interest in the charged land and is entitled, upon default and subject to statutory compliance, to exercise the statutory power of sale.
“Chargor” refers to the borrower or owner of land who creates a charge or mortgage over property in favour of a chargee as security for a debt or obligation. The chargor retains ownership of the property subject to the charge and enjoys statutory protections governing enforcement.
- FOUNDATIONAL PREREQUISITES
- Existence of a Valid Charge or Mortgage
The statutory power of sale can only arise where there exists a valid and enforceable charge or mortgage. The charge must be properly executed and registered against the title. It must secure a lawful debt, and the chargor must have had legal capacity at the time of execution.
Although most charge instruments expressly provide for the power of sale, the power is in any event implied by statute, and its absence in the charge does not defeat the chargee’s right once default occurs.
- Default by the Chargor
The power of sale only crystallises upon default. Default commonly arises from non-payment of principal, interest, or breach of other contractual obligations under the charge. Crucially, the default must be continuing and unremedied at the time statutory notices are issued. Where default has been cured, the power does not arise.
- Debt Must Be Due and Ascertainable
The outstanding debt must be clearly quantified. The lender must be able to demonstrate the exact amount owing, including principal, interest, and penalties, calculated strictly in accordance with the charge instrument. Courts have frowned upon vague or exaggerated demands.
1A. INFORMAL CHARGES
In addition to formal registered charges, Kenyan law recognises informal charges under Section 79(6) of the Land Act. An informal charge may arise where land is offered as security through a written agreement, deposit of title documents, or other arrangement evidencing an intention to charge land, even where a formal charge has not been registered.
While an informal charge does not immediately confer the statutory power of sale, the chargee may apply to court for an order to enforce the informal charge, including by sale. The court may direct that the informal charge be perfected into a formal charge or grant leave to realise the security in a manner it considers just.
Importantly, the statutory power of sale does not arise automatically in respect of an informal charge. Judicial intervention is mandatory before enforcement, and lenders seeking to rely on informal security must strictly comply with court directions and statutory safeguards.
- STATUTORY NOTICES: MANDATORY AND SEQUENTIAL
- Statutory Notice under Section 90 of the Land Act
Section 90 of the Land Act is the foundation of the statutory power of sale. The notice must be issued after default and must run for a minimum of ninety (90) days. It must be in writing and must clearly specify:
- The nature and extent of the default;
- The amount required to rectify the default;
- The ninety-day period within which to comply;
- The chargor’s right to apply to court for relief; and
- The consequences of failure to comply, including sale, appointment of a receiver, or taking possession.
Proper service of the notice is mandatory. It must be served on the chargor, and where applicable, the spouse (if the property is matrimonial property) and any guarantor.
Kenyan courts are unequivocal that a defective Section 90 notice invalidates the entire sale process, regardless of subsequent compliance.
- Notice to Sell under Section 96(2) of the Land Act
Upon expiry of the Section 90 notice without remedy of default, the chargee must issue a Notice to Sell under Section 96(2). This notice must give a minimum of forty (40) days and must clearly communicate the intention to sell the charged property.
The notice must be served on:
- The chargor;
- The chargor’s spouse;
- Any lessees or tenants; and
- Any guarantors.
The Section 96 notice cannot be issued prematurely and must strictly follow the lapse of the Section 90 notice.
- VALUATION REQUIREMENTS
- Forced Sale Valuation under Section 97 of the Land Act
Before exercising the power of sale, the chargee must obtain a current forced sale valuation conducted by a qualified and independent valuer. The valuation must reflect both the market value and the forced sale value of the property.
Section 97 imposes a statutory duty of care on the lender to obtain the best price reasonably obtainable at the time of sale. Failure to conduct a valuation, reliance on an outdated valuation, or sale at a gross undervalue exposes the lender to liability for breach of statutory duty.
- MODE OF SALE
- Choice of Sale Method
The chargee may sell the property by public auction or private treaty. While public auction is the preferred and most common method, private treaty is permissible provided it is demonstrably aimed at achieving the best price obtainable. Courts scrutinise private sales more closely due to the risk of undervaluation or collusion.
- Auctioneer’s Statutory Notices
Where sale is by auction, compliance with the Auctioneers Act and Rules is mandatory.
(a) Redemption Notice
Under Rule 15 of the Auctioneers Rules, the auctioneer must issue a forty-five (45) day redemption notice, served personally. The notice must state the amount due and inform the chargor of the right of redemption.
(b) Notification of Sale
After lapse of the redemption notice, the auctioneer must issue a Notification of Sale, specifying the date, venue, and reserve price of the auction.
- ADVERTISEMENT REQUIREMENTS
- Advertisement of Sale
The sale must be advertised in a newspaper of nationwide circulation at least fourteen (14) days before the auction. The advertisement must accurately describe the property and should not be misleading. Defective or misleading advertisements may invalidate the sale.
- CONDUCT OF SALE
On the sale date, the auction must be conducted transparently and in accordance with the advertised terms. The highest bidder at or above the reserve price is declared the purchaser.
- POST-SALE OBLIGATIONS
- Application of Sale Proceeds
Under Section 97(3) of the Land Act, sale proceeds must be applied in the following order:
- Costs and expenses of sale and auction;
- Interest due;
- Principal debt; and
- Any surplus to the chargor.
The chargee must render proper accounts to the chargor.
Transfer and Discharge
Upon completion, the chargee executes the transfer in favour of the purchaser, discharges the charge upon full settlement, and facilitates registration of the transfer.
CHARGOR’S REMEDIES
A chargor retains the right to redeem the property before the fall of the hammer. The chargor may also challenge defective notices, undervaluation, or bad faith. Post-sale, remedies are generally limited to damages, rather than reversal of the sale.
CONCLUSION
The statutory power of sale is not merely a contractual right but a heavily regulated statutory process. Compliance with timelines, notices, valuation, and sale procedures is not optional. For lenders, strict adherence safeguards recovery; for borrowers, it provides critical protection against arbitrary deprivation of property. Ultimately, the statutory power of sale succeeds or fails on procedural precision.
