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What are the most common mistakes to avoid when drafting a Real Estate Assignment Agreement?

Introduction

Drafting a Real Estate Assignment Agreement is a critical task that requires meticulous attention to detail to avoid potential legal disputes and ensure the smooth transfer of property rights. In Kenya, the legal framework governing real estate transactions is primarily outlined in the Law of Contract Act (Cap. 23) and the Land Registration Act (Cap. 300). This article will explore the most common mistakes to avoid when drafting a Real Estate Assignment Agreement, providing insights into best practices and relevant case laws to ensure compliance with Kenyan law.

Table of Contents

  1. Overview of Real Estate Assignment Agreements

  2. Common Mistakes in Drafting Real Estate Assignment Agreements

    1. Vague or Ambiguous Language

    2. Failure to Include Necessary Contingencies

    3. Inadequate Consideration of Potential Issues

    4. Drafting in Isolation

    5. Incomplete or Incorrect Party Information

    6. Lack of Clear Assignment Scope and Extent

    7. Ignoring Legal Requirements and Formalities

  3. Relevant Case Laws

  4. Conclusion

  5. TLDR

1. Overview of Real Estate Assignment Agreements

A Real Estate Assignment Agreement is a legal document that transfers a buyer or seller’s interest in a property to another party. This type of agreement is commonly used by investors who purchase rights to a property with the intention of assigning the contract to a different buyer at a higher price. The agreement must be clear, enforceable, and compliant with Kenyan law to avoid disputes and ensure the protection of all parties involved.

2. Common Mistakes in Drafting Real Estate Assignment Agreements

2.1 Vague or Ambiguous Language

One of the most common mistakes in drafting real estate contracts, including assignment agreements, is the use of vague or ambiguous language. This can lead to misunderstandings and disputes between the parties. It is essential to use precise and clear language to define the terms and conditions of the agreement.

Example:

  • Instead of stating "the property must be in good condition," specify what constitutes "good condition" by listing specific criteria or standards.

2.2 Failure to Include Necessary Contingencies

Contingencies are conditions that must be met for the contract to be binding. Failing to include necessary contingencies can result in significant legal and financial risks. Common contingencies in real estate assignment agreements include financing, inspection, and title contingencies.

Example:

  • Include a financing contingency that allows the assignee to withdraw from the agreement if they are unable to secure financing within a specified period.

2.3 Inadequate Consideration of Potential Issues

Inadequate consideration of potential issues such as zoning laws, property taxes, and existing liens can lead to disputes and financial losses. It is crucial to conduct thorough due diligence and address these issues in the agreement.

Example:

  • Include a clause that requires the assignor to disclose any existing liens or encumbrances on the property.

2.4 Drafting in Isolation

Drafting the contract in isolation without obtaining input from all involved parties can lead to misunderstandings and disputes. It is important to share drafts with all parties for review and address concerns collaboratively.

Example:

  • Schedule a meeting with all parties to review the draft agreement and make necessary revisions based on their feedback.

2.5 Incomplete or Incorrect Party Information

Incomplete or incorrect information about the parties involved can render the agreement unenforceable. Ensure that the names, addresses, and contact information of all parties are accurately recorded.

Example:

  • Verify the legal names and contact details of the assignor, assignee, and any other relevant parties before finalizing the agreement.

2.6 Lack of Clear Assignment Scope and Extent

Failing to define the scope and extent of the assignment clearly can lead to disputes and ambiguity. The agreement should specify what rights and obligations are being transferred and any limitations or conditions.

Example:

  • Clearly state whether the assignment includes all rights and obligations under the original purchase agreement or only specific aspects.

2.7 Ignoring Legal Requirements and Formalities

Ignoring legal requirements and formalities can result in the agreement being declared void or unenforceable. Ensure that the agreement complies with the relevant laws and regulations, including the Law of Contract Act and the Land Registration Act.

Example:

  • Ensure that the agreement is signed by all parties and witnessed as required by Kenyan law.

3. Relevant Case Laws

3.1 Kenya Commercial Bank Ltd v. Specialized Engineering Co. Ltd [1982] KLR 485

Relevance: This case highlights the importance of clear and unambiguous contract terms. The court held that where the terms of a contract are clear, the court must give effect to those terms.

Outcome: The court enforced the contract as written, emphasizing the need for precision in drafting.

3.2 National Bank of Kenya Ltd v. Pipeplastic Samkolit (K) Ltd & Another [2001] eKLR

Relevance: This case underscores the necessity of including all essential terms and conditions in a contract. The court ruled that a contract must contain all material terms to be enforceable.

Outcome: The court found the contract void due to the omission of essential terms.

3.3 Gatobu M’Ibuutu Karatho v. Christopher Muriithi Kubai [2014] eKLR

Relevance: This case illustrates the importance of due diligence and addressing potential issues in a contract. The court emphasized the need for parties to conduct thorough investigations before entering into a contract.

Outcome: The court ruled in favor of the plaintiff, who had conducted due diligence and discovered undisclosed issues.

4. Conclusion

Drafting a Real Estate Assignment Agreement requires careful attention to detail and a thorough understanding of the relevant legal framework. By avoiding common mistakes such as vague language, failure to include necessary contingencies, and ignoring legal requirements, parties can ensure that their agreements are clear, enforceable, and compliant with Kenyan law. Consulting with legal professionals and conducting thorough due diligence are essential steps in this process.

5. TLDR

Avoid common mistakes in drafting Real Estate Assignment Agreements by using clear language, including necessary contingencies, conducting due diligence, involving all parties in the drafting process, ensuring accurate party information, defining the assignment scope, and complying with legal requirements.

Sources

  • Law of Contract Act (Cap. 23)

  • Land Registration Act (Cap. 300)

  • Kenya Commercial Bank Ltd v. Specialized Engineering Co. Ltd [1982] KLR 485

  • National Bank of Kenya Ltd v. Pipeplastic Samkolit (K) Ltd & Another [2001] eKLR

  • Gatobu M’Ibuutu Karatho v. Christopher Muriithi Kubai [2014] eKLR

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