How to Check If Your Kenya Developer Is Using Your Development Land as Collateral
When you buy off-plan from a Kenya developer, you expect the land to be yours — or at least to be clean and unencumbered as the project develops. What some buyers do not realise is that developers sometimes pledge the development land as collateral for construction financing, or for working capital loans.
This creates a specific risk: if the developer defaults on the construction loan, the lender's charge over the development land takes priority over the buyers' contractual claims. The lender can sell the land.
Is It Always a Problem?
No. Construction finance is a legitimate and normal part of property development. A developer who borrows money to fund construction and registers a charge on the development land is not automatically engaged in fraud.
The problem arises when:
The charge is not disclosed. The developer's sale agreement does not disclose that the land is charged to a lender. Buyers think they are buying into an unencumbered development.
The loan-to-value ratio is too high. If the developer has borrowed 90% of the land value against the development land, and then collects buyer deposits on top, the combined claims against the land exceed its value. Any default is catastrophic for buyers.
The charge was registered before buyer deposits were used. If the developer charged the land to a bank before any buyers paid deposits, the bank's claim ranks ahead of buyers' claims in any insolvency.
How to Check
Step 1: Run an official title search on the development land LR number.
The official search (or Ardhisasa for covered counties) shows all registered charges, cautions, and encumbrances.
If the development land has a registered charge in favour of a bank or lender, this appears on the search.
Step 2: Confirm disclosure in the sale agreement.
If the land has a charge, the sale agreement should disclose it. The disclosure should include:
Which lender holds the charge. The amount of the loan secured. What happens to buyers if the developer defaults.
Step 3: Assess the risk from the charge.
If the charge is for reasonable construction finance with a well-known bank, and the development is actively proceeding, this is manageable. The risk is that if the developer fails, the bank can sell the land.
If the charge is for the full market value of the land, or if the developer has multiple undisclosed charges, the risk is much higher.
Step 4: Negotiate escrow for your deposit.
If the development land has a charge, negotiate specifically that your deposit goes into a neutral escrow account — not into the developer's operating account or into the lender's priority. This limits your exposure if the developer defaults.
The Monitoring Angle
For buyers who have already paid deposits on an off-plan development:
Set up monitoring on the development land's title.
If the developer registers additional charges during the development period — borrowing more against land that already has charges — you will be alerted immediately. This is an early warning signal of financial stress.
If the developer's title changes in unexpected ways (a new lender appears, the land is transferred to a different entity), monitoring alerts you immediately.
A Litmus full field verification on the development land confirms the current state of all registered charges.
Standard verification: KSh 21,500.
This article is for general information only. It does not constitute legal advice. Consult a qualified Kenya advocate before any off-plan investment.
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