Ask a Lawyer: Why Does the Registration of Lease Agreements Matter?

 
It is important to note that while the registration of leases is not a legal prerequisite for the recognition of a legal contract between a lessor and lessee, an unregistered lease may be valid between the parties but will offer no protection against third parties to the agreement.

The Land Registration Act, 2012, in S.36(2) essentially confirms that nothing shall be construed as preventing any unregistered instrument (lease) from operating as a contract. There is also legal precedent to support this position.

If the law does not demand the registration of leases, why should a lease be registered? A formal lease document is important for several reasons

Strengthening the Formal, Written Record Provides Legal Recognition of the Lease:
First, registering the written record of the agreement between the lessor and lessee provides irrefutable proof and evidence of the agreement. In the event of any dispute, it is easier to clarify the agreement and find a resolution.

Recognition and Protection of The Rights & Interests of Both Parties
Second, the formal registration of leases can help to protect the rights and interests of both the lessor and lessee. A registered lease confirms the agreement between the parties, and the rights and responsibilities of each party, as well as offering them protections they would otherwise be unable to claim. This can help ensure that both parties are treated fairly and their rights are respected, more so where third-party rights are entered against the property.

Protection Where Third-Party Rights Subsist
Third, registration of leases may not only facilitate transactions that may require collateral against property but also creates legal, evidentiary support proof of the agreement between the parties. The registration of a lease may also inform the parties to the agreement of any prior or superseding rights that may take precedence over the property. For example, the lease may include provisions that protect the landlord from liability if the tenant causes damage to the property or that protect the tenant from being evicted without cause. For the lessee, attempting to register the lease may expose an undeclared prior right over the property, for example, a charge or a preregistered encumbrance on the property.

Professionalism
Finally, the registration of leases can help in establishing or asserting good governance measures in the conduct of business affairs that may be necessary, especially in corporate setups. This can be beneficial for both parties, as it can help to ensure that the agreement is conducted in a smooth and orderly manner.

A simple illustration of the importance of registering lease agreements is that a registered lease creates an encumbrance on the property, the effect of which is that the lessee cannot, for example, sub-let, charge or part with possession of the land leased or any part thereof without the written consent of the lessor.

Likewise, the lessor cannot interfere with the lessee’s rights created under the registered lease. For example, the lessor cannot arbitrarily transfer ownership of the property to a third party where the encumbrance subsists.

To register a lease, the parties submit the relevant documents in the prescribed form identifying the parties to the agreement, the specific property that is the subject of the lease including information such as the tenure, size, location and any other pertinent details of the property, the duration or tenure for lease, the specified lease amount agreed upon and any other information as prescribed.

Upon registration, the lease becomes a matter of public record entered against the title deed of the property. Registering a lease helps to ensure that the lessors ownership rights are recognized and that the lessee’s rights to occupy the property are enforceable.

On determination on refund of security deposits by the Small Claims Court: The case of Muhanda v LP Holdings Ltd (Civil Appeal E256 of 2023) [2025] KEHC 393 (KLR)

The Small Claims Court (SCC) established under Section 4 of the Small Claims Court Act, CAP 10 A, as a specialized commercial court, has, in the past, been hesitant to entertain claims for security deposit refunds. The SCC previously declined jurisdiction in Nairobi Small Claims Court Case SCCOMM No. 5354 of 2023) judgment that it did not have jurisdiction over rental security deposit claims. However, a landmark decision by the High Court in Muhanda v LP Holdings Ltd (Civil Appeal E256 of 2023) [2025] KEHC 393 (KLR) (Commercial and Tax) (23 January 2025) has now clarified that the Small Claims Court has jurisdiction over such claims.

 

The High Court determined that refund of security deposits falls within the category of “a contract for money held and received” under Section 12(b) of the Small Claims Act (No. 2 of 2016). The judgment also noted that the matter had initially been declined by the Small Claims Court on jurisdictional grounds. However, Justice Helene R.  Namisi, after finding that the Small Claims Court has jurisdiction, referred the matter back to the SCC to be heard and determined on its merits by a different adjudicator.

 

This ruling is a significant relief for tenants as the Small Claims Court Act was specifically designed to simplify legal procedures and allow individuals, including those without legal representation, to file claims efficiently. Section 12 of the Act provides that the court has jurisdiction over claims for:

• Contracts for the sale and supply of goods or services.
• Contracts relating to money held and received.
• Compensation for personal injuries.
• Recovery of movable property.
• Liability in tort in respect of loss or damage caused to property.

One of the key advantages of the Small Claims Court is its pecuniary jurisdiction, which covers claims of up to Kshs 1,000,000, as provided under Section 12(3) of the Small Claims Act. Furthermore, the court is statutorily required to expeditiously resolve cases within 60 days from the date of filing the claim, making it a highly efficient option for tenants seeking a quick resolution to their disputes.

