Who is a Bona Fide Purchaser? Lessons from the Supreme Court Decision in Dina Management
“The ownership of land whose title was not acquired regularly is not protected under Article 40 of the Constitution on the protection of right to property”
On 21stApril, 2023, the legal arena witnessed a transformative moment that flowed from the monumental decision of the Supreme Court in the case of Dina Management Ltd v County Government of Mombasa & 5 others [SC Petition No.8 (E010) of 2021].
This appeal provided the Court with an unprecedented opportunity to address the pivotal issue on matters land acquisition particularly on whether merely possessing an instrument of title was sufficient proof of land ownership.
What had been a steadfast position for many was now subjected to scrutiny. The status quo and the commonly held notion of “Mugunda ni Title” was being challenged and the Court was compelled to evaluate the public’s understanding of who a bona fide purchaser is and the level of due diligence that a person should undertake to support its claim of being a bona fide purchaser.
The harsh truth emerging from this landmark judgement is that:-the mere act of conducting a land search no longer provides a shield or security to an innocent purchaser.
Background of the case
In September, 2017, the County Government of Mombasa forcefully entered into a beachfront property registered to Dina Management Limited and demolished the entire perimeter wall for the purposes of constructing an access road to the beach. It was the County Government’s assertion that the property was public land and it was, therefore, justified in its demolitions to protect public land against exploitation for private purposes.
It was Dina Management’s position that the property was private land emphasizing that it held a valid title to the property having purchased it for value as a bona fide purchaser from Bawazir & Co Ltd, which company had previously purchased the property from the former President of Kenya, H. E. Daniel T Arap Moi, the first allottee from the government.
Who is a bona fide purchaser?
In the meticulous pursuit of due diligence, Dina Management left no stone unturned. Every conceivable facet of verification was thoroughly addressed. Searches from the Ministry of Lands were secured. The consent to transfer land was obtained. Beacon certificates and survey plans were procured, showing clear demarcations of property boundaries and leaving no room for uncertainties.
The commitment to legality extended beyond the searches as Dina Management promptly paid all land rates and rent and obtained all development approvals from the relevant government authorities including NEMA.
Having carried out all the necessary due diligence and paid valuable consideration, Dina Management believed to have obtained a valid and indefeasible title to the property which ought to be protected under Article 40 of the Constitution.
The question then arises: in the face of such exhaustive due diligence, what stone remained unturned?
The thoroughness displayed by Dina Management mirrors the standard practice that many buyers have adopted over the years. It serves as a testament to the widespread commitment among buyers and real estate practitioners to secure every conceivable aspect of property acquisition, ensuring there is no room for uncertainties or oversights.
Before this landmark decision, for a person to be considered a bona fide purchaser for value, one only had to demonstrate that:-
- they acquired a valid and legal title;
- they carried out the necessary due diligence to determine the lawful owner from whom they acquired a legitimate title; and
- thirdly, that they paid valuable consideration for the purchase of the suit property.
The paradigm shift that has come from the Supreme Court decision is that beyond the matters established above, the root of the title must be investigated.
“…..it is not enough to dangle the instrument of title as proof of ownership. It is the instrument that is in challenge and therefore the registered proprietor must go beyond the instrument and prove the legality of the title and show that the acquisition was legal, formal and free from any encumbrance including interests which would not be noted in the register.”
The Supreme Court looked at a title as an end product of a process. If the process that was followed prior to issuance of the title did not comply with the law, then such a title cannot be held as indefeasible.
In Dina’s case, the Supreme Court concluded that during the allocation of the property to H.E Daniel Arap Moi, the land was designated as an open space- a public utility that could not be classified as unalienated public land. Consequently, the allocation to the former president was deemed irregular.
This irregularity meant that Article 40 could not be used to protect Dina Management. In essence, due to the defective root of the title, Dina Management could not be deemed a bona fide purchaser.
Essentially, should it be uncovered that the seller or any party in the labyrinth of ownership acquired the title through irregular means, every subsequent transaction becomes not just questionable but a complete legal nullity. This Judgement has upended the conventional understanding of land transactions, injecting an unprecedented level of scrutiny and consequence into the intricacies of property dealings.
Impact on real estate transactions and lessons to purchasers & property dealers
This landmark judgment has significantly reshaped the landscape of real estate transactions and property acquisition in the country. It has established that valid property ownership transcends mere title documentation, requiring scrutiny into the regularity of property acquisition by every previous owner. This signals a shift towards a more comprehensive evaluation of property ownership in future legal considerations.
By imposing a heightened responsibility on purchasers to substantiate thorough due diligence, the judgment has eliminated the safety net of the innocent purchaser doctrine when properties are acquired through unlawful procedures. Titles obtained in such transactions no longer qualify for indefeasibility. Consequently, this decision instills a sense of caution in land acquisition processes, making stakeholders more vigilant, especially when dealing with properties with even the slightest hint of ownership contention.
