It is very common for persons to approach financial institutions to apply for credit for various reasons such as expansion of businesses, development of properties or payment of school fees among other reasons. In most cases the financial institutions will request for collateral to protect their interests over the collateral provided and therefore undertake registration of a charge over the property.
Section 2 of the Land Act, 2012 defines a charge to mean an interest in land securing the payment of money or money’s worth or the fulfillment of any condition. As such, it gives rise to a relationship where one person, known as the Chargee, acquires rights over the land of another person, known as the Chargor, as security in exchange for money or money’s worth. The rights so acquired are limited to the realization of the security so advanced. In Bank of Africa Kenya Limited & another v TSS Investment Limited & 2 others (Civil Appeal E055 of 2022) [2024] KECA 410 (KLR) (26 April 2024) it was noted that the creation of such a relationship has nothing to do with use of the land but such a relationship is simply limited to ensuring that the Chargee is assured of the repayment of the money advanced to the Chargor.
The Land Act further recognizes that a charge as a disposition in land is very distinguishable from land use. While the former creates a relationship, the latter is the utilization of the natural resources found on, above or below the land.
Now when the chargor-chargee relationship is created, there is a likelihood that the Chargor might default in fulfilling its obligations under the charge instrument. The Land Act has an array of remedies that are available to the Chargee in such an event which include:
- Sue the Chargor for any money due and owing under the charge;
- Appoint a receiver of the income of the charged land;
- Lease the charged land, or if the charge is of a lease, sublease the land;
- Enter into possession of the charged land; or
- Sell the charged land.
In most cases, a chargee opts for the last remedy which is known as the Chargee exercising its statutory power of sale over the encumbered property. The chargee is required to follow the due processes provided in the law in exercising any of the remedies. Importantly, a Chargee is required to serve a notice upon the Chargor informing him/her of the default and demand for the rectification of the default. The section of the law stipulates that the Chargor has a right in respect of certain remedies to apply to the court for relief against those remedies, giving the Chargor locus standi in approaching court to stop a chargee from realizing its security.
In Alfred Njau & 5 others -vs- City Council of Nairobi (1983) eKLR the court defined locus standi to mean a right to appear in court and, conversely as is stated in Jowitt’s Dictionary of English Law, to say that a person has no locus standi means that he has no right to appear or be heard in such a proceeding
In Bank of Africa Kenya Limited & another v TSS Investment Limited & 2 others (Supra) it was noted that only persons under Section 103 of the Land Act can apply for relief to court against certain remedies that the Chargee would undertake against a Chargor when the latter is in default. In the above-mentioned case law, tenants in a land that had been charged to the Appellant went to the Environment and Land Court to obtain an injunction against the Appellant on the basis that as tenants they were never served with the statutory notices required before the suit property could be auctioned for the Appellant to recover their money’s worth over the charged property. The Appellante court noted that the Environment and Land Court had no jurisdiction to hear the matter and in particular the tenants had no locus standi to apply for reliefs against a Chargee who was exercising its statutory power of sale rightfully.
The court went ahead to distinguish between tenants and spouses and why the latter has locus standi to obtain reliefs against the Chargee. It was held that a consenting spouse has a stake in the charged property with the right to be served with the notice of the Chargee’s exercise of its statutory power of sale, and to challenge the exercise of such powers in appropriate cases, does not of itself avail similar rights to tenants or licensees who are not privy to, or have any stake in, the charge.
Accordingly, unless one is a sole chargor, a joint chargor in cases where there are two or more persons as joint chargors, a spouse who is required to grant consent to the creation of the charge or a bankruptcy trustee of the estate of the Chargor when a Chargor is adjudged bankrupt, no other persons have locus standi to move the relevant court for any of the reliefs contemplated under the laws, against a Chargee.
