1 Legal framework
1.1 What legislation governs real estate in your jurisdiction?
The primary statutes governing real estate in Zambia are:
- the Lands Act (Chapter 184 of the Laws of Zambia); and
- the Lands and Deeds Registry (Amendment) Act (40/2010).
Other statutes that relate to real estate include:
- the Lands Tribunal Act (39/2010);
- the Urban and Regional Planning Act (3/2015);
- the Land (Perpetual Succession) Act (Chapter 186 of the Laws of Zambia);
- the Landlord and Tenant (Business Premises) Act (Chapter 193 of the Laws of Zambia); and
- the Estate Agents Act (21/2000).
1.2 What special regimes apply to different types of real estate?
No special regimes apply to different types of real estate. However, separate laws apply to:
- the ownership of land;
- the registration of land documents; and
- the leasing of land.
- the Lands Act relates to ownership of land;
- the registration of land documents is governed by the Lands and Deeds Registry Act; and
- the Landlord and Tenant (Business Premises) Act relates to the leasing of commercial property.
2.1 What types of ownership rights exist in your jurisdiction?
The types of ownership rights that exist in Zambia are based on the land tenure system under which they fall. The Zambian land tenure system consists of two systems:
- customary rights applicable to customary land; and
- statutory tenure applicable to state land.
Recognition of customary tenure does not bring about the registration of ownership rights, but only the protection of use and occupancy rights. Customary land is controlled by traditional chiefs and their headmen, who act with the consent of their people. One key aspect of traditional tenure is free access to land by all members of a community. In customary areas in Zambia, individual ownership, concurrent interests and communal interests are recognised.
In relation to ownership rights under statutory tenure, once registered by the relevant registration body, ownership rights refer to:
- quiet possession and occupation of land; and
- security of such use, possession or tenure.
There is no freehold tenure in Zambia. Section 5 of the Land (Conversion of Titles) Act 1975 (repealed by the Lands Act) abolished freehold tenures and replaced them with statutory leasehold for a maximum period of 100 years, renewable, commencing on 1 July 1975.
Section 10 of the Lands Act provides that a lease, upon expiry, will be renewed for a period not exceeding 99 years. However, 100-year leases granted pursuant to the Land (Conversion of Titles) Act 1975 are not rendered invalid by virtue of Section 30 of the Lands Act.
2.2 What ownership structures are commonly used in your jurisdiction?
Approximately 93% of the land in Zambia is customary land. Thus, the customary structure of ownership detailed in question 2.1 applies to the majority of the country's population.
As customary structure is focused on communal rights, persons that wish to acquire individual ownership acquire land under statutory tenure. Further, according to Section 8 of the Lands Act, anyone that holds land under customary tenure may convert it into leasehold tenure for a period not exceeding 99 years.
2.3 Are there any restrictions on real estate ownership in your jurisdiction?
Section 3(1) of the Lands Act provides as follows: "Notwithstanding anything to the contrary contained in any other law, instrument or document, but subject to this Act, all land in Zambia shall vest absolutely in the President and shall be held by him in perpetuity for and on behalf of the people of Zambia."
Accordingly, one notable restriction on real estate ownership is that there is, in fact, no such thing as ‘ownership' of land in an absolute sense. In Zambia, all land is vested in the president, who holds it in perpetuity for and on behalf of the people of Zambia. What a person can therefore ‘own' in Zambia is merely an estate or interest in land of a defined duration. However, it is usual in everyday parlance to describe someone that has substantial rights in land as the ‘owner' of the land.
Further, according to Section 3(3) of the Lands Act, land cannot be owned by non-Zambians, except in the following instances:
- The non-Zambian is a permanent resident of Zambia;
- The non-Zambian is an investor;
- The non-Zambian has obtained the president's consent in writing;
- The non-Zambian is a company registered under the Companies Act (10/2017) and less than 25% of the issued shares are owned by non-Zambians;
- The non-Zambian is a statutory corporation created by an act of Parliament;
- The non-Zambian is a cooperative society registered under the Cooperative Societies Act (20/1998) and less than 25% of the members are non-Zambians;
- The non-Zambian is a registered and approved body registered under the Land (Perpetual Succession) Act, and is a non-profit making, charitable, religious, educational or philanthropic organisation or institution;
- The interest or right in question arises from a lease, sub-lease or under-lease, for a period not exceeding five years, or from a tenancy agreement;
- The interest or right in land is being inherited upon death or is being transferred under a right of survivorship or by operation of law;
- The non-Zambian is a commercial bank registered under the Companies Act (10/2017) and the Banking and Financial Services Act (7/2017); or
- The non-Zambian is granted a concession or right under the Zambia Wildlife Act (14/2015).
2.4 Is ownership of land and buildings constructed thereon legally separable?
There is no statute which states that the land and the fixtures set thereupon are inseparable. However, the Zambian courts have stated that whatever is attached or annexed to land has become part of the land. Namung'andu v Lusaka City Council (1978) ZR 358 (HC) 10 is instructive on this point. The court held as follows: "First, the commonest fixture is a house. A house is built into the land, so the house, in law is regarded as part of the land; the house and the land are one thing. Anything which is an integral part of the house, such as for instance, lead pipes, will also be a fixture and will be attached to or form part of the land."
Accordingly, the ownership of land and of buildings constructed thereon is generally not legally separable.
