I have identified a plot that I want to buy but the seller says that I must give him a down payment of at least 10 per cent of the purchase price as the process of transferring the title deed into my name continues. It is my first time to have prospects into buying property and would appreciate to know whether the law actually provides for payment of deposits and whether there is a specific amount that should be paid.
Hope, Nairobi.
It is okay to pay the down payment/deposit to the seller after conducting an official search at the Ministry of Lands to confirm that the seller is the registered owner and both of you have signed a Sale Agreement witnessed by an Advocate of the High Court. The Agreement should indicate how much you have paid as deposit and when you will pay the balance.
Moreover, in conveyancing (property law), payment of a deposit is legal as long as the buyer and seller have mutually agreed on the amount.
Traditionally, according to condition three of the Law Society of Kenya’s conditions of sale, a purchaser should pay deposit of 10 per cent of the purchase price.
For instance, when buying a quarter acre plot worth Sh2 million in Ngong, a deposit of Sh200,000 should be paid. Both parties can then agree on how the balance would be settled in installments within 90 days.
The legal period for completing a transaction to purchase property should be 90 days.
In everyday practice, payment of deposits is important as they show both sincerity and commitment to sellers.
Nevertheless, the lawyer representing the seller must include a clause in the agreement for sale stating the amount already paid as deposit.
Moreover, the balance, mode and period of payment should also be included in the agreement to be signed by both parties with their lawyers as witnesses.
However, disagreements between buyers and sellers set in over the amount that should be paid as deposit.
For instance, it is increasingly becoming popular for sellers to demand either more than half the sale price or payment in full.
For clarity, property lawyers often include details on the mode and period of payment in the sale agreement.
Buyers should also not assume that payment of deposit is a honeymoon ticket – failure to complete payment within stipulated time is risky. For instance, some sale agreements have a forfeiture clause that the buyer would surrender all payments made in case of default.
Failing to make payments as agreed would amount to breach of contract. Traditionally, courts abide by the written contracts signed by both parties when resolving property disputes.
—Ayodo is an advocate of the High Court of Kenya.