Trustyle Real Estate

The Supreme Court of Kenya recently held as follows:

1. The Meaning, Scope and Extent of Applicability of the Doctrine of Bona Fide (Innocent) Purchaser for Value Without notice.

The apex court stated that doctrine acts as an absolute, unqualified and unanswerable defence against any person with an equitable interest or an encumbrance over the subject land. However, the court held that the person relying on doctrine had the burden to prove that they were a bona fide purchaser for value.

The court went ahead to set out the elements that must be proved to substantiate the doctrine as a defence. These are:

• Innocence – the purchaser must have acted in good faith. The purchaser’s conduct must not raise doubts as to whether they had notice of the existence of a rival interest over the land. The court affirmed that where the purchaser is found to have engaged in unconscionable conduct, there defence is weakened. The court further held that innocence extended to exercising due diligence over the subject in land. The reaffirmed its stance in Torino Enterprises Limited v Attorney General holding that due diligence extended to conducting physical inspection over the subject property. The defence would be defeated if the purchaser failed to exercise the requisite due diligence prior to acquiring the land;

• Purchase for value – the purchaser must pay all the money or money’s worth before receiving notice of the existence of an equitable interest over the land. The mere execution of transfer or agreement for sale before receiving notice of the existence of equitable interest without payment of the full purchase price does not avail the doctrine as a defence to such a purchaser;

• A legal estate – the purchaser must have acquired a legal interest in the land without notice of the existence of any equitable interest over the subject land. “Legal rights are good against all the world while equitable interests are good against all persons except a bona fide purchaser of a legal estate for value without notice”

• The court clarified that the doctrine only protected purchasers against individuals who based their claims upon equitable interest in the land. The court also clarified that the doctrine is only applicable to public land in circumstances where the original allottee creates an equitable interest and later transfers the unexpired term to another person. Such purchaser could rely on the doctrine of bona fide purchaser for value without notice against the equitable interest.