Section 4 of The Landlord and Tenant (Shops, Hotels and Catering Establishments) Act CAP 301: Termination of and alteration of terms and conditions in controlled tenancy

 (1) Notwithstanding the provisions of any other written law or anything contained in the terms and conditions of a controlled tenancy, no such tenancy shall terminate or be terminated, and no term or condition in, or right or service enjoyed by the tenant of, any such tenancy shall be altered, otherwise than in accordance with the following provisions of this Act.
(2) A landlord who wishes to terminate a controlled tenancy, or to alter, to the detriment of the tenant, any term or condition in, or right or service enjoyed by the tenant under, such a tenancy, shall give notice in that behalf to the tenant in the prescribed form.
(3) A tenant who wishes to obtain a reassessment of the rent of a controlled tenancy or the alteration of any term or condition in, or of any right or service enjoyed by him under, such a tenancy, shall give notice in that behalf to the landlord in the prescribed form.
(4) No tenancy notice shall take effect until such date, not being less than two months after the receipt thereof by the receiving party, as shall be specified therein:
Provided that—
(i) where notice is given of the termination of a controlled tenancy, the date of termination shall not be earlier than the earliest date on which, but for the provisions of this Act, the tenancy would have, or could have been, terminated;
(ii) where the terms and conditions of a controlled tenancy provide for a period of notice exceeding two months, that period shall be substituted for the said period of two months after the receipt of the tenancy notice;
(iii) the parties to the tenancy may agree in writing to any lesser period of notice.
(5) A tenancy notice shall not be effective for any of the purposes of this Act unless it specifies the grounds upon which the requesting party seeks the termination, alteration or reassessment concerned and requires the receiving party to notify the requesting party in writing, within one month after the date of receipt of the notice, whether or not he agrees to comply with the notice.
(6) A tenancy notice may be given to the receiving party by delivering it to him personally, or to an adult member of his family, or to any other servant residing within or employed in the premises concerned, or to his employer, or by sending it by prepaid registered post to his last known address, and any such notice shall be deemed to have been given on the date on which it was so delivered, or on the date of the postal receipt given by a person receiving the letter from the postal authorities, as the case may be.

Ask A Lawyer: How is an intestate estate distributed in cases where the deceased had no spouse(s) or children?

Response:

Section 39 of the Act provides that where the deceased is neither survived by a spouse nor children, his/her net intestate estate will devolve upon his/her blood relatives in the following order: father, or if dead; mother, or if dead; siblings and any of their children in equal shares, or if dead; half-siblings and any of their children in equal shares, or if none; any other relatives up to the sixth degree
of consanguinity.


It is important to note, however, that section 39 of the Act is among the provisions that were recently declared unconstitutional in the case of Ripples International v Attorney General & another; FIDA (Interested Party) (Constitutional Petition E017 of 2021) [2022] KEHC 13210 (KLR) (29 September 2022) (Judgment) for being discriminatory on the basis of gender.

Ask A Lawyer: How is an intestate estate distributed in cases where the deceased was polygamous?

Response:

Section 40 of the Act provides that in cases of polygamy, the deceased’s personal and household effects and the residue of the net intestate estate should be divided among the houses according to the number of children in each house but adding any wife as an additional unit to her children.
 

Such that if X had 2 wives, A and B, with A having 3 children and B having 4 children, the property would be distributed among a total of 9 units, taking into account the foregoing provisions, such that the ideal ratio would be 4:5. The rationale is that house A has a total of 4 units, while house B has a total of 5 units.
 

However, the Court of Appeal in the case of Rono v Rono (2005) eKLR noted that equity is not necessarily equality, such that the Court would consider each case on its facts, including the peculiar needs/positions of each child in each house, e.g. a young or yet-to-be educated child would probably require a greater share than a child who is well settled in life.

About the Small Claims Court

A Small Claims Court is a specialized commercial court created by statute with specific duties and powers designed to provide a judicial determination involving small amounts of money. World over, the courts are characterized by simplicity of procedure, cost effectiveness and speedy resolution of disputes thereby enhancing access to and expeditious delivery of justice.

In line with the Small Claims Court Act, 2016 the Judiciary has operationalized the Small Claims Courts (SCCs). The underpinning logic behind the establishment and subsequent operationalization of the Small Claims Courts is to enhance the access to and expeditious delivery of justice and to further provide a platform within the justice system where civil and commercial disputes whose value does not exceed Kshs 1 million are dealt with in a simple, efficient and cost-efficient manner. The establishment of the court was also part of a wider initiative to enhance the ease of doing business in the country, by creation of an enabling environment for the Small and Medium Enterprises SMEs to thrive by reducing the cost and time for enforcement of commercial disputes.

