Bank Power of Sale in Kenya: Duties, Auction Process and Purchaser Protection

A bank’s power of sale over charged land is not a private licence to dispose of property after a missed repayment. It is a statutory remedy with its own notice, service, valuation and sale obligations. The borrower, guarantor, later chargee and prospective buyer have different interests in the process, and each needs to understand what the sale record should show.

The earlier articles explain the section 90 default notice and the general structure of a charge. This guide begins at the sale-specific stage. The Land Act, 2012, the charge instrument, the current register and the actual service record must be considered together.

The power of sale begins only after the default process

Under section 96, a chargee may exercise the power of sale where the chargor remains in default after the time allowed to rectify it in the section 90 notice. Expiry of that notice does not itself permit the lender to complete a sale. Before exercising the power, the chargee must serve a further notice to sell in the prescribed form and wait at least forty days from service before completing a contract for sale.

The notice to sell is directed to more than the borrower alone. Depending on the facts, a copy must reach persons such as the National Land Commission where public land is involved, the head lessor of charged leasehold land, a spouse who gave consent, lessees and sublessees, co-owners, known subsequent chargees, guarantors and other known persons with a right to enter or use the land. The Act also requires a notice to be posted prominently at or near the property. The recipient list should be checked against a current search, the charge file and the occupation facts before service.

A lender should retain the section 90 notice, section 96 notice, recipient list and proof of service as a single chronology. A borrower, guarantor or occupier should preserve every page received, record the service date and compare the land description, default and remedy with the charge and official search. An informal demand or an auction advertisement does not replace the statutory notices.

Valuation and price are safeguards, not formalities

Section 97 places a duty of care on a chargee exercising the power of sale—including a sale under a court order—to obtain the best price reasonably obtainable at the time of sale. The duty is owed to the chargor, guarantors and persons with later charges or liens. Before exercising the right of sale, the chargee must ensure a forced-sale valuation is undertaken by a valuer.

The valuation should be understood in context. A forced-sale valuation is not the same as a guarantee of a particular result or an ordinary asking price. It is evidence relevant to a proper sale decision, alongside the property’s condition, title, market exposure, sale method and the interest being sold. A lender should be able to explain the valuation instruction and the decision to market or accept an offer. A borrower concerned about price should request and preserve the valuation material rather than relying solely on a personal estimate.

Section 97 provides a rebuttable presumption of breach where the sale price is twenty-five per cent or more below the open-market value of comparable interests of the same character and quality. It also permits a chargor to apply to court for an order declaring the sale void at that threshold. The statutory wording is specific, and an undervalue issue is fact-sensitive. A price above that threshold does not by itself prove every aspect of compliance; conversely, a valuation dispute should be supported by coherent evidence rather than a bare objection.

Choose and document a lawful sale route

The Act permits the charged land to be sold as a whole or in part, by subdivision or otherwise, and subject to or free of interests that have priority to the charge. A sale may be by public auction or by private contract at market value. The appropriate route depends on the security, market, title and statutory requirements. A lender should not assume that one routine method fits every property.

At auction, the chargee must take reasonable steps to advertise the sale in a manner and form likely to bring it to the attention of potential bidders. Auctioneers legislation and the applicable rules govern further operational requirements, including notices and conduct. Those current requirements should be checked before a sale is advertised rather than copied from an earlier file. The lender’s file should retain the valuation, advertising instructions, published material, reserve information where used, bids and completion record.

A private sale requires no less care. The commercial reason for the route, marketing evidence, offers, valuation and terms should be documented. The purchaser must receive an interest that the chargee has authority to sell; a purchaser should therefore obtain independent title and transaction advice rather than assume a bank sale makes all enquiries unnecessary.

Sale planning should also recognise the interest actually being offered. A leasehold sale may require a buyer to take account of the remaining term, rent, user conditions and superior interests. A sale of part of the land can raise subdivision, access and priority questions. The lender’s marketing description should be consistent with the register and the valuation, while a buyer should verify the title rather than rely on a brochure or auction announcement.

Where there are tenants, later charges or co-owners, the sale file must connect notices with the proposed completion mechanics. The lender should know whether possession will be delivered, which leases or interests continue, and how funds will be held and distributed. The borrower should know whether a proposed transaction concerns the whole title or only part, and should compare that proposal against the security actually granted. These details can materially affect price as well as legal risk.

A sale can also be avoided or managed by agreement where the parties reach a documented restructuring, refinancing or voluntary sale arrangement before completion. That does not mean a lender must accept every proposal, or that a borrower can suspend a statutory process by making an unworkable offer. It means both sides should record any agreed pause, redemption figure, release condition or withdrawal of sale instructions in writing, so that the title and marketing position remain clear to third parties.

Purchaser protection and chargee self-purchase have different rules

The Act protects an ordinary purchaser from having to investigate whether the borrower was in default or whether every notice was properly served. It also generally relieves the purchaser from responsibility for how the lender applies the purchase money. Those protections support finality for a good-faith purchaser, but they do not remove the lender’s duties to the borrower, guarantor or others affected by the security.

An irregular, improper, dishonest or fraudulent exercise of the power of sale may still expose the chargee to a claim for damages. The question of what relief is available, and against whom, depends on the timing, title, purchaser position and facts. A borrower should act promptly when a sale is threatened; a lender should not treat purchaser protection as an excuse to disregard notices, valuation or its duty of care.

A chargee buying the property itself needs particular care. The Act requires court leave where the chargee purchases other than at a public auction, and the court must be satisfied that such a purchase is the most advantageous way to secure the required price. At a public auction, the chargee’s bid is subject to the statutory limits. The lender should identify its intended role before the sale, not after the market response is known.

Registration and proceeds complete different parts of the sale

A chargee’s transfer in the prescribed form is registrable evidence that the power of sale was exercised. On registration, the purchaser’s interest and the charge have the consequences set out in the Act; the transfer also has priority over later entries. The exact interest transferred may still be affected by interests that take priority, consented easements or the terms of the registered title. A purchaser should obtain an updated search after registration.

The sale proceeds are not simply the lender’s money. The Act prescribes an order of application: property outgoings, prior charges or encumbrances to which the sale was subject, sale costs and expenses, the amount due under the charge, later charges in their order of priority, and then any residue to the person previously entitled to discharge the charge. A completion account should therefore be intelligible to the borrower and consistent with the title and priority position.

For a borrower, the practical response to a proposed sale is to preserve the notices, current account, valuation, sale material and any payment or restructuring evidence, then act early. For a lender, it is to build a file that demonstrates lawful service, valuation, marketing, sale decision and accounting. For a buyer, it is to investigate the interest being sold and complete through a documented process. The next article explains how a borrower may assess and challenge threatened enforcement.

Timing should be monitored from the service dates, not from an internal decision date or a proposed auction date. A lender should use a written chronology to test each prerequisite before instructing agents or accepting an offer. A borrower should use the same chronology to identify what has been served, when a response is due and whether a proposal can realistically be implemented before a contract is completed. This discipline helps prevent a sale dispute from becoming a dispute about missing basic records.

Good records also show whether every statutory recipient was considered before the sale process advanced. That check supports a lawful, explainable completion file.

Primary source: Land Act, 2012, sections 96–101.