Loan Documentation

Loan security documents are the legal instruments by which a borrower pledges assets to a lender as collateral for a loan — giving the lender the right to seize and sell the assets if the borrower defaults. In Kenya, the creation and enforcement of security interests are governed by the Land Act, 2012 and the Land Registration Act, 2012 (for security over immovable property), the Movable Property Security Rights Act, 2017 (for security over movable assets), the Companies Act, 2015 (for corporate borrowers), and the Insolvency Act, 2015 (for enforcement and insolvency scenarios). The precision of security documentation is paramount: a defective charge can leave the lender unsecured and the borrower insulated from enforcement.

Advocates offering this service act for both lenders and borrowers. For lenders, they prepare the full range of security documents. For security over land, they prepare charges (the equivalent of a mortgage under the new land law regime) — ensuring that the charge complies with the Land Act and the Land Registration Act, that it is properly executed by the chargor and witnessed, that all necessary consents are obtained (including the consent of the lessor for leasehold land and the spouse's consent under the Matrimonial Property Act), and that the charge is registered at the relevant land registry. Advocates also prepare debentures — which create security over the assets of a company, both present and future, and which can be fixed (over specific assets) or floating (over changing assets like stock and debtors).

For security over movable assets, they prepare security agreements under the Movable Property Security Rights Act, 2017 — which created a modern, streamlined framework for the creation and registration of security over movable property, including vehicles, machinery, equipment, inventory, and receivables. Advocates handle the registration of these security interests on the Registry of Movable Property Security Rights, which is operated by the Business Registration Service.

Advocates also prepare guarantees and indemnities — under which a third party (a guarantor) agrees to pay the debt if the principal borrower defaults. Advocates ensure that guarantees are properly executed, that the guarantor's obligations are clearly defined, and that the guarantor's rights (including the right to be indemnified by the principal borrower and the right to subrogation) are preserved. For corporate groups, they prepare corporate guarantees and comfort letters, and they advise on the legality and enforceability of guarantees given by companies for the debts of related parties.

For borrowers, they review security documents before execution — explaining the borrower's obligations, the lender's enforcement rights, and the risks of providing the security. Advocates negotiate the terms of the security to ensure they are fair and to limit the borrower's exposure where possible. Advocates also advise on the discharge and release of security once the loan is repaid — handling the preparation and registration of the discharge of charge, the release of guarantees, and the return of title documents.

Advocates handle the enforcement of security — acting for lenders in the exercise of statutory power of sale under the Land Act, the appointment of receivers, the realisation of movable collateral under the Movable Property Security Rights Act, and the enforcement of guarantees. Advocates ensure that the procedural protections afforded to borrowers (including the section 90 notice for charges over land) are complied with, to avoid the risk of the enforcement being challenged.