The Supreme Court of Kenya has recently handed down a ground-breaking judgment in the case of Dina Management Limited v County Government of Mombasa & 5 others (Petition No. 8 (E010) of 2021). This ruling has major implications for property investors and stakeholders in Kenya and sets a precedent in relation to due diligence in property transactions.
In 2017, the County Government of Mombasa took action against Dina Management Limited, claiming that its beachfront property registered was public land and not private land. The County Government of Mombasa went so far as to forcefully enter and demolish the entire perimeter wall facing the beachfront and flattened the entire property.
A series of legal proceedings unfolded, eventually ending up in the Supreme Court of Kenya, whose decision ultimately settled the matter.
In its decision issued on 21 April 2023, the Supreme Court upheld the earlier decisions of the Environment and Land Court and the Court of Appeal. It ruled that Dinaâs alienation of the beach property, which was designated for public use, was unprocedural and unlawful to the extent that the property blocked existing access to the beach. The court affirmed that the property was public land reserved for public utility and the property could therefore not be subsequently sold as private property.
The Supreme Court also upheld that even the initial allocation and issuance of the beach property title to H.E. Daniel T. Arap Moi, was irregular. Because of this, no valid legal interest could pass to subsequent purchasers of the property, including Dina.
The Supreme Court emphasised that bona fide purchasers have the responsibility to substantiate the validity and legality of their acquired property title. Just being in possession of a title document does not automatically qualify a party as a bona fide purchaser when the root of the title is challenged.
What does the ruling mean for property purchasers?
- The doctrine of bona fide purchaser for value does not apply where the root of the title is challenged;
- where the procedure of the initial acquisition of a title is deemed unprocedural or unlawful, all subsequent transfers of the title are considered invalid as no legal or equitable interest is deemed to have passed; and
- buyers are required to conduct a full investigation into the title to ensure that there is good root to the title to ensure that the legal and equitable interest in the property is valid.
What makes the root of a title valid?
A good root of title is one that demonstrates that the procedure for issuing the title or lease complied with the law, contains a recognisable description of the property, and does not cast any doubt on the validity of the title.
We expect that this judgment will expand the nature of due diligence conducted in property transactions as more caution will be required prior to engaging in property transactions.
However, a full investigation of titles will be a burdensome task considering that the official searches conducted at the land registries do not delve into the root of title. It is expected that modernisation of the land registration system will address this critical deficiency.