CAN MICROFINANCE INSTITUTIONS CHARGE AND AUCTION PROPERTY IN KENYA? - An in-depth legal analysis under Kenyan law

Intro

Microfinance institutions in Kenya may take security over property — including land and, where applicable, movable assets — to secure loans. However, the legitimacy of those security interests and enforcement actions turns on compliance with specific statutory frameworks and judicial pronouncements.

This article examines:

1. When and how MFIs can take property as security;
2. Legal requirements for enforcing security against default;
3. Borrower protections under statute and case law;
4. Jurisdictional and regulatory constraints; and
5. Practical compliance guidance.

1. Legal Foundations for Charging Property in Kenya

1.1 Charges Defined and Recognised

Under the Land Act (the Land Act), a “charge” over land is defined as an interest in land securing the repayment of money or performance of an obligation. It includes both formal and informal charges.

• Formal charge: Requires execution of a written instrument and registration as an encumbrance at the Lands Registry.
• Informal charge: A written and witnessed undertaking accepted by the chargor with clear intention to create security; enforceable only with the leave of court unless otherwise specified by law.

For movable assets (e.g., machinery, livestock), the Movable Property Security Rights Act governs creation and registration of security rights, enhancing clarity and enforcement for non-land collateral.

2. Can Microfinance Institutions Legally Take Property as Security?

2.1 General Authority to Take Security

There is no express prohibition in Kenyan law preventing MFIs from taking security over land or movable property provided:

• The chargor voluntarily offers the property as collateral;
• The instrument complies with statutory form and registration requirements; and
• The creditor adheres to regulatory obligations, where applicable.

In Rafiki Microfinance Bank Ltd v John & Another the High Court highlighted the statutory requirements for completing a charge — including registration and compliance with Land Act formalities — as conditions precedent to enforceability.

2.2 Licensing and Mortgage Business

While MFIs can take security, lenders not licensed to conduct mortgage finance business may face regulatory challenges. Recent commentary suggests a tension between the regulatory requirements under the Banking Act — which restricts unlicensed entities from conducting mortgage finance business — and usual practice in the microfinance sector. 

This has resulted in litigation challenging the legality of certain charges, though courts have not uniformly disallowed all unlicensed charging practices so long as statutory requirements are met. The licensing question remains an emerging area of regulatory jurisprudence.

3. Enforcement: When and How Property Can Be Sold

The power to sell charged property is not automatic upon default. It must follow strict statutory procedures in the Land Act.

3.1 Statutory Notices – Sections 90 and 96 of the Land Act

Under Section 90 of the Land Act, a chargee must serve a written notice to the chargor upon default, informing them:

• of the nature and extent of the default;
• the amount payable (if a monetary default) and a minimum 3-month period to remedy same;
• consequences of continued default; and
• the right to seek court relief.

Only after expiry of the Section 90 notice may the chargee seek remedies, including sale.

Section 96 of the Land Act requires a separate notice to sell after the default period has elapsed, and the sale may not proceed until at least 40 days after service of this notice.

These timelines are mandatory preconditions to valid enforcement: failure to serve them in proper form renders any attempted sale unlawful. As the High Court explained in East Africa Ventor Co. Ltd v Agricultural Finance Co-op Ltd & another, statutory notices are essential and cannot be bypassed.

3.2 Duty of Care and Valuation — Section 97

Once the power of sale is triggered, Section 97 of the Land Act imposes a duty of care on the chargee to obtain the best price reasonably obtainable and to procure a forced sale valuation before sale.

In Omingo v Rafiki Microfinance Bank Limited & Another, the High Court applied Section 97 and held that undervaluation or irregular sale may breach the duty of care, potentially rendering the sale susceptible to challenge.

4. Jurisdiction and Procedural Considerations

4.1 Appropriate Forum

Disputes over validity of charges and enforcement proceedings lie within the High Court rather than the Environment and Land Court Act, as enforcement is a financial and contractual matter, not a land use question. In Cabro Mombasa Limited v Rafiki Microfinance Bank Limited, the court struck out an injunction application, clarifying that such disputes do not fall under Environment and Land Court jurisdiction.

