Is the Due Diligence Burden Borne by Prospective Property Purchasers Becoming Heavier?

The Supreme Court of Kenya in its recent decision in Sehmi & another versus Tarabana Company Limited & 5 others (Petition E033 of 2023) [2025] KESC 21 (KLR) pronounced itself on pertinent issues touching on due diligence processes prior to acquiring property.

The Appellants in this case held leasehold land originally registered to them and they remained in occupation after expiry of the said lease in 2001, having applied for extension. However, in 2009, the land was inexplicably allocated to the 2^nd Respondent who subsequently transferred it to the 1^st Respondent. The appellants were evicted from the land in 2014 and sued in the Environment and Land Court which nullified the Respondents’ titles and reinstated the Appellants’. The Court of Appeal reversed the decision and held that the 1^st Respondent was an innocent purchaser for value. The Appellants appealed to the Supreme Court which ultimately overturned the Court of Appeal’s decision.

The Supreme Court inter alia canvassed the following when determining whether an invalid allocation could confer indefeasible title.

• Bonafide purchaser for value without notice – Three components must be met:

1. Innocence – The Purchaser must have bought the property in good faith and without notice of an equitable interest in the property. It must be proved that the Purchaser’s due diligence revealed no existence of a rival interest in the property.
2. Purchase for Value – Consideration for money or money’s worth must have been paid by the Claimant before receiving notice of existence of an equitable interest over the property.
3. Legal estate vis a vis an equitable interest in the property – The Purchaser must acquire a legal estate in land without notice of an equitable interest in the said land.

The Supreme Court found that the 1^st Respondent was not an innocent purchaser for value without notice. This is by virtue of the fact that the doctrine does not apply to illegally/irregularly allocated title over public land. The 2^nd Respondent having been irregularly allocated the title could not have passed an indefeasible title to the 1^st Respondent. The Court analyzed and contradistinguished section 23 of the repealed Registration of Titles Act and section 26 of the Land Registration Act. While the former provided that certificate of title was held as conclusive evidence of proprietorship, the latter provides that a certificate of title is held as prima facie evidence of proprietorship meaning that this is a rebuttable position for illegally/irregularly acquired properties. The position is also supported by Article 40 (6) of the Constitution of Kenya, 2010.

It is imperative to note that in its previous decisions i.e. Dina Management Limited versus County Government of Mombasa & 5 Others Petition 8 (E010) of 2021) [2023] KESC 30 (KLR) and Torino Enterprises versus The Attorney General (Petition 5 (E006) of 2022) [2023] KESC 79 (KLR) respectively, the Court held that to determine whether a party is a bonafide purchaser for value, a court must first go to the root of the title, right from the first allotment and that a Purchaser must have exercised due diligence which includes inspecting the suit property.

Lastly, in determining whether the appellants had a legitimate expectation for extension of the lease, the Court held that the doctrine of legitimate expectation implies that an expectant applicant has a right to have his/her application considered fairly, and to be informed in reasonable time of the decision. It also means that an applicant in possession of the land, is entitled to be furnished with reasons in the event that his/her application is denied. The Appellants having applied for extension, no objections raised and a PDP for extension issued, the Court found this sufficient to reinstate the Applicants as the lessees of the land.

Going by the Supreme Courts recent decisions, it appears that prospective purchasers will have to dig deeper before ultimately making the decision to purchase. The ease or difficulty of this due diligence is something worth discussing.

Arguably, the case demonstrates a progressive realization of Article 40 of the Constitution.