Part I: Understanding the role of management companies in Kenyan real estate developments
Kenya' real estate sector has evolved rapidly, with apartments, gated communities, and mixed-use developments now common across the country. In tandem, legal structures have emerged to support clarity, sustainability, and order in property ownership and management. A key structure is the use of management companies, under which long-term leases are issued to serve as proof of ownership.
This article launches our series "Decoding sectional property, long-term lease, management company rights and sectional titles in Kenya," where we will explore the origins, role, and current legal framework governing management companies, the legal landscape of long-term leases and sectional titles in real estate developments. By breaking down the concepts into practical terms, we aim to demystify how these entities affect everyday homeowners and developers.
What are management companies?
A management company is a legal entity, often registered as a limited liability company, tasked with overseeing the common areas and shared amenities in a real estate development. This could include maintaining gardens, parking spaces, lifts, security, water supply, or other shared facilities. Additionally, once all long-term leases for the units have been registered against the title to the land, the management company will hold the reversionary interest following its transfer by the developer.
For example, in an apartment block, no single owner can claim exclusive ownership of the staircase or corridor. The management company steps in as the "custodian" of such shared spaces, ensuring their upkeep and collecting service charges from homeowners to fund maintenance of the common areas.
Connection with long-term leases
Historically, Kenyan developments were sold using long-term leases (leases exceeding 21 years, frequently 99 or 999 years). Each buyer obtained a long-term lease for their apartment or maisonette from the developer, while the common areas (staircases, parking bays, boundary walls) were transferred to the management company by virtue of the registration of the transfer of the reversionary interest. The buyer automatically became a shareholder of that company.
The management company is not only a party to the long-term lease but is usually named in these leases as the entity responsible for enforcing such obligations and managing the common property of the development. In practice, every buyer automatically became a shareholder or member of the management company, creating a link between ownership and management.
Legal obligations of management companies
The legal obligations of management companies are multifaceted and include:
- Holding the reversionary interest in trust: Where all units have been transferred to owners, the management company is required to hold the reversionary interest in trust for the benefit of the unit owners.
- Maintaining common areas: Ensuring shared spaces remain functional, safe, and aesthetically pleasing.
- Collecting service charges: Gathering agreed contributions from unit owners to cover upkeep and utilities.
- Enforcing lease covenants: For instance, preventing a homeowner from turning their apartment into a nightclub, if prohibited.
- Representing homeowners: Acting as a unified voice when dealing with developers, county authorities, or utility providers.
- Renewal of the mother title lease: Where the land on which the development stands is held under leasehold tenure, the management company holding the reversionary interest is responsible for renewing the lease of the mother title, as well as subsequently renewing the leases for the individual units.
Common disputes involving management companies
Despite their central role, management companies are often at the heart of disputes which may include:
- Service charge disputes: Homeowners may challenge the quantum, frequency, or transparency of service charges. For example, disputes often arise when developers retain control of the management company post-completion and set service charges without adequate consultation or disclosure
- Control and handover: Developers may delay the transfer of control of the management company to homeowners, retaining decision-making power and, in some cases, mismanaging funds or failing to maintain the property. This often leads to disputes over the timing and process of handover, especially where the developer is reluctant to relinquish control.
- Quality and timeliness of maintenance: Delays or substandard maintenance of common areas can lead to dissatisfaction and claims of breach of duty.
- Enforcement of by-laws: Disputes may arise over the enforcement of community rules, such as restrictions on alterations, noise, or use of common facilities.
- Transfer of shares in the management company and reversionary interest in the land: Developers are often hesitant to transfer shares in the management company and the reversionary interest in the land, as this would result in relinquishing control over the management company's functions and the underlying land.
Evolution of the registration regimes
The legal framework governing ownership and management of multi-unit properties has undergone significant transformation.
The previous regime: Long-term leases
Before the Sectional Properties Act gained traction, developers relied heavily on long-term leases to grant buyers ownership rights. Each lease outlined the homeowner's share in common property and linked them to the management company.
This system, while functional, had shortcomings:
- Cumbersome registration of numerous leases for a single development.
- Ambiguity over rights in common property.
- Heavy reliance on management companies as the glue holding developments together.
- Unscrupulous developers that want to retain control of the management company and development.
The current regime: Sectional Properties Act (Chapter 286 of the Laws of Kenya)
The Sectional Properties Act introduced a more streamlined system by allowing developers to register individual units (e.g., Apartment A-10) as separate titles. This eliminates the need for long-term leases in most cases. Each owner receives a title deed for their unit, and their share in common property is clearly registered. Upon registration of the sectional title, the "Owners' Corporation" (analogous to a management company) springs into being by operation of law; every unit owner is a member upon issuance of a title for the unit.
Conclusion
Management companies in Kenya's real estate sector arose out of necessity. Under the old long-term lease system, developers needed a way to manage shared spaces and enforce obligations which led to the creation of management companies embedded within these lease agreements.
Over time, this model became the default for managing developments, and despite the introduction of the Sectional Properties Act, many older estates still rely on it. Management companies played a critical role in keeping estates functional, even when the legal toolkit was crude.
With the Act now in force, Kenya stands at the threshold of a more efficient era where governance of the units is clearly set out under the ambit of the law.
In Part 2 of this series, we will explore the legal transfer of shares in management companies in real estate developments.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