 

The operationalization of the SCCs is also aimed at the creation of a people centric approach to access to justice by affording the citizenry justice services that were accessible, inclusive, efficient, timely and responsive to specific access needs of particular groups likely to suffer from social and economic disadvantage. It had largely been observed that hefty court fees, complexity of procedures and delays in determination of cases contributed to barriers to access to justice more so to the marginalized, vulnerable and those with complex needs. The scale up access to justice as envisioned is then able to create and prioritize basic and community level justice. The operationalization of the SCCs is therefore designed to contribute towards achieving equality, poverty reduction and social inclusion by ensuring that all persons have equal access to fair and timely justice.

 

Courtesy of: The Judiciary of Kenya

Ask A Lawyer: Does section 7 of the Act apply to Oral Wills?

Response:

Yes, it does.

Section 7 of the Act deems void any Will that is created under fraud, coercion, importunity or mistake.

The definition of a Will under section 3 of the Act encompasses both Written and Oral Wills. 

As such, Oral Wills will also be voided upon proof of fraud, coercion, importunity or mistake.

Ask a Lawyer Series: Who is entitled to take out a Grant of Letters of Administration?

Response:

Section 66 of the Law of Succession Act stipulates that preference is given to the following persons to administer the estate of a deceased person where the deceased dies intestate:

The surviving spouses or spouses, with or without the association of other beneficiaries.

Other beneficiaries entitled on intestacy, with priority according to their respective beneficial

interests.

This means that, where the deceased is married, their spouse ranks first in priority and would be entitled to apply for letters of administration.

In the order of beneficial interest provided for in the Act, subsequently, the next in priority are the children of the deceased.

Where the deceased has no surviving spouse or children, the Act provides for the following order of priority as per section 39 of the Act:

“Father; or if dead, mother; or if dead, brothers and sisters, and any child or children of deceased brothers and sisters, in equal shares; or if none, half-brothers and half-sisters and any child or children of deceased half-brothers and half-sisters, in equal shares; or if none, the relatives who are in the nearest degree of consanguinity up to and including the sixth degree, in equal shares. Failing survival by any of the persons mentioned in paragraphs (a) to (e) of subsection (1), the net intestate estate shall devolve upon the State, and be paid into the Consolidated Fund.”

As stated in the presentation, in the case of Constitutional Petition No.E017 of 2021: Ripples International vs. The Attorney General & Others section 39 was declared unconstitutional as it discriminatorily gives priority to the father of the deceased over the mother.

As per section 56 of the Act, a minor, person of unsound mind or a bankrupt cannot be an administrator of a deceased person’s estate.

A body corporate or trust corporation may be issued with Grant of Letters of Administration in accordance with section 57 of the Act.

It is important to note that when petitioning for a Grant of Letters of Administration, it is important to obtain the consent of all other persons who are ranked in priority or are equal in rank in their entitlement to apply for the Grant.

 

Ask a Lawyer Series: What is the position of illegitimate children in Succession matters?

Answer: 

Illegitimate children — those born to a woman out of wedlock, those whom a man has accepted as his child, or those for whom he has accepted permanent responsibility — are included in the definition of a child under section 3(2) of the Act.

The term “child whom the deceased accepted as his own or for whom the deceased assumed permanent responsibility” is used here exclusively to refer to a child whom a male deceased person had accepted or taken on personal responsibility for (Willingstone Muchigi Kimari v Rahab Wanjiru Mugo, Nairobi Court of Appeal Civil Appeal Number 168 of 1990). 

Note: Refer to the definition of dependant in section 29(b).

On this basis, an illegitimate child is capable of inheriting from the estate of the deceased, provided that the deceased regarded the child as his own or assumed permanent responsibility over said child.

Charges in Property Transactions

A "charge" in property law is a legal interest in a property that secures a debt, granting the lender (chargee) certain rights over the property if the borrower (chargor) defaults on the debt. Unlike a mortgage, a charge does not transfer ownership; instead, it provides a security interest that allows the lender to recover the debt by selling the property if necessary. 

Key aspects of a charge:

• Security Interest:

A charge is a way to secure a loan or debt by using a property as collateral. 

• Chargor and Chargee:

The owner of the property (the borrower) is called the chargor, and the lender is the chargee. 

• Rights of the Chargee:

The chargee has the right to take possession of the property and sell it if the chargor defaults on the debt. 

• No Transfer of Ownership:

A charge does not transfer ownership of the property to the lender. The chargor retains ownership even while the charge is in place. 

• Types of Charges:

There can be formal and informal charges. Formal charges are typically registered and documented, while informal charges are often written understandings between parties. 

• Enforcement:

If the borrower defaults, the chargee can initiate legal proceedings to enforce the charge, potentially leading to the sale of the property to recover the debt. 

