Financed Property Developments in Kenya can create one of the most misunderstood risks in off-plan property buying:

You can pay a developer the full purchase price and still discover that a bank has rights over the land underneath your apartment.

At first, that sounds impossible.

You paid.

You have receipts.

You signed a sale agreement.

The developer gave you the keys.

You may even have moved into the apartment or rented it to a tenant.

Surely the property belongs to you.

Unfortunately, those facts do not always answer the most important question:

Was your specific unit legally released from the lender’s security and properly transferred to you?

Kenya has already seen the consequences when that does not happen.

In Lutomia v Kings Pride Properties Limited & another, decided by the Environment and Land Court in March 2025, a purchaser had paid the full KSh 9.5 million purchase price for an apartment, executed a sale agreement, paid additional title-processing costs, received possession and rented the unit to a tenant.

But the developer had later used the underlying property to secure a bank loan of approximately KSh 90.8 million.

The developer defaulted.

The bank exercised its security rights.

The apartment was eventually lost through the auction process.

The purchaser later succeeded in obtaining orders against the developer parties for refund of the purchase price and other losses—but by then, the apartment itself had already been lost.

That case makes the problem very real.

Paying the developer is not necessarily the same as clearing the bank’s interest.

This article explains how bank-financed developments work, what a partial discharge actually means, why payment instructions matter, and what your lawyer should verify before you commit substantial money to an apartment.

Yes.

It sounds unfair, but Kenyan case law shows that it can happen.

The reason is that there may be two separate financial transactions taking place.

Transaction One

The developer borrows money from a bank.

The bank finances:

• acquisition of land,
• construction,
• contractors,
• infrastructure,
• project costs.

The developer gives the bank security over the land.

Transaction Two

You enter into a sale agreement with the developer to purchase Apartment A-1204.

You pay the developer the purchase price.

Those transactions are connected—but they are not automatically the same thing.

If the developer’s land remains legally charged to the bank, paying the developer does not by itself erase the bank’s registered security.

That distinction was dramatically illustrated in the Lutomia case.

The buyer had:

• paid in full,
• executed the agreement,
• obtained possession,
• paid title-processing charges,
• rented out the apartment.

Yet the underlying property had been charged to the bank.

When the loan was not serviced, the buyer ultimately lost the unit through the lender’s enforcement process.

The court later ordered the developer parties to refund the KSh 9.5 million purchase price and compensate other proven losses.

But that is very different from saying:

“The buyer’s receipts prevented the auction.”

They did not.

Financed Property Developments in Kenya: Why Payment Alone Is Not Enough

Property buyers often think:

I paid = I own.

Land law is more complicated.

Payment proves an important contractual fact.

But ownership and priority also depend on:

• registration,
• existing charges,
• lender consent,
• discharge of security,
• title documentation.

The safest property transaction therefore has two clear financial trails:

Buyer → purchase price

and

Developer/Lender → release of lender’s security over the buyer’s unit.

If the first happens without the second, risk can remain.

2. How Can a Bank Have Rights Over Property Being Sold to Buyers?

Because the developer may have used the land as security for a loan.

Under Kenya’s Land Registration Act, land or a lease can be charged to secure repayment of debt.

A registered charge is recorded as an encumbrance against the property, with the lender registered as the party in whose favour the charge exists.

Land Registration Act — Kenya Law

This is completely normal in property development.

Consider a project requiring:

KSh 2 billion

to complete.

The developer may not have KSh 2 billion sitting in cash.

A bank agrees to finance the project.

The bank says:

“We will lend you the money, but the project land will secure our loan.”

The developer agrees.

A legal charge is registered.

The problem is not necessarily that the development is financed.

The real question is:

How are individual apartments released from that financing structure as buyers pay?

The Bank’s Rights Can Rank Ahead of the Buyer’s Unregistered Interest

This is where things become serious.

In Paul Gatete Wangai & 13 others v Capital Realty Ltd & another, purchasers argued that townhouses—including fully paid units—were threatened by the lender’s intended sale.

The court noted that the bank’s interest as chargee remained superior where the buyers had not demonstrated the necessary lender consent and required payment arrangements.

The judgment specifically observed that although the purchasers had beneficial interests through their purchases, those interests were subordinate to the bank’s charged interest in the circumstances before the court.

This is why the question:

“Have you paid?”

is not enough.

Also ask:

“Has the bank consented to this sale and released this specific unit from its security?”