However, only the decisions of the two equally ranked apex courts – that is, the Supreme Court and the Constitutional Court – are binding on all other courts. This was confirmed in the Supreme Court decision of Ossie Mangani Zulu v Robbie Phiiri SCZ/8/138/201. The court held that, in keeping with the fundamental common law principles of stare decisis and judicial precedents in Zambia's legal environment, which have both binding and persuasive case authorities, only Supreme Court decisions and decisions of equally ranked courts (in this case, the Constitutional Court) are binding.
Therefore, although the Namung'andu decision reflects the position of the law, it is not binding, but simply persuasive as it was decided by a high court.
2.5 What security interests can attach to real estate? How are they prioritised?
If one owns the land, the security interest that can attach to the land is a mortgage, which can be legal or equitable. If the land is not owned (eg, it is leased), the security interest that is normally attached is an assignment of rights which is registered with both the Patents and Companies Registration Agency and the Lands and Deeds Registry under the Ministry of Lands. These security interests are prioritised by date of registration.
3.1 What body administers the land register in your jurisdiction?
The Lands and Deeds Registry under the Ministry of Lands.
3.2 Is registration of real estate rights, transactions and encumbrances mandatory? What are the consequences of failure to register?
Yes. Section 4 of the Lands and Deeds Registry Act makes mandatory the registration of real estate rights, transactions and encumbrances. It provides that: "Every document purporting to grant, convey or transfer land or any interest in land, or to be a lease or agreement for lease or permit of occupation of land for a longer term than one year, or to create any charge upon land, whether by way of mortgage or otherwise, or which evidences the satisfaction of any mortgage or charge, and all bills of sale of personal property whereof the grantor remains in apparent possession… must be registered within the times hereinafter specified in the Registry or in a District Registry if eligible for registration in such District Registry."
According to Section 6 of the Lands and Deeds Registry Act, failure to register will result in the document requiring registration being null and void.
In Sundi v Ravalia [LRNR] (1949-54) Vol p 345, the High Court of Northern Rhodesia stated that "null and void" under Section 6 means "of no effect whatsoever"; and that in such a situation, a lease cannot pass any interest and cannot be specifically enforced.
The decision in Sundi v Ravalia was followed by the Supreme Court of Zambia in Krige v Christian Council of Zambia 5  ZR 152, in which it held, among other things, that the engrossment of a lease for execution and the accompanying letter constituted a valid memorandum in writing of an agreement for a lease which should have been registered under the Lands and Deeds Registry Ordinance. The effect of non-registration was that the agreement was void for all purposes whatsoever.
3.3 What are the formal and documentary requirements for registration?
No answer submitted for this question.
3.4 What is the process for registration?
The process of registration at the Lands and Deeds Registry and the applicable requirements may vary, depending on the document being registered. For instance, the process for registration of a lease is as follows:
- Fill out three copies of what is called a ‘lodgement schedule', which is a document detailing the documents being submitted to the Ministry of Lands;
- Submit three copies of the lease as well as the original certificate of title of the land;
- Obtain a demand notice and pay the registration fee. The fee is 1% of the annual rent, but is capped at ZMW 15,000; and
- Lodge with the Ministry of Lands the certificate of title, three copies of the lease agreement, three copies of the lodgement schedule and proof of payment of the registration fee.
3.5 Is registered information publicly accessible?
Registered information is publicly accessible. The register may be searched and examined by anyone, and certified copies may be obtained if required, upon payment of a prescribed fee as provided for in Sections 22 and 23 of the Lands and Deeds Registry Act.
All leases are available in digital text documents; and maps of parts of the Zambian capital, Lusaka, are also available in digital format and are linked to the digital text documents. The information is contained in three types of registers, as provided for in Section 9 of the Lands and Deeds Registry Act:
- the Lands Register, which contains documents relating to land other than customary land;
- the Common Leasehold Register, which contains documents relating to common leasehold schemes; and
- the Miscellaneous Register, which contains all other documents.
4 Commercial leases
4.1 What types of commercial leases exist in your jurisdiction?
The law does not provide for various types of leases. However, leases are normally distinguished as ‘office' or ‘retail'.
4.2 Are the terms of a commercial lease regulated or freely negotiable? What do they typically cover (eg, duration; security deposit; rent; sub-letting; termination)?
The terms of a commercial lease are generally freely negotiable. However, the courts have issued decisions on the elements that a valid lease should contain. In Bobat v Kapindula (1974) ZR 235 (SC), the Supreme Court held as follows: "It is settled beyond question that, in order for there to be a valid agreement for lease, the essentials are that there shall be determined not only the parties, the property, the length of the term and the rent, but also the date of its commencement."
As such, commercial leases typically cover:
- the parties;
- the property;
- the duration of the lease;
- the rent; and
- the date of commencement.
Further, commercial leases are governed by the Landlord and Tenant (Business Premises) Act. This act defines a ‘lease' to include:
- an under-lease;
- an assignment operating as a lease or under-lease; and
- an agreement for such lease, under-lease, tenancy or assignment.
The Landlord and Tenant (Business Premises) Act relates exclusively to commercial leases. Its primary objective is to offer security of tenure for tenants occupying property for business purposes, as provided in the preamble. ‘Business' is defined in Section 2 as "a trade, an industry, a profession or an employment, and includes any activity carried on by a body of persons, whether corporate or incorporate, but does not include farming on land". Therefore, commercial leases, in accordance with the act, are those that are used for the purposes of conducting a trade, an industry, a profession or employment, excluding farming on land.