5. Borrower Protections Under Kenyan Law

5.1 Spousal and Third-Party Consent

A charge over matrimonial property generally requires written spousal consent, failing which the charge may be voidable. The Land Registration Act and the Matrimonial Property Act give effect to this requirement.

5.2 Equity of Redemption

Even after default, a borrower retains the equity of redemption — the right to redeem property by paying outstanding debt before sale is concluded. The courts enforce this principle as part of constitutional property rights under Article 40 of the Constitution of Kenya.

5.3 Injunctive Relief for Procedural Irregularities

Borrowers can seek interim or permanent injunctions where enforcement processes — such as statutory notice— are defective. In Edward Kangethe Kabinga & 2 others v Kenya Women Microfinance Bank PLC, the High Court granted injunction pending proper notice service.

6. Risks and Compliance Hazards

6.1 Failure to Serve Mandatory Notices

Courts have repeatedly held that non-compliance with Sections 90 and 96 invalidates enforcement steps. Mere advertisement without proper notice will not cure the defect.

6.2 Duty of Care Violations

Selling property far below market value may constitute a breach of the duty of care under Section 97, exposing the chargee to orders setting aside the sale.

6.3 Informal Charges Without Court Approval

Where a charge is informal, statutory enforcement must be preceded by court leave under Section 79(7) of the Land Act.

7. Practical Takeaways

For Borrowers

• Insist on proof of proper statutory notice (Sections 90 & 96).
• Confirm title and spousal or third-party consents.
• Seek timely legal intervention if statutory preconditions are absent.

For MFIs

• Register all formal charges correctly at the Lands Registry and, where applicable, at the Registrar of Security Rights for movables.
• Serve statutory notices in full compliance with legislative timelines.
• Conduct updated forced sale valuations within prescribed periods.
• Document compliance rigorously to withstand judicial scrutiny.

Conclusion

Yes — microfinance institutions in Kenya may charge property and enforce it through auction sale, but only if they:

1. Comply with the Land Act’s statutory notice regime;
2. Respect valuation and duty of care requirements;
3. Adhere to jurisdictional and procedural safeguards; and
4. Ensure charges are validly created and registered.

Non-compliance attracts judicial sanctions, including injunctions and setting aside of sales, reinforcing that enforcement is rooted in due process and statutory fidelity.

This publication is intended for informational purposes for members of the legal and financial sector and does not constitute legal advice.

Who Inherits When There Is No Will? Understanding Intestate Succession in Kenya

When a person dies, their property does not automatically pass to family members. The transfer of assets and liabilities is governed by law through a process known as succession. In Kenya, succession is regulated by the Law of Succession Act and may take place either through a will or, where no valid will exists, through intestate succession.

Intestate succession applies where a person dies without a will, where a will is declared invalid by a court, or where a will does not cover all the deceased’s property. In such cases, the law determines who is entitled to inherit and how the estate is managed.

Priority in inheritance is first given to the surviving spouse and children. Where the deceased had no children, inheritance passes to parents, then siblings, and other blood relatives in a defined order. If no relatives can be traced, the estate ultimately devolves to the Government of Kenya.

In polygamous families, the estate is shared among the different houses based on the number of children in each house, with each surviving spouse counted as an additional unit. Distribution is therefore proportional and not necessarily equal.

Before any property can be shared, beneficiaries must apply to court for a Grant of Letters of Administration. This grant gives legal authority to manage the estate. Any person who sells, transfers, or interferes with a deceased person’s property without this grant commits the offence of intermeddling, which is punishable by law.

To apply for the grant, applicants must provide a death certificate, identification documents, and a letter from the area Chief listing all beneficiaries and their relationship to the deceased. Once filed in court, the application is published in the Kenya Gazette for 30 days to allow objections from the public or omitted beneficiaries.

If no objection is raised, the court issues a Grant of Letters of Administration for six months. During this period, administrators identify and secure the assets but cannot distribute them. Distribution can only occur after the grant is confirmed by the court, after which administrators must complete the process and account for the estate.