3. How Can a Buyer Know if the Property Is Charged to a Bank?

Start with an official search.

The State Department for Lands describes an official search certificate as a key due-diligence document used to verify:

• registered ownership,
• charges,
• cautions,
• restrictions,
• other encumbrances.

State Department for Lands — Official Search Certificate

If the search shows:

ABC Bank Limited — Charge

the land is not automatically a bad investment.

But it means you have additional questions to ask before paying.

Ask:

How much financing is secured against the project?

Has the bank approved sales of individual units?

Does the bank know my unit is being sold?

What is required for the bank to release my apartment?

Where must my purchase money be paid?

Will the bank issue a partial discharge?

When will that partial discharge be registered?

That is proper due diligence.

The Developer Also Has Disclosure Obligations

For transactions falling within the Sectional Properties Act framework, section 43 is particularly important.

It says a developer should provide the purchaser with specified documents before selling or agreeing to sell a unit or proposed unit, including:

• purchase agreement,
• applicable by-laws,
• relevant management agreement,
• title or lease relating to the property,
• any charge affecting or proposed to affect the unit,
• sectional plan or proposed sectional plan.

Where there is a charge, the Act also requires written information concerning aspects of that financing.

Sectional Properties Act — Kenya Law

So the question:

“Is this project bank financed?”

should not be treated as offensive.

It is a legitimate buyer question.

4. If the Developer Is Bank Financed, Where Should the Buyer’s Money Go?

There is no universal Kenyan rule saying every purchaser in every financed project must always pay the purchase price directly into the lender’s bank account.

The correct payment route depends on:

• financing agreement,
• lender consent,
• escrow structure,
• sale agreement,
• bank undertakings,
• partial-discharge arrangements.

But this is exactly why buyers need to understand the payment structure.

In properly structured financed developments, sale proceeds may be directed through:

• lender-controlled account,
• project collection account,
• escrow account,
• stakeholder account,
• another account specifically approved by the financing bank.

Kenyan court cases show real projects where this was part of the financing structure.

In the Paul Gatete Wangai litigation, the relevant arrangements contemplated purchaser monies going into an escrow account associated with the financing structure, and the absence of the required payment and lender consent became highly significant.

Another Kenyan dispute involving an apartment development recorded an arrangement under which all sale proceeds were to be channelled to the financier, with title documents and partial-discharge documents released after receipt of the required purchase price or an acceptable bank undertaking.

The principle is simple:

Follow the approved transaction structure—not merely whatever account number appears in a WhatsApp message.

5. What Is a Partial Discharge?

This is probably the single most important concept for buyers in Financed Property Developments in Kenya.

Suppose the developer builds:

100 apartments

on one piece of land.

The entire development land has been charged to the bank.

The bank’s security therefore initially covers the larger project property.

Now you buy:

Apartment A-502.

You cannot realistically wait until all 99 other apartments are sold and the entire developer loan is cleared before obtaining secure title.

The financing structure may therefore allow the bank to release individual units or portions from its charge.

That is the purpose of a partial discharge.

Kenya’s Land Act expressly recognises that a charge can be discharged in whole or in part.

Land Act — Kenya Law

In practical development finance, this can mean:

Buyer pays the agreed amount → financing bank receives or confirms the required release amount → bank executes the appropriate partial-discharge documentation → the particular unit can be dealt with free from that project charge, subject to the applicable registration structure.

The exact mechanism varies from project to project.

Real Kenyan Property Transactions Use Partial Discharges

A Kenyan court case involving Bamboo Development Limited recorded correspondence stating that part of the purchase price was being applied to construction while the balance was remitted to the financing bank.

The developer’s lawyers further stated that several apartments had already been partially discharged and that the parties were working with the bank to secure the partial discharge for the purchaser’s apartment.

That is exactly why buyers need to understand this concept.

The objective is not merely:

“Developer confirms I have paid.”

The objective is:

“The lender’s charge has been released from my unit through the legally required process.”

6. What If the Developer Asks You to Pay Into a Different Account?

Do not automatically assume fraud.

Developers may legitimately operate multiple accounts.

But do not automatically send the money either.

Imagine your sale agreement or lender-approved instructions identify:

Bank A — Project Collection Account.

Two months later, a salesperson messages you:

“Please send the next KSh 5 million instalment to Bank B instead.”

Your immediate question should be:

Why?

Then verify independently.

Your lawyer should establish:

• who owns the new account,
• whether the sale agreement permits the change,
• whether the financing lender has approved it,
• whether payments into that account still count toward your unit’s release,
• whether the bank will still issue the required partial discharge.

