The Best Way for a Chama to Register Land in Kenya – Some Considerations

Are you part of a chama (savings group) that is looking to purchase land together in Kenya? Figuring out the right way to register that land can be tricky. There are a few different options, each with its own pros and cons. Let’s break it down. 

Register in Individual Members’ Names?

One option is to simply register the land in the names of some or all of the individual chama members. However, this approach has some significant downsides:

1. Presumption of Equal Ownership: If the land is registered in multiple names, Kenyan law will presume the members own equal shares, even if contributions were unequal. This presumption can be challenged but requires legal proof.
2. Potential for Disputes: When only some names are on the title, it creates a presumption those members are holding the property in trust for the whole group. But a legal trust must be properly constituted and managed to avoid disputes down the road.
3. Exit Complications: If a member wants to leave the chama in the future, it can get very messy sorting out their interest in the land and any compensation due. Lawsuits are common.

So while registering land directly in individuals’ names is simple initially, it sets the stage for costly headaches later. There are usually better options.

Registering as a Community Group?

The Community Groups Registration Act of 2022 allows chamas and other community groups to register formally with the government. Registering your chama’s land under this act is a possibility.

However, there is still some uncertainty around whether registration as a community group grants full “legal corporate entity” status. Legal personhood protects members from personal liability for the group’s debts and obligations. Whether registering as a Community Group offers the same protection from personal liability as a company is a grey area. This means members might still be personally on the hook for debts incurred by the Community Group.

Also, the need to regularly apply for renewal of registration (otherwise the Community Group automatically dissolves) is a key disadvantage when the group owns assets.

Probably The Best Option: Register as a Company

For most chamas looking to make a major land investment together, the best path is usually to register as a company under Kenya’s Companies Act of 2015.

By incorporating as a limited liability company, your chama gains critical benefits:

1. Corporate Legal Personhood: The company is a distinct legal entity from its members, protecting individuals’ personal assets.

• Defined Shareholding Structure: Shares can be allocated to properly reflect each member’s contributed capital. This avoids the “equal shares” presumption.

• Customized Operating Agreement: Articles of Association, or a more customized Shareholders Agreement, defines members’ rights and profit/loss sharing.

• Streamlined Membership Changes: The Company’s Articles, or even better, the Shareholders Agreement, sets procedures for members to join, exit, or transfer ownership cleanly.

• Asset Protection: If the chama is ever sued or faces debts, the company’s assets (like land) are protected from claims on members’ personal assets.

• Capital Injection Potential: Companies can raise capital by issuing shares, which can be a great way to fuel your land-based business ventures.

The main downside is that incorporating involves some legal fees and paperwork up front. But for a substantial investment like purchasing land together, most chamas are better served by the enforceability and liability protection of incorporating as a company.

Determining the Best Incorporation Strategy

If your chama decides to register as a company for the land purchase, there are still some key considerations:

1. Allocating Shares Properly: Shares should reflect each member’s capital contributions, voting rights, profit/loss sharing, etc. Getting this structure right is crucial.

• Drafting the Articles, or the Shareholders Agreement: This governing document sets the rules for membership, exit, voting, dispute resolution, and all operations. Having a well-drafted agreement avoids complications. (See our separate article on Shareholders Agreement)

• Complying with Company Law: There are annual filing requirements, audits, membership meeting rules, and other obligations companies must follow.

An experienced Kenyan lawyer can provide invaluable guidance on how to properly incorporate and structure your chama as a company for owning land or other major joint assets.

Don’t Take Chances with Land Titles

Land ownership disputes between former friends and chama members are far too common in Kenya. They often stem from unclear ownership structures and poorly documented member rights from the start.

Remember: Whether registering a company or a community group, take the time to get experienced legal advice. Upfront diligence and documentation is critical for any chama looking to invest in Kenyan land or other major assets together. Otherwise, that land purchase becomes a legal and interpersonal minefield waiting to explode.

Remember: The above is not specific legal advice for you. Always consult a lawyer to determine the best option for your specific situation

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