While the intestate succession process may take time, it exists to protect families, prevent fraud, and ensure fairness. Kenyans are encouraged to understand this process and, where possible, make wills to spare their loved ones unnecessary stress and disputes.

Crucial Decisions Every Conveyancing Practitioner Must Know

The Supreme Court and Court of Appeal have fundamentally altered the conveyancing landscape in Kenya. The era of reliance on registration alone is over. Root of title scrutiny is now the heart of every transaction.
Here are the 5 landmark cases redefining the practice:
⚖️ 1. Dina Management Ltd v County Government of Mombasa [2023] KESC 30
Registration is not a shield. An unlawful foundation vitiates the entire chain, regardless of subsequent bona fide transfers.
⚖️ 2. Torino Enterprises Ltd v Attorney General [2023] KESC 79
An allotment letter—lapsed or not—confers no transferable title. Conveyancers must insist on a registered grant.
⚖️ 3. Sehmi v Tarabana Company Ltd [2025] KESC 21
No innocent purchaser protection where public land was illegally allocated. No legal estate ever existed to pass.
⚖️ 4. Mas Construction Ltd v Sheikh [2025] KECA 349
Expired leasehold land cannot be reallocated. The Commissioner of Lands lacked jurisdiction. Verify the State's capacity at the time of allocation.
⚖️ 5. Teleposta Pension Scheme v Intercountries Exporters Ltd [2024] KECA 870
An irregular allocation yields nothing. No valid interest exists to transfer or charge. The title is void ab initio.
📘 The Bottom Line:
Conveyancing is no longer a checklist exercise. It is a forensic, sequential inquiry into the legality of the root of title.

Legal Advisory: What to Do If You Lose a Title Deed in Kenya

A title deed is the primary proof of land ownership in Kenya, and its loss should be treated as a serious legal matter. The replacement process is governed by the Land Registration Act, 2012, and is designed to protect owners from fraud and duplication.

The first step after discovering a loss is to report the matter to the police and obtain a police abstract. This is followed by an official land search at the relevant Land Registry to confirm ownership and check for encumbrances.

The registered proprietor must then swear a statutory declaration explaining how the title was lost and confirming that it has not been sold, charged, or otherwise disposed of. An application for replacement is made to the Land Registrar using the prescribed form, supported by the necessary documents.

To safeguard public interest, the Registrar publishes a notice in the Kenya Gazette and a national newspaper, inviting objections for a minimum of 60 days. If no valid objection is raised, a replacement title is issued and the land register updated.

Property owners are advised to register a caution immediately upon loss to prevent fraudulent dealings and to seek legal guidance where land is of high value or subject to dispute. If the original title is later recovered, it must be surrendered to the Lands Registry.

While the process may take several months, strict compliance with the law ensures the protection of property rights and the integrity of Kenya’s land registration system.

Review of the provisions of sections 70(2), 75 and 76) of the Land Act

 

Based on the Land Act (No. 6 of 2012) of Kenya, specifically within Part VI: Leases (Remedies and Relief), Sections 75 and 76 govern the process by which a lessor (landlord) can forfeit a lease and the relief available to the lessee (tenant) against that forfeiture. 

Here is a breakdown of the sections requested:

1. Section 75: Notice before Forfeiture 

This section acts as a procedural safeguard for the lessee. A lessor cannot automatically evict a lessee or forfeit a lease for breach of covenant (including non-payment of rent) without following this process. 

• Notice Requirement: The lessor must serve a notice on the lessee specifying the particular breach (e.g., unpaid rent or broken covenant).
• Remedy Period: The notice must require the lessee to remedy the breach within a reasonable time.
• Court Action: If the lessee fails to remedy the breach within the specified time, the lessor may then commence an action in court for forfeiture. 

2. Section 76: Relief against Forfeiture

This section gives the Court discretionary power to prevent the harsh application of forfeiture, guided by principles of equity. 

• Court Discretion: In an action for forfeiture, the court may grant relief to the lessee on such terms as it deems just.
• Equitable Principles: The court will consider the conduct of both parties, the nature of the breach, and whether the breach has been remedied.
• Effect: If relief is granted, the lease continues as if the breach had never occurred. 