• Discharge:

Once the debt is paid off, the chargee is obligated to discharge the charge, meaning it is removed from the property's title. 

• Importance of Discharge:

A discharged charge means the property is no longer subject to that specific security interest, allowing for easier future transactions. 

 

Withdrawal and Removal of Caution

 A caution may be withdrawn by the cautioner or removed by order of the court or, subject to Section 73 (2) of the LRA, by order of the Registrar.

Subsection 2 states that the Registrar, on the application of any person interested, may serve notice on the cautioner warning the cautioner that the caution will be removed at the expiration of the time stated in the notice. If a cautioner has not raised any objection at the expiry of the time stated, the Registrar may remove the caution(ss3).

However, if the cautioner objects to the removal of the caution, they shall notify the Registrar, in writing, of the objection within the time specified in the notice, and the Registrar shall, after giving the parties an opportunity of being heard, make such order as the Registrar considers fit, and may in the order provide for the payment of costs.

 

The Doctrine of indefeasibility of title vis-à-vis illegally or unlawfully acquired property.

The Supreme Court of Kenya has recently delivered a landmark judgment in the case of Dina Management Limited v County Government of Mombasa & 5 others (Petition 8 (E010) of 2021) [2023] KESC 30 (KLR) (21 April 2023) (Judgment) (available here), which has significant implications on the doctrine of indefeasibility of title and bona-fide purchasers for value.

Brief facts of the case

The facts of this case were that on various dates in September 2017, the County Government of Mombasa (the 1st Respondent), without prior notice forcefully entered the property known as MN/1/6053 situated in Nyali Beach, Mombasa County (the Suit Property), registered to Dina Management Limited (the Appellant), demolished the entire perimeter wall facing the beachfront and flattened the whole property to be at the same level as the beach.

It was urged by the 1st Respondent that the entry and demolition was an enforcement action to create a thoroughfare to the beach as the Suit Property was public land and not private.

Aggrieved by the 1st Respondent’s actions, the Appellant filed Environment and Land Court Petition No. 8 of 2017 against the 1st Respondent seeking orders asserting its ownership of the Suit Property. Other orders that were sought include:

declarations that the 1st Respondent’s actions were in violation of its rights under Article 40, 27(1) & (2), 29, 47(1) & (2) of the Constitution of Kenya 2010 (the CoK);
a permanent injunction against the 1st Respondent to restrain it from interfering with the Suit Property;
the 1st Respondent be compelled to meet the costs of its actions; and
compensation for malicious damage to property; damages for trespass, interest and costs of the petition.

The 1st Respondent filed a separate petition, ELC Petition No. 12 of 2017 against:

the Appellant;
The Chief Land Registrar (the 2nd Respondent);
The Land Registrar, Mombasa (the 3rd Respondent);
The Director of Surveys (the 4th Respondent);
The Director Physical Planning (the 5th Respondent); and
The Hon. Attorney General (the 6th Respondent).

The 1st Respondent sought:

declarations that the Suit Property is public land forming part of the beach property within the high and low water marks of the Indian Ocean;
that the subsequent acquisition by the appellant was from inception null and void ab initio;
an order that the Chief Land Registrar be compelled to revoke the title over the Suit Property and the Director Surveys to cancel and expunge all survey plans, computations, field notes, deed plans and survey records over the Suit Property;
an order for the eviction of the Appellant from the Suit Property; and
general damages for trespass and costs.

The two petitions were consolidated, and the trial court went on to determine that the alienation of the Suit Property was unprocedural and unlawful for lack of the requisite plans as stipulated under statutes in application at the time. The Court also held that the Appellant could not be protected as an innocent purchaser without notice as it failed to demonstrate that it was diligent before purchasing the Suit Property, and that the Appellant’s rights were not violated, and it was not entitled to the reliefs sought.

Aggrieved by the judgment, the Appellant moved to the Court of Appeal vide Civil Appeal No. 150 of 2019. The appellate court however agreed with the trial court, holding that the Appellant cannot enjoy protection under the doctrine of innocent purchaser and that where property is acquired through a procedure against the law, the title cannot qualify for indefeasibility. It held that the title subsequently issued was invalid having been acquired illegally and irregularly.

The appellate court also found that the Suit Property was public land reserved for a public utility and that there was a road leading to the beach through the open space that was the Suit Property. The Suit Property thus remained a public utility incapable of giving rise to a private proprietary interest capable of being protected by a court of law. The appellate court thus dismissed the appeal.

Further aggrieved, the Appellant filed the current petition at the Supreme Court of Kenya seeking the judgments by the Court of Appeal and by the Environment and Land Court to be set aside.