This becomes especially serious where your unit has not yet been released from the project charge.

If the financing bank expects:

KSh 10 million

to release Unit A-502,

but you send KSh 10 million somewhere else and the bank never receives the agreed release amount, you may find yourself in a dispute despite having paid the developer.

Never Treat Payment Instructions as a Small Administrative Detail

For a financed development, the account into which money is paid can be part of the security structure.

One Kenyan case concerning financed apartment sales specifically recorded an arrangement that sale proceeds were to be channelled to the financier, after which partial-discharge documentation would be released.

If payment instructions suddenly change:

verify before paying.

Not after.

7. Does Having a Sale Agreement, Receipts and Keys Mean You Are Fully Protected?

No.

They are important.

But they do not necessarily equal a clean registered proprietary interest free from the lender’s security.

The Lutomia case is the clearest example.

That buyer had:

• offer letter,
• full payment,
• receipts,
• sale agreement,
• possession,
• title-processing payments,
• tenant,
• rental income.

Yet the apartment was caught in the consequences of the developer’s bank financing and was ultimately auctioned.

Similarly, the Paul Gatete Wangai case involved purchasers who had paid substantial sums, with several having fully paid, but the lender’s registered security position remained central to the dispute.

The stronger question is therefore:

What does the land register say?

The Protection Ladder

Think about your position in stages.

Level 1 — Booking Form

Shows reservation.

Level 2 — Sale Agreement

Creates contractual rights.

Level 3 — Payment Receipts

Proves payment.

Level 4 — Possession and Keys

Shows occupation or handover.

Level 5 — Lender Consent

Shows that the chargee recognises the transaction where its consent is required.

Level 6 — Partial Discharge

Releases the relevant unit or interest from project security where applicable.

Level 7 — Registered Individual Title or Lease

Places the buyer’s proprietary interest in the land register.

The higher you move, the stronger the documentation generally becomes.

Do not stop thinking at:

“I have the keys.”

8. What Happens When Someone Defaults?

There are actually two different defaults buyers need to understand.

Default A: The Buyer Defaults to the Developer

Suppose the apartment costs:

KSh 20 million.

You agree to pay in instalments but stop paying after KSh 5 million.

That is primarily a buyer-versus-developer contractual issue.

Depending on your sale agreement, consequences may include:

• completion notice,
• interest,
• termination,
• forfeiture of an agreed deposit,
• refund of excess amounts where required by the contract.

That is separate from the project’s bank financing.

Default B: The Developer Defaults to the Bank

This is the dangerous one for the financed project.

The developer borrowed from the bank.

The developer stops servicing the loan.

Under sections 90 and 96 of the Land Act, once the statutory requirements are met, the lender may ultimately exercise remedies including the power of sale over the charged property.

That is how an apartment buyer can suddenly discover an auction notice even though the buyer personally never missed a payment.

The buyer did not default.

The developer did.

But if the buyer’s apartment is still inside the developer’s charged security, the consequences may reach the buyer.

This distinction is absolutely fundamental.

What If the Buyer Has Their Own Mortgage?

That creates a third scenario.

If your apartment has already been transferred to you and you then charge your individual title to your own bank to finance the purchase, your personal mortgage is separate.

If you default on that mortgage, your lender may exercise remedies against your individual property after complying with the applicable statutory process.

Do not confuse:

developer’s project loan

with

buyer’s mortgage.

They are different financing relationships.

9. What Should the Buyer’s Lawyer Verify Before the First Major Payment?

Before you transfer millions of shillings into an off-plan or financed development, your lawyer should investigate much more than the sale agreement.

At minimum, the legal due-diligence discussion should include:

1. Ownership

Who is the registered owner of the project land?

Does that entity match the seller or developer?

2. Official Search

Does the current land search show:

• bank charge,
• restriction,
• caution,
• other encumbrance?

The State Department for Lands specifically identifies charges and restrictions as matters revealed through an official search.

3. Charge Documents

If the development is financed:

Which bank?

How much security?

What does the charge allow?

4. Lender Consent to Unit Sales

Where consent is required, has the bank authorised the developer to sell units?

Section 59 of the Land Registration Act and section 87 of the Land Act recognise circumstances in which lender consent is required before a transfer, lease or similar disposition can be registered.

5. Approved Payment Account

Where exactly should buyer payments go?

