A number of statutes could be applicable in this regarding i.e. the RLA and the ITPA, the Banking Act, Central Bank of Kenya Act, GLA and the RTA are all relevant. They have specific provisions which apply in the event of there being such transactions between the parties i.e. under the Central Bank of Kenya Act there is a requirement that lending institutions must take security in the course of advancing loans to borrowers.  The banking Act Cap 488 initially appeared not to accommodate this particular requirement of insisting of security before any loans are advanced and prior to an amendment where Section 2 provided that the lending was to be done at the risk of individual banks but this was altered by Act No. 9 of 1999 which made the security mandatory and the change came after traumatising experiences when a number of indigenous banks went under or collapsed without having anything to turn to or to enable them realise their security so that particular loophole has since been sealed.

The statutory definition of mortgages and charges are found in the ITPA and the RLA Section 58 of ITPA defines mortgage as a transfer of security in immovable property for the purpose of securing payment of money advanced by way of a loan in existing of a future date or the performance of an engagement which may give rise to a pecuniary liability.

Charges are defined in S. 3 of RLA as an interest in land securing payment of money or moneys worth or the fulfilment of any condition and includes a sub charged and the instrument creating a charge.

Section 65(4) of the RLA is clear that a charge shall not operate as a transfer but shall have effect as security only and that is a fundamental distinction which the RLA tries to draw between the character of a charge vis-à-vis a character of a mortgage

The principle difference is that in a mortgage the title to the property is the security

Under section 58 of the ITPA there are four classes of legal mortgages and Section 58 (5) lists those classes as follows
Simple Mortgages – these can be created by delivery of possession of the property which is the security and further to that the mortgagor binds himself to personally pay the mortgage money and agrees that the mortgage property will be sold in the event of his default so that the proceeds realised therefrom can be applied towards discharging the mortgage debt.  It is also possible to create what is known as the USUFRUCTUARY and this requires that you deliver your possession to the mortgagee further to that such a mortgagee should be authorised to retain the property in question until such time that the mortgage debt will have been fully repaid.  The mortgagee has rights to receive benefits accruing from that property and apply such benefits towards repaying of the mortgage debt.
There is also the benefit of creating Mortgage by Conditional sale and here the mortgagor ostensibly sells the mortgaged property to the mortgagee subject to the condition that the sale will become absolute at the specified date in the event that the mortgagor defaults in his payments.  In the alternative upon the repayment of the mortgage debt the ostensible sale becomes void at which point the mortgagee is obligated to transfer the property back to the mortgagor.

The English Mortgage – here the mortgagor binds himself to repay the mortgage money on a certain date and actually transfers the mortgage property absolutely to the mortgagee subject to a proviso that in the event of the mortgagor repaying fully the debt there will be a retransfer of the property back to him.  It is imperative to understand the points of departure between those classes of mortgages under Section 58.

It is also possible to talk of Equitable Mortgages – these are creatures of equity rather than statutes especially in the UK where much of our laws come from.  In Kenya we have statutory provisions for creation of mortgages i.e. The Provision of the Equitable Mortgages Act Cap 291, we have something in the GLA Section 102 which suggests that we can create equitable mortgages by deposits of title deeds with the mortgagee and the Registration of a memorandum of such a deposit to formalise such transactions.

Section 98 of the ITPA provides for a creation of some form of mortgages which are not adverted to under Section 58(5) because that provision provides for creation of a mortgage based on the contractual understanding of the parties which then defines the rights and obligations under that arrangement.  In other words it gives the party a free hand in shaping the sort of arrangement that they want to have when drawing the mortgage instruments and has been referred to as anomalous mortgage to the extent that they do not have any attributes that are similar to what is offered under S 58 of that Act.

Section 59 requires registration of mortgages securing a sum in excess of KShs. 200 those must be effected by way of a registered instruments and must be duly executed signed by the mortgagor and attested by at least 2 witnesses.  Where the amount is not in excess of 200 the transaction may be effected by delivery of the property concerned and the option remains open to the parties.

Section 100(a) of the ITPA provides that such instruments if duly registered confer onto the parties the powers and remedies that are available to them under the Act.  There is an attempt to relate such transactions with charge transactions reached under the RTA and the relevant provisions which talk about powers and remedies under the GLA.  There is an attempt to equate parties concluding transactions under the ITPA with those that become chargees under a charge created pursuant to S 46 of the RTA. There are certain essentials of a charge that is alluded to under Section 100 of the ITPA, there must be under S 46 of RTA a chargor, a disclosure of the nature of the property being charged whether it is freehold or leasehold, a statement regarding the land reference number and a description, there must be an indication of the amount advanced, the lender must be named and described, there must be an acknowledgment of the receipts of the loans advanced, a covenant for repayment of the advanced loans and the rate of the interests to be paid must be specified any special arrangements agreed by the parties must be disclosed and there must be a charging clause which binds the borrower to repay the sums involved plus interests.  The charging clause should take the form of for instance for the better securing of the said facility or loan, I so and so charge my property etc.


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