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What are the standard clauses for a Mortgage Agreement?
Introduction
A mortgage agreement is a legal document that outlines the terms and conditions under which a lender provides a loan to a borrower for the purchase of real estate. In Kenya, mortgage agreements are governed by various laws, including the Land Act, 2012, the Land Registration Act, 2012, and the Law of Contract Act, among others. This document will provide an in-depth look at the standard clauses typically found in a mortgage agreement in Kenya, citing relevant legal provisions.
Table of Contents
Parties to the Agreement
Recitals
Definitions and Interpretations
Loan Amount and Interest Rate
Repayment Terms
Security
Insurance
Covenants by the Borrower
Events of Default
Rights and Remedies of the Lender
Miscellaneous Provisions
Conclusion
1. Parties to the Agreement
The first clause in a mortgage agreement identifies the parties involved:
Lender: The financial institution or individual providing the loan.
Borrower: The individual or entity receiving the loan.
Source: Section 2 of the Law of Contract Act, Cap 23.
2. Recitals
Recitals provide the background and context of the agreement. They typically include:
The purpose of the loan.
A brief description of the property being mortgaged.
The intention of the parties to enter into the mortgage agreement.
Source: General principles of contract law.
3. Definitions and Interpretations
This section defines key terms used throughout the agreement to ensure clarity and avoid ambiguity. Common definitions include:
"Loan": The principal amount lent by the lender to the borrower.
"Interest Rate": The rate at which interest will be charged on the loan.
"Property": The real estate being mortgaged.
Source: General principles of contract law.
4. Loan Amount and Interest Rate
This clause specifies the principal amount of the loan and the interest rate applicable. It may also include:
Fixed or Variable Interest Rate: Whether the interest rate is fixed for the term of the loan or subject to change.
Calculation of Interest: How interest will be calculated (e.g., daily, monthly).
Source: Section 84 of the Land Act, 2012.
5. Repayment Terms
Repayment terms outline how the borrower will repay the loan. This section typically includes:
Repayment Schedule: The frequency and amount of payments (e.g., monthly installments).
Prepayment: Conditions under which the borrower can repay the loan early.
Late Payment Penalties: Penalties for late payments.
Source: Section 85 of the Land Act, 2012.
6. Security
The security clause details the property being mortgaged as collateral for the loan. It includes:
Description of the Property: A detailed description of the property.
Title Deed: Information about the title deed and its registration.
Source: Section 79 of the Land Act, 2012.
7. Insurance
This clause requires the borrower to maintain insurance on the property. It typically includes:
Type of Insurance: The types of insurance required (e.g., fire, flood).
Beneficiary: The lender as the beneficiary of the insurance policy.
Source: Section 88 of the Land Act, 2012.
8. Covenants by the Borrower
Covenants are promises made by the borrower to the lender. Common covenants include:
Maintenance of Property: The borrower agrees to maintain the property in good condition.
Payment of Taxes: The borrower agrees to pay all property taxes and other charges.
Compliance with Laws: The borrower agrees to comply with all applicable laws and regulations.
Source: Section 83 of the Land Act, 2012.
9. Events of Default
This section outlines the circumstances under which the borrower will be considered in default. Common events of default include:
Non-Payment: Failure to make a payment when due.
Breach of Covenants: Failure to comply with any covenants in the agreement.
Insolvency: The borrower becomes insolvent or bankrupt.
Source: Section 90 of the Land Act, 2012.
10. Rights and Remedies of the Lender
This clause details the rights and remedies available to the lender in the event of default. These may include:
Foreclosure: The lender's right to foreclose on the property.
Sale of Property: The lender's right to sell the property to recover the loan amount.
Appointment of Receiver: The lender's right to appoint a receiver to manage the property.
Source: Section 96 of the Land Act, 2012.
11. Miscellaneous Provisions
Miscellaneous provisions cover various other aspects of the agreement, such as:
Governing Law: The law governing the agreement (typically Kenyan law).
Dispute Resolution: Methods for resolving disputes (e.g., arbitration, mediation).
Notices: How notices will be given between the parties.
Amendments: Conditions under which the agreement can be amended.
Source: General principles of contract law.
Conclusion
A mortgage agreement is a comprehensive document that outlines the terms and conditions under which a loan is provided for the purchase of real estate. The standard clauses in a mortgage agreement in Kenya are designed to protect the interests of both the lender and the borrower, ensuring clarity and legal compliance. By understanding these clauses, parties can enter into mortgage agreements with confidence, knowing their rights and obligations are clearly defined.
Sources:
Land Act, 2012
Land Registration Act, 2012
Law of Contract Act, Cap 23
Answered by mwakili.com