6. Partial-Discharge Mechanism

Ask:

How much must be received before my unit is released?

Who triggers the release?

Which documents will I receive?

7. Sectional Documentation

Where applicable:

• proposed sectional plan,
• individual unit documentation,
• common-property structure.

Section 43 of the Sectional Properties Act also requires disclosure of relevant charge information in applicable developments.

8. Registration Path

Exactly how does your property move from:

developer’s project

to

your registered unit?

9. Developer’s Contractual Promises

Does the agreement promise the property:

free from encumbrances on completion?

If so, what mechanism makes that happen?

10. What Happens if the Bank Refuses Release?

This should not be discovered after you pay 100%.

Ask before the first major instalment.

10. If You Already Bought the Unit, What Should You Check Now?

Do not panic simply because your development was bank financed.

Bank financing is normal.

Instead, establish your current legal position.

Step 1: Conduct a Fresh Official Search

Do not rely on the search from three years ago.

Obtain a current one.

Look for:

• existing charge,
• new charge,
• restriction,
• discharge entries.

Step 2: Check Your Individual Ownership Document

Do you have:

• registered sectional title,
• certificate of lease,
• registered long-term lease,
• only a sale agreement?

Know the difference.

Step 3: Confirm the Partial Discharge

If the project was charged, ask for evidence that your specific unit was released.

Do not rely on:

“The bank knows about you.”

Ask for documentation.

Step 4: Check Whether the Charge Still Appears Against Your Unit

Your lawyer can review the current register.

Step 5: Confirm Lender Consent

Where the development required lender consent to sales, verify that the transaction was properly recognised.

Step 6: Review Your Payment Trail

Where did your money actually go?

• developer operating account?
• lender?
• escrow?
• stakeholder account?

Step 7: Ask Why Title Is Delayed

If you paid in full years ago but still have:

keys + receipts + no registered title,

do not accept indefinite explanations.

Find out exactly which document or process is outstanding.

Financed Property Developments in Kenya: A Simple Safe Structure

Imagine an apartment selling for:

KSh 20 million.

The project land is charged to:

Bank X.

A well-understood transaction might look conceptually like this:

Step 1

Official search confirms Bank X’s charge.

Step 2

Buyer receives lender-approved sale structure.

Step 3

Sale agreement identifies appropriate payment arrangements.

Step 4

Buyer pays according to the approved structure.

Step 5

Bank receives the required release amount or acceptable undertaking.

Step 6

Bank executes the relevant partial discharge/release.

Step 7

Unit transfer or lease is registered.

Step 8

Buyer becomes registered owner subject only to any financing the buyer personally arranged.

The actual legal process can differ between projects.

But notice the key difference:

The bank’s security is deliberately dealt with.

It is not ignored.

What Are the Biggest Warning Signs?

“You Don’t Need to Know Which Bank Financed Us”

You do.

“The Search Showing a Charge Is Nothing to Worry About”

A charge may be perfectly legitimate.

But you still need the release mechanism.

“Just Pay Us and We Will Sort the Bank Later”

That is precisely the risk you are trying to avoid.

“The Bank Has No Problem With the Sales”

Ask for evidence.

“Partial Discharge Will Come Eventually”

When?

Under what condition?

For what amount?

“You Have the Keys, So You’re Safe”

The Lutomia case demonstrates why that statement can be dangerous.

“Everyone Else Has Paid”

Other people’s confidence is not legal due diligence.

A Real Kenyan Example Every Buyer Should Know

The Lutomia case deserves repeating because it destroys one of the biggest myths in property buying.

The purchaser agreed to buy an apartment for:

KSh 9.5 million.

He paid the purchase price.

He signed the sale agreement.

He was handed possession.

He paid title-processing charges.

He rented the apartment and earned monthly rental income.

Yet the developer had used the underlying land as security for a bank facility.

After the developer failed to service the loan, enforcement followed and the purchaser lost the apartment.

In March 2025, the Environment and Land Court ordered the developer parties to refund:

• the KSh 9.5 million purchase price,
• KSh 508,500 in stamp-duty/legal costs,
• specified lost rental income,
• additional compensation and costs.

The buyer eventually obtained a court judgment.

But consider what had already happened:

Years of litigation.

Lost property.

Lost rental income.

Legal costs.

That is why this issue should be solved during conveyancing—not through litigation years later.

Frequently Asked Questions

Can You Pay a Developer in Full and Still Lose the Apartment?

Yes, in certain circumstances.