3. Contextual Notes on Related Sections

• Section 73 (Lessor's right of forfeiture): Establishes the right to forfeit if rent is unpaid for twelve months or if a covenant is breached.
• Section 74 (Effect of forfeiture on subleases): Provides that forfeiture of a head lease does not automatically destroy a sub-lease; the court can protect sub-lessees.
• Section 70(2) (Land Registration Regulations): While not in the main Land Act 2012, Regulation 70(2) of the Land Registration (General) Regulations 2017 requires that an application for registration of a charge must be supported by a land rent clearance certificate. 

Summary of Process:

1. Breach: Lessee fails to pay rent/covenant.
2. Section 75: Lessor serves a notice specifying the breach.
3. Action: If not remedied, Lessor sues for forfeiture.
4. Section 76: Court may grant relief (e.g., time to pay) to the lessee to avoid losing the lease. 

 

“Stick to the Deal” – The Binding Nature of Divorce Settlement Agreements

“Stick to the Deal” – The Binding Nature of Divorce Settlement Agreements: The Case of JJM v JLM [2025] KEHC 15576 (KLR)

1. INTRODUCTION

This case reaffirms a key principle in Kenyan family law:

A matrimonial settlement agreement voluntarily executed by spouses is binding, and courts will not reopen the distribution of matrimonial property unless vitiating factors are proved.

The decision emphasizes contractual certainty in divorce settlement agreements and protects parties from attempts to renegotiate after benefiting from the agreement.

2. FACTUAL BACKGROUND

• The parties married in 1980 and remained together for over 40 years.
• Their marriage was dissolved on 29 November 2024 via a Decree Absolute.
• During their marriage they acquired:
• A Ngong property (registered in the husband's name).
• Two parcels in Ndalu/Kipchonge Block (later transferred to their adult son).
• A Lenana View Apartment (B4)—allegedly bought using funds sent by the husband from Namibia.

The Settlement Agreement

On 4 November 2017, the parties executed a Divorce and Settlement Agreement (DSA) to determine ownership and distribution of their matrimonial assets.

Dispute

• In 2018, the husband sent an email to their adult son attempting to “rescind” the settlement agreement, claiming it was skewed in favour of the wife.
• He later filed an Originating Summons (2021) asking the Court to disregard the DSA and redistribute property based on “contribution.”
• He also withdrew any claim to the two parcels transferred to their son, leaving the Ngong property as the main contested asset.

3. ISSUES FOR DETERMINATION

1. Whether the Divorce and Settlement Agreement (DSA) is valid and enforceable.
2. Whether the Court should disregard the DSA and redistribute matrimonial property based on contribution under the Matrimonial Property Act.
3. Whether the husband’s unilateral attempt to rescind the DSA was legally effective.
4. Costs of the suit.

4. COURT’S HOLDING

1. The Settlement Agreement is Valid and Binding

The Court held that the DSA executed by both spouses is a legally binding contract, enforceable under contract law, even though the Matrimonial Property Act expressly mentions only pre-nuptial agreements.

2. No Legal Grounds to Invalidate the Agreement

The husband failed to prove any vitiating factors such as:

• Fraud
• Duress
• Coercion
• Undue influence
• Misrepresentation
• Manifest injustice

His reason—that the agreement was skewed—did not meet the legal threshold.

3. Unilateral Rescission by Email Was Ineffective

The email to the couple’s son did not constitute lawful cancellation.
Rescission of a contract requires:

• Communication between the contracting parties, and
• Mutual consent or court intervention.

4. Estoppel: Husband Approbated the Contract

He benefitted from the DSA by:

• Selling the Lenana apartment in accordance with the agreement;
• Receiving and using the proceeds;
• Buying another property with the proceeds.

Having enjoyed the benefits, he could not later repudiate the agreement.

5. Originating Summons Dismissed

The Court declined to reopen distribution of the Ngong property.
The DSA governs all issues of matrimonial property.

Each party was ordered to bear their own costs.

