• The Land Act, 2012 defines a charge as any interest in land securing the payment of money or money’s worth or the fulfillment of any condition and includes a sub charge and the instrument creating a charge, including an informal charge, mortgage or another charge which is a written and witnessed undertaking, the clear intention of which is to charge the charger’s land with the repayment of money or money’s worth obtained from the charge. 
• The types of charges that the Registrar of Lands can register include

1. Informal charge
2. Formal charge
3. Second or Subsequent Charge
4. Informal Charges

• An informal charge is created when a chargee accepts a written and witnessed undertaking from a chargor with the clear intention to charge the chargor’s land or interest in land with the repayment of money or money’s worth obtained from the charge. 
• In order to create an informal charge the chargor is to deposit the following documents – 

1. A certificate of title to the land.
2. A document of lease of land.
3. Any other document which it is agreed evidences ownership of land or a right to interest in land.

• A customary charge is a type of informal charge whose undertaking is observed by a group of people over an indefinite period of time and considered as legal and binding to such people.
• It is important to note that a chargee cannot possess or sell land whose title document have been deposited with the chargor under an informal charge without an order of the Court. 

The Procedure for the Registration of an Informal Charge

• A proprietor of land may register an informal charge other than a customary charge under the Land Registration Act, 2012 and the Land Act, 2012 in Form LRA 54, Informal Charge, set out in the Sixth Schedule of the Land Registration (General) Regulations, 2017.
• The application is to be supported by:

1. In the case of a first charge, the certificate of title or certificate of lease.
2. Any consent required for registration unless a particular consent has been endorsed on the charge document or has otherwise been dispensed with by the Registrar under the provisions of the Act.
3. Any other document or approval as may be required under the Act, the Community Land Act (as applicable), the Regulations, and any written law.

Formal Charge

• A proprietor of land may charge any land or lease to secure the payment of an existing, future or a contingent debt, other money or money’s worth, or the fulfillment of a condition through registering a formal charge in Form LRA 53, the Charge, set out in the Sixth Schedule of the Land Registration (General) Regulations, 2017.
• The date for the repayment of the money secured by a charge is to be specified in the charge instrument, and if no such date is specified or repayment is not demanded by the charge on the date specified, the money shall be deemed to be repayable three months after the service of a demand, a written, by the chargee.
• The charge instrument is completed by its registration as an encumbrance and the registration of the person in whose favour it is created as its proprietor and by filing the instrument. 
• The Registrar cannot register a charge unless a land rent clearance certificate and the consent to charge certifying that no rent is owed to the National Land Commission in respect of the land or that the land is freehold, is produced to him or her. 
• It is important to note that a charge instrument is to have effect as a security only and does not operate as a transfer.

Second or Subsequent Charge

• A proprietor whose land or lease is subject to a charge may create a second or subsequent charge in the same manner as the first charge but any sale under the power expressed or implied in any such charge is to be expressed to be subject to all prior charges unless all those charges have been discharged. 
• Where a second or subsequent charge is to be created, the consent of the first charge is to be obtained before the second or subsequent charge is created.
• The Second or Subsequent Charge is to rank as follows:- 

1. In parri passu.
2. Subsequent.
3. In priority.

The Procedure for the Registration of a Second Charge or Subsequent Charge

• The consent for a second or subsequent charge is to be lodged in Form LRA 55, the Consent for Second or Subsequent Charge, set out in the Sixth Schedule of the Land Registration (General) Regulations, 2017.
• The application is to be supported by-

1. In case of a first charge, the certificate of title or certificate of lease.
2. Where applicable, a land rent clearance certificate.
3. Spousal consent in Form LRA 55 set out in the Sixth Schedule of the Land Registration (General) Regulations, 2017.
4. Any consent required for registration, unless a particular consent has been endorsed on the charge document or has otherwise been dispensed with by the Registrar under the provisions of the Act.
5. Any other document or approval as may be required under the Act, these Regulations or any written law.

Order of Priority of Charges

• As a general rule charges are to rank according to the order in which they are registered.
• Informal charges on the other hand rank according to the order in which they are made provided that a registered informal charge is to take priority over any unregistered informal charge.
•  In the instance that two informal charges are made on the same day or are registered on the same day, the charge which was first in time to be made or registered is to have priority. 

