Ever since I fully dedicated my time to providing private Legal Practise, even without a deliberate intent to provide land law advice, several clients have required my help to either transact in land or perfect heavily messed land transactions. In other instances, I get requests from friends for drawing land sale/purchase agreements for them and on putting a cocktail of questions to them some normally complain that all they want is to draw the agreements. I perennially say no to these instructions that require only the drawing of the sale agreement because practise has taught me that the land sale agreement is only one stage among many stages required and in absence of satisfying myself that the other key stages have been done, and that the subject land is free from all manner of third party claims, I cannot draw a sale/purchase agreement. I have always gone ahead to advise colleagues against touching a land matter before conducting all the required due diligences.
My strict stance on land has been guided over time following my interaction with clients who have lost a lot of money due to failure to observe presumably very clear pre-conveyance requirements otherwise referred to as due diligence in legal terms. Such requirements include but are not limited to; failure to conduct registry searches, failure to survey and open boundaries, failure to inspect the physical property, failure to involve local authorities, failure to inquire from beneficiaries especially when the property is a family property and failure to properly identify the sellers. I Cannot emphasize the due diligence requirement more than Honourable G. Okello J.A (as he then was) stated in the case of John Bagaire Vs Ausi Matovu C.A 7 of 1996 (C.A) where his lordship stated:
“Lands are not vegetables that are bought from unknown sellers. Lands are very valuable properties and buyers are expected to make thorough investigations relating to not only the land but also the seller before purchase”
This decision and many others on this subject matter are to the effect that during purchase of land, the buyer has a duty to satisfy him/herself that the transaction is legitimate. The law thus does not treat a purchaser who for one reason or another ignores the need to conduct due diligence as bona fide purchaser for valuable consideration without any notice of fraud. As such, what may appear as a small requirement has made several people lose money when courts declare their transaction fraudulent and consequently incapable of passing property.
This article is meant to help a prospective investor in real property/Land understand the key requirements before they part with their hard earned money. The steps are informed by the tenure and unique circumstances relating to land being subject of conveyance and this particular article will address due diligence requirements in relation to registered land.
Land law legal Regime in Uganda
Land in Uganda is majorly governed by the Constitution of Uganda 1995, the Land Act 1998, The Registration of Titles Act cap 205, and Customary law.
In accordance with Article 237 of the Constitution of the Republic of Uganda, all land shall vest in the citizens of Uganda. Section 2 of the Land Act further provides that the said ownership shall be in accordance with the following land tenure systems to wit; Customary, Freehold, Mailo and leasehold. The aforementioned laws do expound on the different tenures. What is crucial is that whoever chooses to deal in land must do so in accordance with the requirement of the tenure in question. For example, where as a buyer of customary land may not be required to conduct a registry search, another individual dealing in Mailo land would be expected to search the register to confirm ownership prior to purchase.
The legal due diligence considerations to be conducted depend on the land tenure system applicable to the land subject of conveyance together with other unique circumstances. A prospective investor in land must thus first determine the Tenure applicable to the land in question and then apply the due diligence measures proposed. This particular piece of writing will address requirements in relation to dealing in registered land.
Key Due Diligence Considerations before dealing in Registered land
Mailo land is one such example of registered land that would strictly require the due diligence before dealing. Section 3(4) Land Act provides that the Mailo Tenure is a form of tenure deriving its legality from the Constitution and its incidents from the written law and it involves holding the registered land in perpetuity.
This land is synonymous with a physical title with a block and Plot Number wherever its located. Key due diligence before dealing in this kind of tenure are the following;
- Visit the property
Upon receiving information about the intention of the Vendor to sell a property which the prospective buyer is interested in, the first step should be to visit that property. Visiting the property will give you an opportunity to interact with the Vendor, area local authorities, neighbours and persons in occupation (if any) which will help a great deal in confirming true ownership of the property. The authorities are very instructive on physical inquiries before purchase lest the purchaser could easily be said to have fraudulently acquired the property. In Nabanoba Desiranta & Another vs Kayiwa Joseph & Another, HCCS No. 496 of 2005, it was held that a person who purchases an estate which he/she knows to be in occupation and use of another other than the vendor without carrying out due inquiries from the persons in occupation and use commits fraud.
It is important to insist that the owner of the property guides you around during your first visit to the property. This is important because it will help you take note of the relationship the vendor has with the neighbours and care takers if any. The authorities have placed a high burden on the purchaser to know the vendor.