‘Tenancy' is defined in Section 2 as: "a tenancy of business premises (whether written or verbal) for a term of years certain not exceeding twenty-one years, created by a lease or under-lease, by an agreement for or assignment of a lease or under-lease, by a tenancy agreement or by operation of law, and includes a sub-tenancy but does not include any relationship between a mortgagor and mortgagee as such, and references to the granting of a tenancy and to demised property shall be construed accordingly."
The Landlord and Tenant (Business Premises) Act protects tenants against unfair termination of leases by landlords. In this regard, any landlord that seeks to terminate a commercial lease must follow a standard procedure under the act. Further, the landlord must provide at least six months' notice to terminate the lease. In addition, the lease can be terminated only on specific grounds set out in the act. A tenant also has the right to oppose the termination of a lease in court in terms of the act. This makes termination of leases falling under the act by landlords very difficult.
4.3 What are the formal and documentary requirements for conclusion of a commercial lease?
In accordance with Section 4 of the Lands and Deeds Registry Act, leases for a term longer than one year must be registered.
The documentary requirements are as follows:
- three copies of the lease agreement;
- three copies of the lodgement schedule from the Ministry of Lands;
- the certificate of title; and
- proof of payment of the registration fee.
4.4 What is the process for concluding a commercial lease?
A commercial lease must be signed by the parties and duly registered.
The lease is registered at the Lands and Deeds Registry. The lease must be accompanied by the certificate of title of the land, as well as a lodgement schedule, which shows which documents have been submitted to the Ministry of Lands. A registration fee of 1% of the annual rent is then payable, with a cap of ZMW 15,000. Finally, when the lease is registered, it will be noted in the memorials of the certificate of title.
4.5 What are the respective obligations and liabilities of landlord and tenant under a commercial lease, and what are the consequences of any breach?
Statute does not set out such obligations and liabilities. Instead, these are subject to contract. As a matter of practice, some of the tenant's obligations and liabilities include the following:
- to pay the proper amount of rent in the proper commodity at the proper date agreed by the parties;
- to take good care of the property and not use it for other purposes than for which it was let; and
- to restore it to the same condition in which it was received on termination of the lease.
The primary duty of the landlord is to give the tenant occupation and control of the property. This was espoused by the Supreme Court in Kaonga v Attorney General (Appeal 79/2009) , in which the court affirmed the definition of a ‘tenant' as one who "holds or possesses land or tenements by any kind of right or title".
The landlord must also:
- maintain the property in its proper condition, subject to fair wear and tear;
- ensure that normal repairs to the property are carried out; and
- guarantee that the tenant will enjoy the undisturbed use and enjoyment of the property for the duration of the lease.
Breach of a commercial lease entitles the innocent party to a number of remedies. The landlord's remedies for breach include:
- the remedy of distress;
- damages for breach of contract; and
The tenant's remedies for breach of covenant are:
- to sue for damages;
- to sue for an injunction to stop a continuing or threatened breach;
- to sue for specific performance of the landlord's obligations, such as repair; and
- to deduct the costs of carrying out the landlord's repairs from future payments of rent.
4.6 How are rent variations typically effected throughout the term of the lease?
No statutory provisions govern how rent variations are to be effected during the term of the lease. All rental variations and escalations are usually governed by the lease agreement entered into by the parties. As a matter of practice, rental escalations are undertaken during the renewal of the lease agreement.
The escalation may be a percentage of the rent or may be determined by the reference to the Zambian Consumer Price index.
4.7 What taxes are levied on rental income?
In accordance with the Income Tax Act (Chapter 323 of the Laws of Zambia), rental income is subject to withholding tax at the specified rate of 10%.
Additionally, in terms of the Value Added Tax Act (Chapter 331 of the Laws of Zambia), read together with the Value Added Tax (Exemption) Order, commercial property is not exempt from value added tax (VAT) and rental income arising from the letting of property is not subject to VAT. However, income derived from the letting of commercial property is subject to VAT at the rate of 16%
- Rental charge on commercial property per month: ZMW 10,000
- Withholding tax at 10% of rental income: ZMW 1,000
- VAT at 16% of rental income: ZMW 1,600
4.8 Can a commercial lease be triple net?
Yes. Triple net leases may be agreed by the parties, as the law does not regulate the rental arrangements between the parties.
4.9 How are landlord and tenant disputes typically resolved?
The means through which disputes are resolved will vary depending on the circumstances of the case. For instance, some disputes are resolved informally, by agreement of the parties. Alternative dispute resolution methods such as mediation may also be resorted to, while some disputes are resolved through litigation.
4.10 What types of guarantees are market practice and required by landlords to secure the tenant's obligations
Legally, there is no requirement to include guarantees in lease agreements. However, in practice, some landlords will insist that a third-party guarantee, whether corporate or personal, be given for a lease. This is commonly the case where the tenant is a company with limited trading history and financial records, or which is unable to demonstrate to the landlord that it will be a reliable and financially stable tenant. Company directors or corporations are often called upon to stand as guarantor for compliance with the lease obligations.
By signing such a guarantee, a company director will be putting his or her personal assets at risk if the tenant company cannot comply with the lease obligations.
As an alternative to a personal guarantee, a tenant could offer a security deposit.
In Zambia, it is common for most landlords to request security deposits as opposed to guarantees. However, there are instances where landlords request both guarantees and security deposits.