Arguments by the Parties

The Applicant’s case

The Appellant contends that it is a bona fide purchaser of the Suit Property, having purchased it from Messrs. Bawazir & Co. for Kenya Shillings Eighteen Million (KES.18,000,000.00), who had in turn purchased it from H.E. Daniel T. Arap Moi. That it was a second purchaser and acquired a valid and legal title, having carried out all the necessary due diligence and paid valuable consideration for the purchase of the Suit Property. That for these reasons, its title was indefeasible and protected under Article 40 of the Constitution, contrary to the superior courts’ findings.

The Appellant averred that in carrying out due diligence, it sought confirmation from the relevant government registry that a valid title capable of transmission to it existed. It is its case that the consent to transfer was sought and obtained from the Ministry of Lands who also confirmed the validity of the title to the Appellant vide the letter dated 9th October 2006 stating that “the above plot is the genuine plot”.

It asserted that neither the national government nor the local government (the 1st Respondent’s predecessor) questioned the Appellant’s title but confirmed the validity or legality of the Appellant’s title, making the Appellant a bona fide purchaser and its title remains indefeasible.

The Appellant also stated that it periodically made payments of rates to the then local government and its successor, the 1st Respondent.

The 1st Respondent’s case

The 2nd to 6th Respondents averred that the prevailing legal and regulatory regime was adhered to in the allocation of the property to its first registered owner. It is their contention that H.E. Daniel T. Arap Moi, as the first registered owner, obtained good title protected under Section 26 of the Land Registration Act (Number 3 of 2012 of the Laws of Kenya) and section 23 of the Registration of Titles Act (Chapter 281 of the Laws of Kenya) (now repealed), and it is not public land.

According to the 1st Respondent, there were pertinent requirements which ought to have been followed before the allocation of public land. They urged that the procedure was not followed. The 1st Respondent also averred that a survey plan of the area drawn in the year 1971 showed that the Suit Property was in that year designated as an open space and not private land, and which open space was reserved for a public road.



Findings of the Court

The Supreme Court agreed with the Environment and Land Court and the Court of Appeal and went on to dismiss the Appellant’s appeal opining that:

“Indeed, the title or lease is 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. The first allocation having been irregularly obtained, H.E. Daniel Arap Moi had no valid legal interest which he could pass to Bawazir & Co. (1993) Ltd, who in turn could pass to the Appellant.”

The Court also went on to state that Article 40 of the CoK entitles every person to the right to property, subject to the limitations set out therein. Article 40(6) limits the rights as not extending them to any property that has been found to have been unlawfully acquired.

Having found that the first registered owner did not acquire title regularly, the ownership of the Suit Property by the Appellant thereafter could not therefore be protected under Article 40 of the CoK.

The Court also added that the Suit Property, by its very nature being a beach property, was always bound to be attractive and lucrative. The Appellant ought to have been more cautious in undertaking its due diligence.

Our Commentary

The Supreme Court has confirmed that registered title to a property can be invalidated if the process followed prior to the issuance of the title did not comply with the law. This therefore means that innocent buyers cannot rely on the principle of indefeasibility of title if the initial allocation of the land was illegal or unprocedural.

The burden now falls on prospective property buyers or anyone acquiring an interest in land, as well as other stakeholders to conduct thorough due diligence, which would now involve investigating the root of the title above just conducting a mere search of the current ownership of the property.

This will however prove to be particularly challenging given historical land injustices in Kenya as well as the poor state in which land records are maintained. This is further exacerbated by the ongoing digitisation process, which albeit intended to address some of these challenges, has made it surprisingly difficult to access historical property records.

 

Commercial Transactions: Mergers & Acquisitions

CORPORATE RE-ORGANISATION

This is synonymous to corporate rearranging. It is the structural change and amounts to a corporate change of a company. It is organizing the legal, operational or other structures of a company. It can take the form of;
Mergers
Acquisitions
Take-overs
Mergers and acquisitions refer to an act of corporate strategy, corporate finance and management dealing with the buying, selling and combining different companies under one management.
The aim of a merger or acquisition is to aid, finance or help a growing company in a given industry to grow rapidly without having to create another business entity.
Two or more companies with the same objectives may decide to come together to enjoy economies of scale. Schemes involving reconstruction amalgamations, takeovers, arrangements and other forms of reorganization are carried out for the following purposes:
To reorganize the company capital structure.
To overcome the company financial difficulties.
To increase revenue and market share.
Economy of scale – this refers to the fact that the combined companies can often reduce its fixed cost by removing duplicate departments, the cost of the company and increasing profit margin.
To control and drive away the competitors.