You may choose to conduct this tour with your transaction lawyer who will certainly use his/her training to interpret situations around the property. If upon this visit, so much doubt and uncertainly is crowding your mind especially as regards ownership, but you still want to go ahead with the transaction, hand over to your lawyer for professional management.
- Conduct a registry search
Conducting a registry search always results in a statement of search as at the date requested and will normally provide the following; Details of the land (Block and plot), total area in Hectares, Registered owner/s and Incumbrances status.
Searching the register before purchasing registered land is extremely crucial. Section 59 of the Registration of Titles Act provides that possession of a certificate of title by a registered person is conclusive evidence of ownership of the land described therein.
As such, the vendor who ignores searching the register may suffer the risk of buying land from a vendor whose name does not appear on the register or paying for land which is encumbered by either a mortgage or a caveat. Section 14 of the Registration of titles Act is to the effect that “So long as any caveat remains in force prohibiting any registration or dealing, the registrar shall not, except in accordance with some provision of the caveat or with consent of the caveator, enter in the register book any change in the proprietorship…….”
It would therefore be prudent practise to have a search report relating to the land one intends to buy before committing to buying the same.
- Survey & Open boundaries
It is very important to engage a registered surveyor to survey and determine the total acreage of the land and also identify mark stones that clearly demarcate the subject land from adjoining neighbours’ land. Land metric conversions can be very technical. It is important to note that land on the title is represented in hectares however small it may be yet it is normally marketed in Feet or metres. For example, a rectangular 50×100 plot of land is equivalent to a square measuring 12 decimals. The surveyors will always determine the total surface area of the land (decimal area) even when the shapes are not clear cut.
Before purchasing land, it is not wise to purport to be the surveyor and determine the acreage. Hire a surveyor to determine what your naked eyes may not be able to see so that the acreage that ends up represented in the agreement is accurate and supported by a surveyor’s report.
- Draw and execute proper agreements of purchase
Whether guided or not guided by a lawyer, a land sale agreement should either be drawn by the buyer or if drawn by the seller the same should be thoroughly reviewed by the buyer. This is because the weaker party who needs protection by the said sale agreement is the buyer.
This agreement must not be devoid of key clauses such as those that protect the buyer from third party claims. Agreement should also among others describe the property, indicate the date executed, consideration exchanged, particulars of parties to the transaction, total acreage, location of property and should be signed and witnessed. This is not to say that all agreements must appear similar, different transaction lawyers may adopt different drawing styles but the above alludes to the key components.
- Ensure immediate transfer of property
In Uganda, registered land is administered under the Registration of titles Act which mirrors the indefeasibility of title principle founded on the Torrens system. As such one who chooses to purchase land under the Act must observe requirements thereunder. As such, upon purchase the buyer acquires an equitable right into the property and upon completion of registration of the buyer’s name on the title, the said equitable right converts into a legal right. The beauty with ownership of a legal right is that one’s interest is protected from the entire world.
During the transfer processes, the purchaser is mandated to pay stamp duty as evaluated by a Government valuer. And because Stamp duty is a percentage of the value of the property, many buyers are tempted to under value the property in order to pay less stamp duty which is also disastrous in all aspects.
The position of the law on under declarations on the transfer forms leading to payment of less stamp duty is that such amounts to fraud and invalidates the transaction. The Supreme Court in Betty Kizito Vs David Kizito Kanonya and others S.C.C.A No.8 of 2018 held that fraud in land transactions includes instances where the purchaser tries to get away with paying the correct stamp duty due to Government and once such is proved, the transaction cannot stand.
- physical possession of the property
Uganda’s land law regime creates competing interests in the same piece of land. This is the reason many landlords fail to use their land because there are squatters/bibanja holders on the land who must be evicted only in accordance with the law. Many times when land is vacant, it may attract people who initially may want to just cultivate the same but later make claims of ownership of Bibanja on registered land.
To avoid protracted bibanja eviction suits, it is crucial that the buyer takes physical possession as soon as payment is completed or as agreed in the agreement of purchase.
Whether one is dealing in land for “land banking” or for development, it is important to protect the investment by ensuring that the required due diligence is conducted prior to purchase. Informed by experience, I recommend the above 6 steps (preferably in that order) prior to dealing in any property of any size as long as it is registered land. If the above said steps are done in a linear manner, a lot of money can be saved. For example, there is no reason why a purchaser should hire a surveyor to survey the land they have not visited and confirmed the interest to purchase.