5 Real estate transactions
5.1 What form do real estate transactions typically take in your jurisdiction?
Real estate transactions typically take one of two forms:
- a sale of the property from buyer to seller; or
- a lease arrangement between tenant and landlord.
The sale of land in Zambia is usually governed by the Law Association of Zambia General Conditions of Sale 2018 (LAZ GCS). These conditions are not statutory, but merely guidelines governing the sale of land, thus promoting uniformity and certainty in real estate transactions.
5.2 Which players are typically involved in a real estate transaction in your jurisdiction?
The players typically involved in a real estate transaction are:
- the seller;
- the seller's lawyer(s);
- the purchaser;
- the purchaser's lawyer(s);
- the landlord;
- the tenant;
- the Ministry of Lands; and
- the Zambia Revenue Authority (ZRA).
A real estate agent may also be involved, depending on the transaction.
5.3 Is the seller bound by a duty to disclose? What representations and warranties will it typically make?
There is no statutory obligation for a seller to disclose during a sale transaction. However, most contracts of sale do contain this duty.
Condition 2 of the LAZ GCS provides that a vendor must deduce title when forwarding the draft contract to the purchaser's advocate. ‘Deducing title' is defined under Condition 1 to mean "documents and deeds and agreements which would normally be forwarded to the Purchaser's Advocates to show the Vendor's title".
Accordingly, the LAZ GCS oblige the seller to disclose that it has title to the property. In this regard, the seller makes the representation that it does indeed have title by producing the necessary documents that prove this.
Most contracts in Zambia are prepared on the basis of the LAZ GCS.
5.4 What due diligence is typically conducted in a real estate transaction?
The most common form of due diligence is an unofficial search at the Ministry of Lands in the Registry of Lands and Deeds. The search provides basic information about the property, such as when it was registered and any sub-divisions, transfers or mortgages.
However, it is more prudent to conduct an official search to obtain search certificates in accordance with Section 23 of the Lands and Deeds Registry Act. This is because, in accordance with the act, for a search to be valid, it must comply with Section 23.
In addition to searches at the Ministry of Lands, the buyer will usually ask for a copy of the title deed in respect of the land being transferred and the identity documents in respect of the seller.
5.5 What are the formal and documentary requirements for conclusion of a real estate transaction?
Effecting a sale of land from seller to buyer involves the following steps:
- The seller and the buyer sign a contract of sale.
- Consent to assign is required. This essentially allows the seller to assign the land to the purchaser.
- A ZRA assessment notice must be obtained, indicating the value of the property.
- A ZRA tax clearance receipt and tax clearance certificate will be obtained once the tax due is paid.
- A deed of assignment is issued, being the document that actually transfers the property.
- Notice to complete is issued.
- Registration fees are paid.
5.6 What is the process for concluding a real estate transaction? How long does this take? What costs are incurred?
The first step in the process is the signing of the contract of sale.
Once the contract of sale is signed, most contracts will provide for the payment of a deposit of the purchase price.
The seller (or the seller's lawyers) must then obtain state consent to assign, which ordinarily takes a week or so.
Having obtained state consent to assign, the seller or its lawyers then apply to the ZRA for an assessment of property transfer tax (PTT), based on the purchase price or market value of the property, whichever is higher in the view of the commissioner general. This process takes about two weeks. The ZRA will then issue an assessment notice.
Having received the notice, the seller then pays the PTT – usually out of the deposit paid by the purchaser. When this is done, the ZRA issues a tax clearance receipt and tax clearance certificate. The parties will then sign a deed of assignment. This is the document that actually transfers the property.
Once the deed of assignment has been signed and sealed by both parties, the seller's lawyers issue a notice to complete. This is essentially an invoice showing the balance to be paid by the purchaser. On receipt of the notice, the purchaser pays the balance.
The seller then hands over to the purchaser the following documents:
- the certificate of title;
- the tax clearance receipt;
- the tax clearance certificate; and
- the deed of assignment
Once the purchaser is in custody of the above documents, the documents are lodged at Ministry of Lands. At the Ministry of Lands, the following fees must be paid:
- a registration fee of 1% of the purchase price, up to a maximum of ZMW 15, 000; and
- a lodgement fee, being a nominal amount.
Once the purchaser has paid the balance, it can take possession of the property. Change in title may take place between two weeks and a month thereafter. However, the process can be expedited by paying an extra fee.
The entire process may take about three to five months to complete.
5.7 What are the respective obligations and liabilities of buyer and seller, and what are the consequences of any breach?
There are no statutory obligations in respect of the sale of real estate. However, in accordance with the LAZ GCS, the following are the standard obligations and liabilities of the buyer and seller.
Seller: The first obligation of the seller, as provided in Condition 2, is to deduce title to the buyer. This involves producing all necessary documentation proving that it has title to the property. In terms of Condition 13, the seller is also obliged to give the purchaser vacant possession upon completion of the transaction. However, this is subject to the terms of the contract.
If the property is a subdivision of land, Condition 14 provides that the vendor shall be liable for:
- paying all expenses incurred from:
- the subdivision and survey of the property; and
- the approval of any diagram or plan;
- marking off fees; and
- applying for the certificate of title.