LAWS APPLICABLE
Competition Act
Capital Markets Authority Act Banking Act
Insurance Act Company's Act 2015
COMPETITION (GENERAL) RULES, 2019
On 6 December 2019, the Kenyan Competition (General) Rules, 2019 (General Rules), containing the Merger Threshold Guidelines (Threshold Guidelines) and a new merger notification form, were gazetted and are now in effect pursuant to the provisions of the Statutory Instruments Act, 2013.
Significant changes resulting from the adoption of the Threshold Guidelines are:
no further requirement to notify a merger to the Competition Authority of Kenya (CAK) where the Common Market for Eastern and Southern Africa (COMESA) Merger Notification Thresholds are met;
no further requirement to notify a merger to the CAK where the Kenya merger thresholds (see below) are not met; and
in line with international standards, consideration of the higher of turnover or asset value for purposes of threshold calculations.
Categories of mergers
In terms of the Threshold Guidelines, three categories of mergers now exist:
mergers requiring a comprehensive/ full merger notification;
mergers requiring an exclusion application; and
mergers not requiring any notification.
Comprehensive/ full merger notifications must be submitted to the CAK:
where the undertakings have a minimum combined turnover or assets (whichever is higher) in Kenya of KES 1 billion (USD 10 million), and the turnover or assets (whichever is higher) of the target undertaking in Kenya is above KES 500 million (USD 5 million);
where the turnover or assets (whichever is higher) of the acquiring undertaking in Kenya is above KES 10 billion (USD 100 million), and the merging parties are in the same market or can be vertically integrated, unless the transaction meets the COMESA Competition Commission Merger Notification Thresholds;
in the carbon-based mineral sector, if the value of the reserves, the rights and the associated assets to be held as a result of the merger exceeds KES 10 billion (USD 100 million);
where the COMESA Competition Commission Merger Notification Thresholds are met and two-thirds or more of their turnover or assets (whichever is higher) is generated or located in Kenya.
2. Exclusion applications must be submitted to the CAK:
where the combined turnover or assets (whichever is higher) of the merging parties in Kenya is between KES 500 million (USD 5 million) and KES 1 billion (USD 10 million);
if the firms are engaged in prospecting in the carbon-based mineral sector, irrespective of asset value.(EXCLUSION NOTIFICATION)
3. No notification to the CAK:
For the first time, certain mergers are exempt from notification to the CAK. These are mergers:
taking place wholly or entirely outside of Kenya which have no local connection;
where the combined turnover or assets (whichever is higher) of the merging parties in Kenya does not exceed KES 500 million (USD 5 million); or
where the COMESA Competition Commission Merger Notification Thresholds are met, and at least two-thirds of the turnover or assets (whichever is higher) is not generated or located in Kenya.
ACQUISITION

This takes place when the controlling position of a company is transferred from one shareholder group of interest to another. There is usually a bid/offer/placement in the market for an acquisition to happen. The bidding company is known as the acquiring company and the other is the target company.

Acquisition may be:
Friendly acquisition
In this type, one company takes over the management of the target company with the permission of the board of directors. e.g in mergers
Hostile acquisition
In this type, one company(acquiring company) takes over the management of the target company without its knowledge and against the wish of their management. eg in takeovers.
Takeovers & Mergers of listed companies are regulated by The Capital Markets (Takeovers and Mergers) Regulations, 2002 (“the Takeovers and Mergers Regulations”).
MERGER

This occurs when two or more companies combine together into one company. The merger of two or more companies usually occurs through mutual agreement between the combining companies.
Sec 2 Competition Act- “merger” means an acquisition of shares, business or other assets, whether inside or outside Kenya, resulting in the change of control of a business, part of a business or an asset of a business in Kenya in any manner and includes a takeover.

Merger/Amalgamations takes 2 forms:
Merger though absorption – combination of 2 or more companies into an existing company. A + B= A
Merger through consolidation -A combination of two or more companies into a new company.A+ B= C
KEY TAKEAWAYS

A merger occurs when two separate entities combine forces to create a new, joint organization.
An acquisition refers to the takeover of one entity by another.
The two terms have become increasingly blended and used in conjunction with one another.