If the unit remains subject to a lender’s registered security and the developer defaults, payment to the developer alone may not defeat the lender’s rights.

The outcome depends on the specific legal structure and documents.

How Do I Know if a Nairobi Development Is Bank Financed?

Conduct an official search over the project property and ask the developer and your lawyer for the relevant financing disclosures.

The search should reveal registered charges.

Is a Charged Development Automatically Unsafe?

No.

Many legitimate developments use bank financing.

The critical question is whether the bank-approved sale and release process protects individual purchasers.

What Is Partial Discharge?

A partial discharge releases part of the charged property from a lender’s security.

The Land Act expressly recognises discharge of a charge in whole or in part.

Should I Pay the Financing Bank Directly?

Not automatically.

Follow the written, lawyer-verified payment structure approved for that development.

Some projects require money through lender-controlled or escrow arrangements; others may use different structures.

Are Keys Proof of Ownership?

No.

Keys prove possession.

They do not necessarily prove that the lender’s charge has been discharged or that your individual ownership has been registered.

Is a Sale Agreement Enough?

It creates important contractual rights.

But a sale agreement alone may not place you ahead of an existing registered bank charge.

What Happens if the Developer Defaults on the Project Loan?

After satisfying the statutory requirements, the lender may exercise remedies including the statutory power of sale over the charged property.

What Should I Do if I Already Paid in Full but Have No Title?

Immediately ask your advocate to verify:

• current official search,
• lender’s charge,
• lender consent,
• partial discharge,
• individual unit-registration status.

Do not simply keep waiting for the developer.

Realty Boris Expert View on Financed Property Developments in Kenya

At Realty Boris, we believe Financed Property Developments in Kenya are not inherently dangerous.

In fact, credible bank financing can be positive.

A serious lender will normally conduct its own assessment before committing large amounts of capital.

The danger is unstructured buying inside a financed development.

Buyers should stop asking only:

“How much is the unit?”

and:

“What is the payment plan?”

Also ask:

“Who financed this project?”

“Is the title charged?”

“Has the bank approved apartment sales?”

“Where does my money go?”

“What amount releases my unit?”

“When will the partial discharge be issued?”

“When will my ownership be registered?”

Those questions are especially important when a buyer is paying:

40%, 60%, 80% or 100%

before receiving title.

We also believe that developers should not treat financing disclosure as damaging.

A professional buyer understands that developments require capital.

What destroys confidence is not:

“This project is financed by Bank X.”

The dangerous position is:

“Nobody will tell me how Bank X’s charge disappears from my apartment after I pay.”

That is the question your conveyancing lawyer must resolve.

Conclusion

Financed Property Developments in Kenya can provide buyers with access to excellent new homes and investment properties.

Bank financing itself is not the problem.

The problem arises when buyers do not understand how the lender’s security interacts with the apartment they are purchasing.

The biggest mistake is assuming:

“I paid the developer in full, therefore nobody else can have rights over my property.”

Kenyan case law shows why that assumption can be dangerously wrong.

A bank can hold a registered charge over development land.

If the developer defaults, the bank may acquire statutory enforcement rights.

A buyer’s sale agreement, receipts, possession and keys may provide important contractual evidence—but they do not automatically remove an existing registered charge.

That is why serious buyers should understand four documents or processes:

1. The official search.

What encumbrances exist?

2. Lender consent.

Does the financing bank recognise the sale?

3. Partial discharge.

How does your specific unit leave the lender’s security?

4. Registered ownership.

Has your interest actually been entered into the appropriate register?

If you have already bought into a financed development, check those things now.

Do not wait until you see:

“PUBLIC AUCTION”

on a notice outside the building.

And if you are about to buy, ask these questions before the first major payment, not after the last one.

Because in property transactions, the goal is not merely to prove that you paid.

The goal is to ensure that when you pay, the legal structure actually delivers a property the lender can no longer claim as security for somebody else’s debt.

Important Legal Note

This article provides general educational information concerning property finance and land transactions in Kenya. It does not constitute transaction-specific legal or banking advice. The legal effect of a charge, sale agreement, lender consent, partial discharge or auction depends on the specific land register, charge instrument, sale documentation and surrounding circumstances. Buyers should instruct an independent Kenyan conveyancing advocate to review an actual transaction.

Call to Action

Buying an off-plan or newly completed apartment in Nairobi?

Contact Realty Boris for carefully selected property opportunities—and have the financing, title, payment route and discharge structure verified before committing substantial funds.