Kenya Court stops Equity Bank from Auctioning Defaulter’s Land

Equity Bank has become the first financial institution to fall foul of the new land law after it was barred by the High Court from selling land belonging to a businessman to recover a loan.

The bank has been stopped from auctioning land valued at Sh43.2 million belonging to Mr David Gitome Kuhiguka to recover a loan of Sh6 million.

Mr Justice Jonathan Havelock stopped the public sale of the property by Antique Auctioneers saying the bank did not comply with Section 97(2) of the Land Act which came into force in May last year. The Act makes it mandatory for lenders to give loan defaulters at least 90 more days to redeem the outstanding amount after the expiry of a sale notice.

The Land Act 2012 also requires a financial institution to carry out a fresh valuation before it executes its mandate of sale to determine the current market price.

The judge said the intended sale was illegal since the value of the property had appreciated due to its location, and Equity bank had not carried out a fresh valuation.

According to court papers, the valuation of the property was carried out before the execution of the charge on March 15, 2012 when Mr Kuhiguka was advanced Sh5.5 million.

The bank moved to recover its money in April 2013 “which was a year out of date.”

Judge Havelock said, “With the property in and around Nairobi in the current property market boom it may be well that the suit property could have vastly increased in value even for forced sale purposes in the 14 months period.”

He ruled that “as a result I find that the defendant bank (Equity) has not complied with Section 97(2) of the Land Act in this connection.”

He said under the current land laws, it is the obligation of the chargee (bank) to ensure that a forced sale valuation is undertaken by a valuer before executing its mandate.
Justice Havelock said Section 97 of the Land Act, 2012 is headed “Duty of Chargee exercising power of sale” which he said is “ a mandatory obligation.”

BREACHED LAW

He added that the bank had also bypassed Section 90(2)(b) of the Land Act 2012 which requires that a chargee give a chargor a period of 90 before executing a sale in addition to the initial 90 days given by a notice before auctioneers descend on the property of a defaulter.

The judge explained that the law also considers the matrimonial property law which saves family property from being sold without considering all the other overriding facts.

The judge said the plaintiff would suffer irreparable loss and damage if the illegal sale were carried out.

He said the property is valued at Sh43.2 million, and the plaintiff stood to lose a lot since the notification of sale did not meet the new additional 90 day requirement as provided for under Section 90(1) and 96(2) of the Land Act No.6 of 2012.

Justice Havelock said no details were furnished to the plaintiff as to the amount he should pay to rectify the default as required by Section 90(2)(b) which gives a defaulter time to redeem the loan outstanding facility.

“I find merit in the plaintiff’s case and hereby suspend the sale with costs,” ruled Justice Havelock.

Mr Kuhiguka was advanced the loan in March 14, 2012. He is a businessman who supplies water to residents of Ngong. He has sunk a giant borehole in the land he has mortgaged to Equity Bank.

In Summary

• The Land Act makes it mandatory for lenders to give loan defaulters at least 90 more days to redeem the outstanding amount after the expiry of a sale notice
• The judge said the intended sale was illegal since the value of the property had appreciated due to its location, and Equity bank had not carried out a fresh valuation