Types of Company Mergers

There are five commonly-referred to types of business combinations known as mergers: conglomerate merger, horizontal merger, vertical merger , market extension merger and product extension merger. The term chosen to describe the merger depends on the economic function, purpose of the business transaction and relationship between the merging companies.
Conglomerate
A merger between firms that are involved in totally unrelated business activities. There are two types of conglomerate mergers: pure and mixed. Pure conglomerate mergers involve firms with nothing in common, while mixed conglomerate mergers involve firms that are looking for product extensions or market extensions.
Example
A leading manufacturer of athletic shoes, merges with a soft drink firm. The resulting company is faced with the same competition in each of its two markets after the merger as the individual firms were before the merger.
Horizontal Merger
A merger occurring between companies in the same industry. Horizontal merger is a business consolidation that occurs between firms who operate in the same space, often as competitors offering the same good or service. Horizontal mergers are common in industries with fewer firms, as competition tends to be higher and the synergies and potential gains in market share are much greater for merging firms in such an industry. Example
A merger between Coca-Cola and the Pepsi beverage division, for example, would be
horizontal in nature. The goal of a horizontal merger is to create a new and larger organization with more market share. Because the merging companies' business operations may be very similar, there may be opportunities to join certain operations, such as manufacturing, and reduce costs.
Vertical Merger
A merger between two companies producing different goods or services for one specific finished product. A vertical merger occurs when two or more firms, operating at different levels within an industry's supply chain, merge operations. Most often the logic behind the merger is to increase synergies created by merging firms that would be more efficient operating as one.
Example
A vertical merger joins two companies that may not compete with each other, but exist in the same supply chain. An automobile company joining with a parts supplier would be an example of a vertical merger. Such a deal would allow the automobile division to obtain better pricing on parts and have better control over the manufacturing process. The parts division, in turn, would be guaranteed a steady stream of business.
Synergy, the idea that the value and performance of two companies combined will be greater than the sum of the separate individual parts is one of the reasons companies merger. Synergy definition is - the increased effectiveness that results when two or more people or businesses work together.
Market Extension Mergers
A market extension merger takes place between two companies that deal in the same products but in separate markets. The main purpose of the market extension merger is to make sure that the merging companies can get access to a bigger market and that ensures a bigger client base.
e.g Bata and Nike
Product Extension Mergers
A product extension merger takes place between two business organizations that deal in products that are related to each other and operate in the same market. The product extension merger allows the merging companies to group together their products and get access to a bigger set of consumers. This ensures that they earn higher profits.
EABL and Keroche making a cider.
KEY PROVISIONS OF THE COMPETITION ACT SECTION 41
Sec 41 (1) For the purposes of this Part, a merger occurs when one or more undertakings directly or indirectly acquire or establish direct or indirect control over the whole or part of the business of another undertaking.
A merger may be achieved through;
the purchase or lease of shares, acquisition of an interest, or purchase of assets of the other undertaking in question;
the acquisition of a controlling interest in a section of the business of an undertaking capable of itself being operated independently whether or not the business in question is carried on by a company;
the acquisition of an undertaking under receivership by another undertaking either situated inside or outside Kenya;
acquiring by whatever means the controlling interest in a foreign undertaking that has got a controlling interest in a subsidiary in Kenya;
in the case of a conglomerate undertaking, acquiring the controlling interest of another undertaking or a section of the undertaking being acquired capable of being operated independently;
vertical integration;
exchange of shares between or among undertakings which result in substantial change in ownership structure through whatever strategy or means adopted by the concerned undertakings; or
amalgamation, takeover or any other combination with the other undertaking.

SECTION 42- Control of mergers
The Competition Authority may, in consultation with the Cabinet Secretary and by notice in the Gazette, set the threshold for any merger.
No person, either individually or jointly or in concert with any other person, may implement a proposed merger unless the proposed merger is;
approved by the Authority; and
implemented in accordance with any conditions attached to the approval.
No merger as described in section 41 carried out in the absence of an authorizing order by the Authority, shall have any legal effect, and no obligation imposed on the
participating parties by any agreement in respect of the merger shall be enforceable in legal proceedings.