Buyer: Under Condition 3 of the LAZ GCS, unless the contract provides otherwise, the purchaser must pay 10% of the purchase price on the exchange of contracts. On completion of the purchase, or if possession is given to the buyer prior to completion, the purchaser becomes liable for the outgoings on the property, in accordance with Condition 4 of the LAZ GCS
According to Condition 7, the buyer must make payment within five working days of the seller sending the buyer a completion statement and notifying the buyer of receipt of the tax clearance certificate from the ZRA. Condition 5 provides that if the buyer defaults, the purchase price begins to accrue interest at the rate of 15% per annum or 5% per annum if the contract is denominated in foreign currency.
The purchaser is also responsible for preparing the assignment and must deliver it to the seller at least 10 days before the date fixed for completion as espoused by Condition 16.
Consequences of breach: Condition 22 of the LAZ GCS states that if either party fails to perform its part of the contract, the other party may give the defaulting party at least 14 days' notice in writing specifying the default complained of and requiring the defaulting party to remedy the breach before the expiration of such notice.
If the defaulting party is the seller and the seller does not comply with the terms of such notice, the buyer can either apply to the court for relief or rescind the contract.
If the buyer, being the defaulting party, does not comply with the terms of the notice, the deposit (if any) will be forfeited to the seller. The seller may also resell the property or resume possession (if the buyer took possession) and recover the documents belonging to it that it may have given to the buyer.
5.8 What taxes are payable on a real estate transaction?
In terms of the PPT Act (Chapter 340 of the Laws of Zambia), PPT is payable on a real estate transaction. It is first necessary to submit a valuation report to the ZRA obtained from a land valuer or land surveyor for the purpose of establishing the taxable value of property. However, in accordance with Section 4(3) of the Property Transfer Tax Act, the ZRA may use the assessments of the Government Valuation Department instead.
PTT is charged on and collected from the person transferring the property on the realised value (ie, the open market value in accordance with Section 5 of the Property Transfer Tax Act) or the contract price, whichever is higher.
6 Real estate finance
6.1 Who are the most common providers of real estate finance in your jurisdiction? Do any restrictions apply in this regard?
Commercial banks are the most common providers of real estate finance in Zambia. Other financial institutions – such as the Zambia National Building Society, the Pan African Building Society and the Finance Building Society – are also major lenders.
In terms of restrictions, Section 84 of the Banking and Financial Services Act (7/2017) restricts banks' investment in real estate. This section provides that a bank or financial institution may not, directly or indirectly, without the prior written approval of the Bank of Zambia (the central bank of Zambia), acquire ownership of an interest in commercial property, except as an interest that is necessary to secure or satisfy a debt or other liability payable to the bank or the financial institution, in which case it must be disposed of within two years.
6.2 What forms of real estate finance are available in your jurisdiction?
The types of real estate finance available in Zambia are mortgage loans and term loans. A mortgage loan is a long-term loan through which the lender takes security over the property. On the other hand, a term loan is more short term and, as opposed to a mortgage, may involve the assignment of contractual rights.
Real estate finance may also be secured or unsecured. Secured real estate finance involves the lender taking security over the property. The security package may include:
- a mortgage or assignment of contractual rights;
- a charge over assets; and
- the assignment of receivables.
An unsecured loan involves no security over the loan. However, this type of real estate finance is rare.
Finally, real estate finance may be for construction, expansion and improvement or outright acquisition.
6.3 What formal, documentary and other requirements do lenders typically require of borrowers?
Financing agreements normally have documents and requirements as conditions precedent to the agreement. These include:
- title documents – typically the certificate of title of the property if the property is owned or, if not, the lease agreement;
- corporate documents which show the borrower's capacity and authorisation to borrow;
- insurance documents with the lender being endorsed as first-loss pay;
- audited financial statements;
- security documents;
- the approval of the Zambia Environmental Management Agency, where required;
- planning permission; and
- a valuation report for the property, if available, to ascertain the value of the property.
6.4 What type of security interests are typically required by lenders?
Security interests required by lenders will normally be in the form of:
- a mortgage;
- a fixed or floating charge;
- the assignment of receivables; and
- a charge over the assets on the property.
6.5 What is the process for obtaining real estate finance? What costs are payable?
Generally, the process for obtaining real estate finance is that the party seeking to embark on the real estate project will approach a financial institution and present the real estate project to the financial institution. This presentation could include information such as:
- the estimated rental income the property would make;
- the estimated time it would take for the loan to be repaid if granted; and
- the estimated value of the property.
The financial institution will then assess the bankability of the potential real estate project, based on the information presented to it. If the financial institution decides to finance the real estate project, a term sheet will be completed by the borrower. The financial institution's lawyers will then request further documentation such as security documents. Once the final documentation has been signed by both parties, the borrower can begin to draw down on the loan.
The costs payable are normally legal fees incurred by both parties for the work of their lawyers. The borrower must also pay interest on the sum obtained from the lender.
6.6 How is security enforced in case of any breach?
In the event of breach, the law provides various remedies to the lender to enforce the security. These include:
- selling the property;
- foreclosing on the property;
- taking possession of the property;
- appointing a receiver; and
- suing on a personal covenant.
7 Real estate investment
7.1 Who are the most common investors in real estate in your jurisdiction? Do any restrictions apply in this regard?
Although it is fairly common for local people and entities to invest in real estate in Zambia, the bulk of real estate investment is from international investors.
According to the Zambia Business Times, international players invested $716 million in Zambia between 2014 and 2017 alone, of which 74.6% was in the capital of Lusaka.
