Introduction
When a borrower defaults on a loan secured by land or an apartment, one of the most critical questions is how the bank will realise the charged property. Many borrowers prefer a private treaty sale, which is often less distressing and may yield a higher price than a public auction. However, the key legal issue is whether a borrower can legally compel a bank to dispose of the property through a private sale rather than an auction. Kenyan courts and the Land Act, 2012 are exceptionally clear on this question.
The Legal Position Under the Land Act, 2012
Under Sections 90 and 96 of the Land Act, a bank’s statutory power of sale crystallises once the borrower is in default and the mandatory notices have been issued. After this point, Section 98 grants the bank discretion to sell the property either by public auction or by private contract. The law does not give the borrower a right to choose or insist on the mode of sale. The choice belongs exclusively to the bank, provided the bank acts lawfully and in good faith. Contact our experienced real estate lawyers near you for a personalized legal help in Kenya.
Role of Section 97: The Borrower’s Real Protection
Although the borrower cannot dictate the method of sale, the bank must comply with Section 97, which requires it to obtain the best price reasonably obtainable. The bank must also commission a proper and recent forced sale valuation. If a sale occurs at a gross undervalue or based on a flawed valuation report, the borrower may pursue a claim for damages. Section 97 therefore focuses on fairness of price, not the mode of sale.
Key Court Decisions Supporting the Principle
Kenyan courts have consistently confirmed that a borrower cannot compel a private treaty sale. In Stephen Kipkatam Kenduiywa v Sidian Bank Ltd (2017), the court held that the chargee has full discretion to choose between auction and private treaty. The borrower’s preference, even where a ready buyer exists, does not override this discretion.
This position was reaffirmed in Milling Corporation of Kenya v Standard Chartered Bank (2020), where the court stated that no statutory duty obligates a bank to accept a private sale. Earlier, Zum Zum Investment Ltd v Habib Bank Ltd (2014) held that once the statutory notices are valid, a borrower cannot restrain an auction simply because they prefer a different method. More recently, Moses Mwenjera Ndaba v Kenya Women Microfinance Bank (2022) reiterated that compliance with Section 97; not the borrower’s preference, guides the court.
Negotiation: The Only Viable Path to a Private Treaty Sale
Although the law does not allow compulsion, a borrower may successfully negotiate a private treaty sale. Banks sometimes accept this option where the borrower presents a credible buyer offering a price equal to or above the forced-sale valuation. A private treaty may also help the bank mitigate valuation disputes and reduce auction costs. However, acceptance remains a commercial decision by the bank, not a legal obligation.
Practical Options for Borrowers in Default
A borrower who wishes to avoid an auction should engage the bank early, provide evidence of a genuine buyer, and demonstrate the ability to complete the transaction promptly. If the bank declines, and all statutory steps have been properly taken, the borrower cannot lawfully block the auction. The remaining safeguards include exercising the equity of redemption before the hammer falls and challenging irregularities in valuation or notice.
Conclusion
In Kenyan law, a borrower cannot compel a bank to sell a charged property by private treaty instead of public auction. The Land Act gives the bank full discretion over the method of sale once the statutory power of sale arises. The borrower’s rights lie in ensuring compliance with valuation and notice requirements, negotiating in good faith, and challenging any breach of the duty of care under Section 97. Anyone facing an imminent auction should seek legal advice promptly and explore negotiation strategies rather than relying on compulsion.