TERM SHEET, EXCLUSIVITY AND CONFIDENTIALITY AGREEMENTS
A term sheet (sometimes referred to as a memorandum of understanding, heads of agreement or letter of intent) is an important document which sets out the commercial terms upon which persons or entities agree to transact with one another. The term sheet is often the first record of a proposed transaction and is the document which forms the basis of the negotiation of the formal agreements required to implement the transaction. Before entering into a term sheet, the following considerations should be taken into account:
Commercial issues
The purpose of a term sheet is for the parties to agree upon the material commercial terms which constitute the proposed transaction. The relevant commercial terms will depend on the nature of the proposed transaction. As such, it is important that the parties identify and agree on each of the material commercial issues pertaining to the proposed transaction. A failure by the parties to agree on one or more of the material commercial issues may result in a breakdown of negotiations down the line and a failure to conclude the transaction.
Binding vs Non-binding
A term sheet may be fully or partially binding or non-binding. Many parties prefer entering into non-binding term sheets, with the aim of concluding binding agreements later. However, term sheets are often entered into on a partially binding basis. The commercial terms, whilst agreed in principle, should not be binding on the parties until detailed agreements containing all of the relevant rights and obligations are concluded. Other rights and protections such as exclusivity, due diligence, confidentiality, costs and governing law, however, can be made binding on the parties from the conclusion of the term sheet. This is the basis upon which most parties, in our experience, conclude a term sheet. A term sheet must clearly provide which terms, if any, are binding and enforceable.
Exclusivity
Parties may agree to provide a unilateral or reciprocal exclusivity period, during which the parties agree not to engage with any third parties in respect of the proposed
transaction or any substantially similar transaction. This is often an important right because significant costs may be incurred by the parties in preparation for, and during, the negotiation and conclusion of the transaction. Typically, parties will expect to receive a limited period of exclusivity prior to incurring these costs. The duration of the exclusivity period is dependent on the nature of the transaction.
Due diligence
The acquiring entity/ A prospective purchaser or investor may require legal, financial and/or technical due diligence reviews of the target entity and its operations prior to the drafting of definitive agreements and the conclusion of the transaction. The nature, extent and duration of the due diligence review, where applicable, should be agreed between the parties and recorded in the term sheet.
Confidentiality
Where the parties have not entered into a confidentiality and non-disclosure agreement, it is imperative that the term sheet contains a confidentiality provision which protects each party’s confidential information and the exchange of information during the negotiation and implementation of the transaction.
Costs
The parties should agree who will be liable for the costs incurred by each (or all) of the parties in respect to the preparation, negotiation and implementation of the term sheet and all agreements.
Governing law
The parties should agree and record the governing law applicable to the term sheet and the agreements required for the transaction.
Seek advice
Appropriate legal, financial and technical advice should be sought before concluding a term sheet. A good term sheet should save the parties time and money in negotiating and concluding the transaction. A bad term sheet, on the other hand, will have the opposite effect. All financial and technical elements should be confirmed by each party when entering into the term sheet, as the re-negotiation of these provisions at a later stage, whilst possible, will result in a protracted negotiation process with increased costs incurred by both parties. It is strongly recommended that legal advisors provide input before the term sheet is finalised in order to ensure that each party’s rights and interests are adequately protected and clearly articulated.

LEGAL DUE DILIGENCE
Legal due diligence is the process of collecting, understanding and assessing   all the legal risks associated during a M&A process. During due diligence, the acquirer reviews all the documents pertaining to a target company and interviews people associated with it.
What is a Due Diligence Report?
This paper outlines what a due diligence report should cover and what questions need to be answered with mergers and acquisitions. A due diligence report is sent as an internal memo to persons who are evaluating the transaction and is a requirement for closing the deal.
What are the Sections of a Due Diligence Report? #1 Corporate Records
State of incorporation and in good standing with the state
Capitalization and authorized and issued shares of stock and seller of each subsidiary
Articles of incorporation and bylaws
Copies of all correspondence with shareholders and obtain a shareholder list
Existence of any warrants, options, or other potentially dilutive securities
Company trading information.
Financial Information
Copies of financial statements for the past five years that have been audited, including all notes and management’s discussion and analysis
Copies of correspondence between management and auditors
Tax details.
All board of directors’ presentations
All internally generated financial models and forecasts
Indebtedness
Investigate indebtedness or seller and subsidiaries, including loan agreements, notes, mortgages, and security agreements
Review correspondence with lenders demonstrating compliance with financial covenants.
Employment and Labor
List and biographies of officers, directors, and employees of a certain level
List of all employees, their job function, department, location, and compensation
Documents detailing any profit sharing, pensions, deferred compensation, stock plans, and other non-salary compensation or benefits
Copies of all employee handbooks, codes of conduct, and policies
Copies of employment, consulting, termination, parachute and indemnity agreements
Pending litigation related to labor and employment law
Real Estate/Conveyancing
Address and legal description for all real property
Copies of title issuance policies with respect to real property
Copies of all studies, site evaluations, and government filings and reports prepared by consultants.
Agreements
All agreements entered into by the company and its subsidiaries
All real estate leases
All partnership or joint venture agreements
All marketing, sales, commission, distributor, franchise agreements
All brokerage or investment banker agreements
All customer or client agreements
All licenses and subscriptions
All material contracts not otherwise obtained from this list

Supplier and Customer Information
List of all material customers and volume of sales
List of all material suppliers and volume of purchases
Correspondence with customers or suppliers related to complaints or disputes
Legal
Copies of each report or document filed with government agencies
Descriptions    of    all    litigation,    administrative    proceeding,    governmental investigations
Copies of all government licenses.
Environmental liability assessments and environmental compliance audits.
DUE DILIGENCE QUESTIONNAIRE
A due diligence questionnaire is useful in any type of M&A transaction. It typically covers the following categories:
Company Information
Financial Information
Employee Information
Legal Information
Product Information
Consumer Information
Intellectual Property Information
Physical Asset Information
Depending upon the target and the transaction, additional categories, including a “miscellaneous” category, may be warranted.

Specific due diligence questionnaire categories & questions
Compa