Whether you’re a business owner seeking working capital or an individual financing a major purchase, pledging property as loan security is common practice in Kenya. But many borrowers don’t fully understand what they’re signing — until something goes wrong. Here’s what you need to know.
What Is a Charge Over Property?
When you use land or property as security for a loan, the lender registers a “charge” against the title. This gives the lender a legal claim over the property until the loan is repaid in full. It does not transfer ownership — but it does restrict what you can do with the property while the charge is active (for example, you generally cannot sell it without the lender’s consent).
Understand the Terms Before You Sign
Loan and charge documents are often lengthy and technical. Key things to review carefully include:
- The interest rate and how it may change over the loan period
- Repayment schedule and any penalties for late payment
- What triggers “default” under the agreement
- The lender’s rights if you default — including the right to sell the charged property (statutory power of sale)
The Risk of Default
If a borrower defaults, the lender typically has the legal right — after following required notice procedures — to sell the charged property to recover the outstanding debt. This is why understanding the default clauses before signing is critical, not after.
Guarantors Take on Real Risk Too
If you’re acting as a guarantor for someone else’s loan, understand that you may become personally liable for the debt if the borrower defaults. This is a serious commitment that deserves independent legal advice before you sign.
Our Advice
Loan security documents are legally binding and often difficult to renegotiate later. Having a lawyer review your loan and charge documents before signing protects you from unfavorable terms — and ensures you fully understand your obligations.
Reviewing a loan or security document? Contact CS Carlos Advocates before you sign.