While South Africa accounts for 51% of the international funds invested in real estate, there have also been investments from 10 other countries, showing some diversity in the investor base. The international investors transacting in Zambia include quality names such as:
- Hyprop (South Africa);
- SA Corporate Real Estate (South Africa);
- Grit (Mauritius);
- Novare (South Africa);
- Actis (United Kingdom);
- PrimeTime (Botswana);
- Terrace Africa (South Africa); and
- Heriot Properties (South Africa).
7.2 What investment vehicles are typically used in your jurisdiction? What are the benefits and drawbacks of each?
Direct investment: The first – and sometimes most obvious – choice is for an individual or group of individuals to purchase a property directly from another individual, or to engage in a commercial lease agreement. The benefit of this method is that it provides the purchaser or tenant with direct control over the property selection, due diligence at the Ministry of Lands, financing, leasing and management processes. However, one drawback is that it comes with the time-consuming responsibility of managing the asset on a day-to-day basis and exposure to the financial liability that could result from a deal that turns out not to be as lucrative as expected.
Another more important drawback is that commercial properties – especially the best ones – are expensive and likely out of reach for all but the wealthiest individual investors with the greatest liquidity. For example, a commercial office building in a prime location could cost tens of millions of dollars, putting it out of the reach of most individuals. As an alternative, they could purchase a smaller asset such as a house and turn it into office space, but this would not provide the same scale as a larger office building.
Indirect investment: Broadly, through an indirect investment, a party places funds with a professional asset manager and outsources the task of selecting, financing and managing the property to it. The obvious benefit of an indirect investment is that the investor gets all of the benefits of ownership without the hassle of managing the property. For example, a private equity real estate firm has a mandate to pool investor money and deploy it in real estate assets. Private equity deals can be structured as real estate funds, whereby an investor pledges money to a fund and allows the manager to choose how to invest it.
7.3 How are these vehicles established and administered in your jurisdiction?
Direct investments are established through the acquisition and registration of the property in question, as explained in question 7.2. Indirect investments are normally handled by professional asset managers, which are ordinarily companies and incorporated under the Companies Act (10/2017), and many of them fall within the pension scheme regulatory framework.
8 Planning and zoning
8.1 How is land use regulated in your jurisdiction?
Land use in terms of planning and zoning is regulated by the Urban and Regional Planning Act (3/2015). This act provides for rational and integrated methods for land use and development, as opposed to allowing land owners to freely use and develop land in any way they wish. The primary object of the regulation of land use is to ensure that all land is put to the use which is best from the point of view of the community.
8.2 What is the process for obtaining planning permission? How long does this take? What costs are incurred?
Among other things, the Urban and Regional Planning Act sets out the development, planning and administration principles, standards and requirements for urban and regional planning processes and systems. This act repealed the Town and Country Planning Act (Chapter 283 of the Laws of Zambia).
Part VI of the Urban and Regional Planning Act provides for planning applications and permission. Section 49 of the act provides that "a person shall not carry out any development on land, change use of land or subdivide any land without planning permission".
Section 2 of the Urban and Regional Planning Act defines ‘development' to include building or rebuilding as well as subdivision of land. Thus, for any construction or subdivision of land, planning permission must be obtained.
Section 52 of the Urban and Regional Planning Act provides that planning permission for development will be granted by way of development permits. It further provides that an application for planning permission must be made to the planning authority (regional, provincial or local, as defined in Section 2).
If an application for a development permit involves a major development, the planning authority will not consider the application unless the applicant has given 14 days' notice of intent to make an application.
Anyone that intends to oppose an application for the grant of a development permit can do so in writing, specifying the reasons for the objection.
Section 55 of the Urban and Regional Planning Act affords the planning authority 90 days from receipt of application for a major development or change of land use, or 28 days for any other development, to grant, defer or reject the application for a development permit.
Subdivision: To obtain planning permission for subdivision, the applicant must first obtain sketch plans for the property to be subdivided. These are obtained by engaging a surveyor to survey the land and prepare sketch plans in respect of the land.
Once the sketch plans have been prepared, an application for approval of the subdivision must be delivered to the relevant council (planning authority). The following documents must be submitted to the council for the purpose of subdividing land:
- eight copies of the sketch plans drawn to scale, with properties to be numbered and underlined in red ink and road reserves underlined in blue ink;
- one certified copy of the title deed for the plots;
- a complete application form; and
- a copy of the receipt for the scrutiny fees (currently ZMW 584.62).
The planning authority has 28 days from receipt of the application to grant, defer or reject the application.
On or before the lapse of 28 days, the planning authority will decide whether to grant planning.
Construction: The first step to obtain planning permission for the construction of property is to log on to the website of the city council in the city in which the planning permission is sought. The drawings of the building to be constructed and the certificate of title to land must also be uploaded on the ‘Metro Manager' section of the website.
The website will then automatically generate an invoice for the costs. These cannot be ascertained in advance because the automatically generated invoice takes into account various factors such as the area in which the building will be constructed.
The amount specified in the invoice must then be deposited into the bank account of the city council.
Once a receipt of payment of the amount specified in the invoice is presented to the city council, the drawings that were initially uploaded will be scrutinised by the planning committee, comprised of councillors, to decide whether to grant planning permission.
The length of this process will depend on the schedule for sittings of the committee (these are held every two months on average) and the number of applications that are considered per sitting.
8.3 Can a planning decision be appealed?
Yes. In accordance with Section 59 of the Urban and Regional Planning Act, anyone that is aggrieved with the decision of a planning authority can appeal in writing to the appropriate planning appeals tribunal within 30 days of receipt of the decision of the planning authority.