5. COURT’S REASONING

a) Settlement Agreements Are Enforceable

Although the Matrimonial Property Act is silent on post-nuptial agreements, courts rely on:

• The law of contract,
• The principle of party autonomy, and
• Public interest in finality of disputes.

b) Vitiating Factors Must Be Pleaded and Proved

Courts will not set aside a settlement simply because a party later regrets signing it.

c) Equity Will Not Help a Party Acting in Bad Faith

The husband:

• Accepted the DSA,
• Benefited from it,
• Later attempted to change his mind.

This violates the principle that a party cannot “approbate and reprobate”—accept and then reject the same instrument.

d) DSAs Reduce Litigation and Promote Certainty

They encourage amicable settlement and reduce re-litigation of matrimonial disputes.

6. LEGAL PRINCIPLES ESTABLISHED

1. Divorce Settlement Agreements (DSAs) are binding under contract law, even if not expressly provided for in statute.
2. Courts will not revisit contribution analysis where a binding DSA exists.
3. A DSA can only be set aside if vitiating factors are proven.
4. Parties who benefit from a DSA are estopped from later challenging its validity.
5. Unilateral cancellation of a matrimonial settlement is invalid.
6. The principle of finality of settlement agreements is central in post-divorce property disputes.

7. PRACTICAL IMPLICATIONS & LEGAL ADVICE

A. For clients entering settlement agreements

• Ensure the terms are fair, clear, and fully understood before signing.
• Obtain independent legal advice.
• Document all negotiations and communications.
• Ensure all parties sign voluntarily and without pressure.
• Remember: once executed and acted upon, a DSA is very difficult to set aside.

B. For clients seeking to challenge a settlement

A challenge is only viable where there is strong evidence of:

• Fraud or forgery
• Undue influence or coercion
• Threats or duress
• Material misrepresentation
• Gross unfairness amounting to manifest injustice

Mere dissatisfaction or hindsight regret is insufficient.

C. For lawyers drafting DSAs

• Include clauses on variation, rescission, and dispute resolution.
• Ensure the agreement covers all assets (real and personal).
• Ensure proper witnessing and execution.
• Advise clients on consequences of non-compliance.

D. For ongoing or future matrimonial property disputes

• A DSA will generally override contribution arguments.
• Courts favour finality and will avoid reopening concluded agreements.

8. CONCLUSION

JJM v JLM [2025] KEHC 15576 reaffirms that:

When spouses freely execute a divorce settlement agreement, they are bound by it. Courts will enforce the agreement and will not assist a party seeking to escape its consequences after enjoying its benefits.

This case strengthens contractual certainty in family law and underscores the importance of carefully negotiating and drafting settlement agreements.

On Compulsory Leave, Procedural Fairness, and Constitutional Compliance in Kenya: The Case of Njoroge & 2 others v Kenya Medical Supplies Authority & 3 others [2025] KEELRC 3037 (KLR)

I. Introduction

The judgment in Njoroge & 2 others v Kenya Medical Supplies Authority & 3 others represents a significant development in Kenyan employment law, particularly regarding the intersection of procedural fairness, fair labour practices, and constitutional protections. The case addresses the legality of placing employees on compulsory leave without prior notice or an opportunity to be heard and demonstrates the judiciary’s commitment to constitutionalising employment rights. This commentary provides a detailed analysis of the facts, legal issues, judicial reasoning, constitutional implications, and policy considerations arising from the decision.

II. Factual Background

The Petitioners were employees of the Kenya Medical Supplies Authority (KMSA) and were placed on compulsory leave without prior notification or an opportunity to be heard. Following this action, the 1st Petitioner resigned, claiming constructive dismissal. The Petitioners alleged that the employer’s conduct constituted unfair labour practice, discrimination, and a breach of their constitutional rights under Articles 27, 41, 47, 50, and 236 of the Constitution.

The case highlights a common practical dilemma in employment management: balancing employer prerogative in workforce administration against employee constitutional and procedural rights.

III. Legal Issues

The case raised several interrelated legal questions:

1. Whether placing employees on compulsory leave without prior notice, explanation, or hearing constitutes a violation of fair labour practices and fair administrative action.
2. Whether the unilateral imposition of leave can amount to constructive dismissal under Kenyan law.
3. The appropriate remedies for employees whose constitutional rights under Articles 27, 41, 47, 50, and 236 are violated in an employment context.

