16 August 2022 by , and

Playing by the rules: Exercise of statutory power of sale on a deceased’s charged land

The Court of Appeal (COA) in Marteve Guest House Limited v Njenga and Three Others (Civil Appeal 400 of 2018 [2022]) recently upheld an appeal from the Environmental and Land Court’s judgment rendering a chargee’s exercise of power of sale over a deceased’s charged land void for want of compliance with the Law of Succession Act (Cap 160 Laws of Kenya), due to service of statutory and redemption notices to persons who were not administrators of a deceased’s chargor estate but later appointed as administrators.

Background

Briefly, in Marteve Guest House Limited, the deceased had charged the suit property to a bank, as security for a facility advanced to the fourth respondent (the debtor) who defaulted in the repayment of the financed sum. After the deceased’s death, the bank issued a demand letter for payment of the outstanding amount to the debtor, who did not make any payment. Subsequently, the bank issued statutory notices of intended sale of the suit property to the first and second respondents (the beneficiaries), who are beneficiaries of the deceased’s estate.

At the time when the bank served the notices, no grant of representations had been issued to the beneficiaries. The beneficiaries were subsequently issued with the grant of letters of administration of the deceased’s estate. The bank later instructed an auctioneer to sell the suit property, the auctioneer served the beneficiaries with a redemption notice and proceeded to sell the suit property to the appellant. The appellant paid the full purchase price and the title to the suit property was transferred to the appellant.

Aggrieved, the beneficiaries filed a suit in the Environmental and Land Court, in their capacity as administrators of the estate of the deceased, seeking an order for cancellation of the sale of the suit property to the appellant, as well as general damages. The Environmental and Land Court ruled in favour of the beneficiaries and declared the appellant’s title void. The appellant, aggrieved by the judgment, filed an appeal to the COA.

Among the issues for determination by the COA were:

  • Whether the deceased person’s property, which was charged to a bank, was free property capable of being inherited by the beneficiaries of a deceased’s estate.
  • Whether service of statutory notice and redemption notices served upon a person who was not an administrator of the deceased’s estate but later appointed as an administrator was proper service.
  • What was required of the bank, as a chargee, so as to exercise its statutory power of sale as related to a deceased chargor’s property where letters of administration had not been issued.

Is a deceased’s charged property capable of being inherited?

In Kenya, only a deceased person’s “free property” is capable of being inherited. The Law of Succession Act defines free property as a deceased person’s property which the deceased was legally, competent, and free to dispose of during their lifetime and in respect of which their interest has not been terminated by their death.

In Marteve Guest House Limited, the COA held that the suit property was free property and remained part of the deceased’s estate subject to the debt. The COA reasoned that although the suit property was charged to the bank, the deceased was competent to dispose of it during her lifetime subject to the bank’s consent or settlement of the debt. Further, despite the deceased’s right of disposal being encumbered by the charge, her death did not automatically terminate her interest in the suit property.

Are statutory notices or redemption notices served upon a person who is not yet an administrator of a deceased’s estate valid?

In Marteve Guest House Limited, the bank exercised its statutory power of sale after the deceased died and served the statutory notice to the beneficiaries prior to the grant of the letter of administration being issued to the beneficiaries. The COA held that the beneficiaries did not have the authority to negotiate on behalf of the deceased’s estate before they were issued with grant of letters of administration.

Any compromise that the beneficiaries entered into before they were issued with the grant was made in their own personal capacity and interest not made on behalf of the estate of the deceased or other beneficiaries. Therefore, failure to comply with the provisions of the Law of Succession Act in exercising the bank’s statutory power of sale rendered the entire process an illegality and therefore null and void.

How should a bank exercise its power of sale of a deceased’s charged property where letters of administration have not been issued?

Section 66 of the Law of Succession Act allows a court to issue a creditor with a grant of letters of administration. However, section 66 lists an order of preference of the persons who the court is entitled to issue the grant of letters of administration with the deceased’s surviving spouse, beneficiaries and the public trustee having preference over creditors. The COA held that the bank had the option of applying for the letters of administration for the estate of the deceased to enable it to exercise its statutory power of sale.

The bank could have exercised this option by applying to a court to have the persons entitled to a grant of letters of administration for the deceased’s estate to be appointed as the deceased’s administrators. This would have enabled the bank to serve the estate of the deceased with the necessary notices through the appointed administrators and give an opportunity for the estate to pay the debt. If the estate failed to settle the debt, the bank would be able to pursue its statutory right of sale, the administrators stepping into the shoes of the deceased chargor.

Conclusion

To sum it up, the courts are inclined to exercise judicial activism where a bank exercises the statutory power of sale over a deceased chargor’s land without following procedural requisites under the Law of Succession Act. In exercising statutory right of sale, a chargee should only serve the statutory and redemption notices to persons appointed as administrators by the court. In case there are no administrators appointed, the chargee has the option to apply to the court for grant of letters of administration for the deceased’s estate as a creditor in relation to the charged land.

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