8.4 What are the consequences of failure to obtain planning permission or to comply with a planning condition?
Under Section 49 of the Urban and Regional Planning Act, the development of land without planning permission or failure to comply with planning permission constitutes an offence. Further, a planning authority can demolish the structure without payment of compensation
8.5 Is expropriation of land possible in your jurisdiction?
Yes. Section 3 of the Lands Acquisition Act (Chapter 189 of the Laws of Zambia) empowers the president to compulsorily acquire property if it is in the interests of the state to do so.
If the president believes that expropriation is in the interests of the state, preliminary investigations such as surveys may be conducted on the land. A notice of intention to acquire the property is then given to the owner of the land. A subsequent notice is then issued by the minister to yield up possession after the expiry of a specified period. Upon the expiry of this period, the land owner is paid compensation and the land is then re-entered in the Registry at the Ministry of Lands by the commissioner of lands.
8.6 Is confiscation of land possible in your jurisdiction?
No. The compulsory acquisition of land is subject to payment of compensation according to Section 10 of the Lands Acquisition Act. However, Section 15 of the act provides that no compensation will be payable for land which is undeveloped and unutilised.
9.1 What main environmental legal provisions apply to the development, use and occupation of real estate?
The Environmental Management Act (12/2011) (EMA) governs environmental approval in relation to the development, use and occupation of real estate. In accordance with Section 29 of the EMA, a project that may have an effect on the environment may not be commenced without the written approval of the Zambia Environmental Management Agency (ZEMA) and must accord with any conditions imposed in that approval.
Further, the appropriate authority or other public body will not grant a permit or licence for the execution of any project that is likely to have an effect on the environment unless:
- an approval for the project is granted by ZEMA; or
- the grant of the permit or licence is made conditional upon such approval being granted.
The procedure for obtaining ZEMA's approval is governed by the Environmental Protection and Pollution Control (Environmental Impact Assessment) Regulations (SI 38/1997) (‘EIA Regulations'). According to Regulation 3 of the EIA Regulations, a developer may not implement a project for which a project brief or an environmental impact statement is required unless:
- the project brief or an EIA has been concluded; and
- ZEMA has issued a decision letter.
As defined in Regulation 2 of the EIA Regulations, a ‘decision' letter is a letter issued by ZEMA stating that:
- a proposed project is not likely to cause unacceptable environmental impacts; or
- the expected environmental impacts are unacceptable and an authorisation licence, permit or permission should not be issued.
In making a decision regarding an EIA, ZEMA will take into account:
- the impact predictions made in the EIA;
- the comments made by ZEMA in the EIA;
- the report of the person presiding at the public hearing, where applicable; and
- other factors which ZEMA considers crucial in the particular circumstances of the project.
ZEMA must make a decision within 30 days of receipt of a report from a public hearing or 20 days from the date on which an EIA is submitted, as provided under Regulation 20(2). Once ZEMA has made its decision, it will issue a decision letter stating either that:
- the project is approved;
- the project is rejected; or
- the project is approved subject to the developer meeting the stipulated conditions to be attached as an annex to any authorisation licence, permit or permission issued to the developer based on an impact management plan provided in the EIA.
9.2 Who can be held liable for environmental contamination and how are clean-ups effected?
The developer or occupant of real estate may be held liable for environmental contamination.
In accordance with Section 106 of the EMA, where it has reasonable grounds to believe that any condition of a licence issued under the EMA has been breached, ZEMA may serve a compliance order on the licensee requiring it to remedy the breach within the period stipulated in the order. The compliance order may suspend the licence with immediate effect if such an action is considered necessary to prevent or mitigate an imminent risk of significant adverse effects to the environment or to human health occurring.
Alternatively, the compliance order may require the licensee to take specified measures to prevent or abate any adverse effect.
If the licensee fails to comply with a compliance order, ZEMA may:
- take the necessary steps to remedy the breach and recover the cost from the licensee;
- vary the conditions of the licence; or
- revoke the licence.
In addition, failure to comply with the compliance order is an offence and the offender is liable, upon conviction, to a fine not exceeding 300,000 penalty units, imprisonment for a period not exceeding three years or both. If the party fails to comply with a requirement specified in the compliance order within the specified timeframe, it will be subject to a further fine not exceeding ZMW 1 million for each day that the offence continues.
In terms of clean-ups, Section 32 of the EMA provides that anyone that contravenes the act by discharging harmful substances into the environment can be ordered to:
- clean up the polluted environment and remove the effects of the pollution to the satisfaction of ZEMA; and
- pay the full cost of cleaning the polluted environment and removing the pollution.
The offender may also be required to pay the full cost of any damage that the pollution has caused to third parties.
9.3 What environmental provisions and considerations should be factored into real estate transactions?
Section 29 of the EMA is paramount in this regard. It provides that no project that may have an effect on the environment may be commenced without the written approval of ZEMA. Thus, parties that wish to engage in real estate transactions such as construction must always obtain ZEMA's approval.
Further, in line with Section 106, contravention of the EMA could lead to revocation of the approval initially provided by ZEMA through the issuance of a compliance order.
The issues detailed in question 9.1 must also be taken into consideration for real estate transactions.