Memorandum of Variation of a Charge

• Where it is contractually agreed upon that the rate of interest is variable, the rate of interest payable under a charge may be reduced or increased by a written notice served on the chargor by the chargee giving the chargor at least thirty days’ notice of the reduction or increase in the rate of interest and state clearly and in a manner that can be easily understood, the new rate of interest to be paid in respect of the charge. 
• The amount secured by a charge may be reduced or increased by a memorandum and is to be signed in the case of a memorandum of reduction by the chargee or by the chargor and state that the principal funds intended to be secured by the charge are reduced or increased as the case may be, to the amount or in the manner specified in the memorandum. 
• The term of a charge may be reduced, extended or renewed by a memorandum that is signed by the chargor and the chargee which states that the term of the charge has been reduced, extended or renewed, as the case may be, to the date or in the manner specified in the memorandum.
• The covenants, conditions and powers expressed or implied in a charge are varied in the manner specified in the memorandum. 
• A memorandum of variation of charge is to be lodged in Form LRA 56 set out in the Sixth Schedule of the Land Registration (General) Regulations, 2017.

Transfer of Charge

• The chargor, any person who has an interest in the land, lease or land, that is the subject of the charge or any surety for the payment of the amount secured by the charge and any creditor of the chargor who has obtained a decree for sale of the land, lease or charge, that is the subject of the charge may at any time other than a time when the chargee is in possession of the charged land, request in writing that the chargee transfer the charge to a person named in the request.
• The chargee is to transfer the charge on receiving a written request to the person named in the request and on the performance of all other obligations secured by the charge by the person or persons making the request of all money that would have been payable for the discharge of the charge.
• A transfer of charge is to be lodged in Form LRA 57 set out in the Sixth Schedule of the Land Registration (General) Regulations, 2017.

Chargee Consent to Transfer a Charge

• Where a charge contains a condition, express or implied that the chargor prohibits the chargee from, transferring, assigning, leasing, or in the case of a lease, subleasing the land, without the consent of the chargee, no transfer, assignment, lease or sublease is to be registered until the written consent of the chargee has been produced to the Registrar.

Right to Discharge

• The chargor is to upon payment of all money secured by a charge and the performance of all other conditions and obligations under the charge be entitled to discharge the charge at any time before the charged land has been sold by the chargee or a receiver under the power of sale. 
• Any agreement or provision in a charge is void if it purports to deprive the chargor of the right to discharge; seeks to fetter the exercise of this right; or stipulates for a collateral advantage that is unfair and unconscionable or inconsistent with the right to discharge. 
• A chargee may create a provision in a charge instrument that a chargor who wishes to exercise the right to discharge the charge at any time before the expiry of the term of the charge is to give one month’s notice of the intention to discharge; or pay not more than one month’s interest at the rate at which interest is payable on the principal sum secured by the charge or at any lesser rate which may be agreed, as well as paying all other money secured by the charge.
• A discharge includes a re-conveyance and a re-assignment of charge or any other instrument used in extinguishing of interests in land conferred by charges
• A discharge of a whole charge is to be lodged in Form LRA 58 set out in the Sixth Schedule of the Land Registration (General) Regulations, 2017.
• A discharge of a part of a charge is to be lodged in Form LRA 59 set out in the Sixth Schedule of the Land Registration (General) Regulations, 2017.

Consolidation of Charges

• A chargor that has more than one charge with a single chargee on several securities may discharge any of the charges without having to redeem all charges unless there is an express provision to the contrary clearly set out in the charge instrument.

Tacking of Charges

• A chargee may make a provision in the charge instrument to give further advances or credit to the chargor on a current or continuing account. 
• The further advance does not rank in priority to any subsequent charge unless the provision for further advances is noted in the register in which the charge is registered or the subsequent chargor has consented in writing to the priority of the further advance. 
• Where a charge provides for the payment for a principal sum by way of installments, the payment of those installments shall not be taken to be a further advance.

Application by a Chargee to be Registered as a Proprietor

• An application by a chargee to be registered as a proprietor in the instance of a purchase by a chargee is to be lodged in Form LRA 60 set out in the Sixth Schedule of the Land Registration (General) Regulations, 2017. 
• The application is to be supported by an order of the Court that is certified as a true copy by a Registrar of the court and any other documents required for a transfer.
• A transfer by a chargee is to be in Form LRA 6l set out in the Sixth Schedule of the Land Registration (General) Regulations, 2017. 
• The application is to be supported by a statutory declaration by an auctioneer supported by relevant notices issued by an auctioneer as required by law a certificate of auction declaring the charge as the highest bidder and a valuation report as required by law. 

REFERENCES

Land Act, 2012

Land Registration Act, 2012 

Land Registration (General) Regulations, 2017.

Contributors

Robert Muoka – Advocate of the High Court of Kenya

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