IV. Court’s Holding and Reasoning

The Court held that the forced leave without notice, justification, or an opportunity to be heard constituted unfair labour practice and unlawful administrative action. It emphasized several key principles:

1. Procedural Fairness as a Constitutional Requirement
   The Court anchored its reasoning on Article 47 (fair administrative action) and Article 50 (right to a fair hearing), holding that procedural safeguards apply to employment decisions affecting rights, including compulsory leave. Even in public institutions, managerial discretion must be exercised in compliance with natural justice principles, including prior notice, explanation, and the opportunity to respond.
2. Constructive Dismissal
   The Court found that the 1st Petitioner’s resignation constituted constructive dismissal. Constructive dismissal arises where employer conduct fundamentally undermines the employment relationship, leaving the employee no reasonable alternative but to resign. Here, the unilateral leave disrupted the employment relationship to such an extent that resignation was effectively compelled.
3. Constitutional Violations and Remedies
   The Court recognized violations of Articles 27, 41, 47, 50, and 236, awarding Kshs. 6 million each to the 1st and 3rd Petitioners for constitutional infringements and six months’ salary to the 1st Petitioner for constructive dismissal. This demonstrates the Court’s willingness to link statutory employment protections with constitutional safeguards to ensure comprehensive redress.

V. Doctrinal Analysis

1. Procedural Fairness in Employment Law

Traditionally, procedural fairness in employment focused on disciplinary hearings or dismissals. Njoroge expands this principle to include pre-dismissal managerial actions, such as compulsory leave. This aligns with administrative law doctrines, emphasizing that any action affecting an employee’s substantive rights must follow fair procedures, regardless of whether the action constitutes dismissal.

2. Constructive Dismissal Doctrine

The Court reaffirmed that constructive dismissal does not require a formal termination notice. It arises from employer conduct that fundamentally breaches the employment contract, including unilateral, unjustified, or procedurally defective interventions. This approach strengthens employee protection and aligns Kenyan jurisprudence with common law principles, including those recognized in South African and UK law.

3. Integration with Constitutional Law

The decision is particularly significant for constitutionalising employment protections. Articles 41 and 47 now serve as key instruments for evaluating fair labour practices, procedural fairness, and employer accountability. This integration illustrates the Court’s transformative approach, which ensures that administrative and employment decisions respect both substantive and procedural constitutional rights.

VI. Comparative Perspective

Comparative jurisprudence demonstrates a similar emphasis on procedural safeguards:

• South Africa: The Labour Relations Act requires hearings before suspension or dismissal.
• United Kingdom: Employment tribunals consider whether procedural fairness was observed before upholding unilateral employer actions.

Njoroge aligns Kenya with these jurisdictions, reinforcing the global trend of embedding due process in employment law, particularly for public sector employees.

VII. Policy Implications

1. Employer Practices: Public and private sector employers must develop clear policies regarding compulsory leave, including notice requirements, explanation of reasons, and the opportunity for employees to be heard.
2. Human Resource Management: HR professionals must ensure procedural compliance to avoid claims of unfair labour practice or constructive dismissal.
3. Legislative Reform: The decision suggests a need for statutory guidelines on compulsory leave, particularly in public institutions, to codify procedural safeguards.
4. Judicial Precedent: This case establishes a benchmark for damages in constitutional violations arising from unfair labour practices, guiding both tribunals and HR managers.

VIII. Conclusion

Njoroge & 2 others v Kenya Medical Supplies Authority underscores the judiciary’s commitment to protecting employee rights through constitutional guarantees, extending the scope of procedural fairness beyond traditional dismissal or disciplinary contexts. The case consolidates principles of fair labour practice, procedural justice, and constructive dismissal and signals to employers the need for transparent, justified, and legally compliant management of employment actions, including compulsory leave.

The judgment also provides a doctrinal and policy framework for advising clients on employment practices in Kenya, highlighting the necessity of procedural compliance to mitigate exposure to constitutional claims and compensation liability.