9.4 What initiatives are in place to promote green buildings and energy efficiency in your jurisdiction?
Sustainability is high on the Zambian government's agenda and the country is thus a party to treaties and agreements to reduce greenhouse gas emissions, such as the Kyoto Protocol and the Paris Agreement.
The environment is key in fostering sustainable development, as Zambia's key economic sectors depend on the existence and availability of natural resources. Therefore, emphasis has been placed on policies that support the sustainable conservation of natural resources. However, sustainability policies and regulations are fragmented, as there is no specific legislation that states the types of structures and materials that should be used to construct sustainable green buildings.
In terms of energy efficiency, at the national level, the Ministry of Energy and Water Development oversees policy formulation and facilitates the implementation of energy programmes, including energy efficiency. Currently, there is no law on energy efficiency in Zambia. The main initiative aimed at increasing energy efficiency is the National Energy Policy 2019 (NEP 2019). Among other things, this aims to enhance cost effectiveness and efficiency in the supply of petroleum products. It will also facilitate the development and deployment of renewable and alternative energy. The NEP 2019 will also promote the security of energy supply through diversification of energy sources at cost-reflective pricing, which should promote investment in the sector and thus scale up access to energy services in rural and urban areas. The NEP 2019 also considers climate change mitigation and adaptation, while advancing the sustainable development of the sector.
9.5 What types of environmental certifications apply in your jurisdiction?
The following licences are issued in line with the EMA:
- emission licences, which authorise the licence holder to emit or discharge a pollutant or contaminant into the environment;
- hazardous waste management licences, which relate to the transport or storage of hazardous waste;
- waste management licences, if the occupier of the land in question intends to carry out any operations relating to waste (eg, disposal); and
- pesticide and toxic substance licences, which relate to the manufacture, import, export, storage, distribution, transportation, blending, processing, reprocessing or changing of the composition of a pesticide or toxic substance, or the reprocessing of an existing pesticide or toxic substance for a significantly new use.
10 Trends and predictions
10.1 How would you describe the current real estate market and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?
On 10 May 2021, the Lands and Deeds Registry (Amendment) Act (37/2021) was enacted. The act has changed several aspects of land registration in Zambia, as follows:
- It adds three new definitions to the Lands and Deeds Registry Act. Specifically, it defines:
- a ‘document' as written, printed or electronic material that provides information, evidence or material content, including a graph, drawing or information recorded or stored by electronic means or on a technological device and capable of being reproduced;
- an ‘electronic signature' as having the meaning assigned to the words in the Electronic Communications and Transactions Act (4/2021) – that is, a sound, symbol, process or other data created or adopted by a person with the intent to sign a data message; and
- a ‘digital message' as having the meaning assigned to the words in the Electronic Communications and Transactions Act – that is, an electronic signature consisting of a transformation of an electronic record using an asymmetric cryptosystem and a hash function such that a person having the initial untransformed electronic record and the signer's public key can accurately determine whether the transformation as created using the private key that corresponds to the signer's public key and initial electronic record has been altered since the transformation was made.
- It provides for the use of electronic and digital signatures in land registration.
- It provides for the electronic lodgement of documents.
- It provides for the issuance and maintenance of a provisional certificate or certificate of title in electronic form.
This legislation will be followed by further prescriptions issued by the minister of lands and natural resources setting out the specific processes to be complied with via statutory instrument.
In terms of trends and predictions, following these developments, it anticipated that the land registration process will shift to digital and electronic registration.
Further, on 11 May 2021, Zambia launched its National Lands Policy after nearly two decades of attempts at drafting, consultation and validation. The policy sets out a vision for a "transparent land administration and management system for inclusive sustainable development by the year 2035". The objectives of the policy include:
- strengthening the land allocation mechanisms to improve security of tenure;
- streamlining the land registration system;
- improving land dispute management mechanisms; and
- facilitating ownership of land by Zambian citizens.
While these objectives are admirable, it remains to be seen whether they will be achieved in practice, especially over the next 12 months.
11 Tips and traps
11.1 What are your top tips for the smooth conclusion of a real estate transaction and what potential sticking points would you highlight?
- Set clear expectations for the transaction. Avoiding misrepresentations is an ideal way to prevent disappointment and adversity between the parties. Provide accurate information, including details of the property, and a realistic timeline that allows sufficient time for thorough inspections and necessary repairs to be conducted, and for renegotiations to take place.
- Conduct thorough due diligence. The potential buyer should undertake as many inspections as it believes are necessary. This is normally done after an offer has been made on the property. The offer should include terms to the effect that the buyer reserves the right to withdraw from the transaction if the inspection report does not confirm that the property is up to a certain standard. The potential purchaser should also conduct searches at the Ministry of Lands to ensure that the details provided by the seller concerning the property in question are indeed accurate.
- Gather the necessary documents and comply with all legal requirements. The documents in a real estate transaction must be registered within stipulated timeframes as prescribed by law. Failure to register these documents voids the transaction. Compliance is crucial for the smooth closing of a real estate transaction.
In conclusion, closing on a real estate transaction – whether residential or commercial – requires an immense amount of attention to detail, responsiveness and legal compliance on the part of all parties. Taking steps to minimise stress and effort, and to mitigate the risk of the transaction being voided, is key for the smooth closing of the transaction. One main sticking point to highlight is that real estate transactions can take a while – especially the stages that involve the Ministry of Lands, such as verification of the property details through an official search. The parties must be prepared to exercise a degree of patience throughout the process.
Co-Authored by Kabwe Nkunta
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.