According to modern academic theory, owning property is less a matter of owning a physical resource than it gives access to a bundle of rights attached to the resource. Ownership, hence, represents the rights to use a resource in a specified and limited way. These rights would have no value at all if not recognised by the surrounding society.
Property transfer involves land which is already registered – also known as conveyancing (legal transfer of property from one person to another). In this case, there is a person who is holding the title to the land. The transfer involves the process of changing ownership of land from one party to another. Property transfer results from a disposition of land where there is a sale or property is given to another person as a gift or through love and affection. Once there is a need to change the ownership of the title to land, the transfer of property takes place.
Land transfer in Tanzania can be a complex and lengthy process if a person is not familiar with the process. This is because land in Tanzania is government-owned and, as such, interests in land are highly guarded by the state. The process of transfer of interests in land in Tanzania is governed by two main laws, namely the Land Registration Act, Cap 334 and the Land Act Cap 113 of 1999.
Other laws like the Stamp Duty Act Cap 189 RE: 2019, the Income Tax Act Cap 332 RE: 2019, the Registration of Documents Act, Cap 117, Investment Act Cap. 38, the Unit Titles Act No. 4 of 2008, provides for financial obligations that parties will incur in the process of transfer. The Investment Act specifically applies when the transfer involves a foreigner. The initial basic procedures involved before finalising the said transfer include the following;
- To get hold of a lawyer who is conversant in preparing the transfer documents, which will later be signed by the Vendor (property owner) and the Purchaser respectively, thereafter to be attested by a Notary Public and a Commissioner for Oaths.
- Along with the transfer document, the necessary forms under the Land Act shall be filled out by the applicant (transferor) who is applying for the transfer from his/her name to the other person’s name.
- The sale agreement or any agreement affecting the change of ownership will be taken to the Tanzania Revenue Authority offices, where a stamp duty fee shall be paid before transmission of the documents to the Registrar of documents for due registration of the new owner and effecting the necessary changes in the land register. All pending rates have to be paid before the documents are submitted to the Registrar.
- Thereafter, after thorough examination of the documents by the Registrar, the Registrar shall effect the changes in the register and the title deed to show the name of the new owner in the title deed.
During this process, one would be advised to seek a lawyer’s assistance to ensure a smooth transition and that the legal framework is in order. In line with the above-stated procedures, let us look into the payments that have been addressed, which also involve taxes to be cleared before legalising the transfer of ownership. All property owners are subject to paying property taxes, except for a few, who would be exempted for various reasons.
- (i) Stamp duty fee, which is levied at 1% of the gross selling price, either the purchase price or the value shown in the valuation report.
- (ii) Capital gains tax, which is 10% of the value of the property to be transferred. Once the payments are cleared, you will obtain the capital gains tax certificate.
- (iii) If a person disposed of any of the assets possessed and realises a gain on disposal, the gain is subject to tax unless exempted under the tax laws.
- (iv) Registration fee, at which the rate is obtained from the amount paid as stamp duty divided by four (4)
- (v) Land rent and land charges are collected through a system of annual land rents administered through the Ministry of Lands, thereafter a rent clearance certificate will be issued.
- (vi) Property tax (does not apply to undeveloped land). The property tax clearance certificate will then be granted.
Historically, property taxation was introduced by the colonial governments in Tanzania during the twentieth century. Property taxes are generally levied on all types of properties, residential, commercial and industrial, as well as on farm properties. In Tanzania, the level of land rents is set by the central government, with the land rent sharing rate in 1999 giving 80 per cent to the central government and 20 per cent to the local government. Under the property tax, rural property is essentially not taxed. In fact, non-surveyed rural land is not even required to pay land rent. This means that a large portion of rural wealth is left untapped by the government. Rural districts continue to rely on agriculture as a means of taxing their agricultural base. The rating law only applies to urban areas, and there are only a few district governments that are applying a flat rating approach as allowed under the Local Government Finance Act of 1982.
The exchange or transfer of real estate is known as conveyance. That is, to transfer or deliver land or property to another or to perform an act that is intended to create one or more property interests, regardless of whether the act is actually effective. The usual means of transfer is by way of a deed.
In brief, there are five stages of the conveyance process:
- Pre-contract negotiations
- Exchange of Contracts
- Pre-Completion Procedures
- Completion
- Post-Completion
Pre-Contract Negotiations- Stage 1
The buyer and the seller must work out their respective positions. It is not the duty or role of the lawyer to undertake negotiations, although lawyers mostly do so as to ease the process and guide both parties. The objective is to arrive at all the terms, especially the price and the extent of the property that is being sold and, conversely, bought. The parties must discuss and agree to any and all conditions, such as key dates when contracts are to be exchanged and the completion date.
Exchange of Contracts-Stage 2
After the parties agree upon the terms, then the services of an attorney/an advocate should be utilised to draw or write the sale-purchase agreement or other modes of transfer, including the Land transfer forms. The identities of the parties must be mutually verified. Buyers would be prudent to perform the following steps at this stage:
- Make searches of title records
- Visit the neighbours and make inquiries. Pre-purchase inspection- the buyer’s engineer’s report by the buyer
- evaluates the property to determine its true values
After these preliminaries are done, a draft contract is prepared by the seller or her attorney and is sent to the buyer or his attorney for signing. It is customary for the buyer to make revisions, and upon the resolution of all terms, the stage is set for the signing of the contracts and payment of the purchase price.
Pre-Completion Procedures-Stage 3
This stage is marked by the following formalities being completed:
Land transfer Documents are submitted to the Municipal Council, and later assessments and payments of the Stamp Duty and Capital Gains Tax. Payment of Stamp Duty as a percentage of the price is supposed to be split or shared by the parties Seller alone pays the Capital Gains Tax. The executed instrument of transfer is accompanied by the original duplicate title for submission to the Office of Registrar of Titles to record the new owner and mortgage(s), if any. Additional Steps to be taken if Purchase is being Financed or Mortgaged:
If part of the purchase price is funded by a third party, that is, the grant of a mortgage, then the buyer or purchaser would immediately take steps to finalise their mortgage arrangements and get a letter of commitment that is presented to the seller’s attorney within the time stipulated in the contract. The buyer pays all fees and duties associated with the mortgage and, in due course, executes a note followed by a mortgage deed/Instrument of Mortgage. These documents are prepared and presented for execution by the lending institution, mortgagee or its attorney.
If the transaction is an all-cash deal, then the buyer pays the balance of the purchase price, and both parties execute the Instrument of Transfer for presentation to the Office of Registrar of Titles.
Completion-Stage 4
This is the stage where all the paperwork is signed and the relevant documents submitted to the Office of the Registrar of Titles. After the transfer is registered, you may now be said to be the owner of the property with or without a mortgage.
Post-Completion or Closing-Stage 5
The buyer’s lawyer ensures that the transfer is completed and the duplicate certificate of title is accurate. Further, the title reflects the discharge of any prior mortgage(s) and the accuracy of any new indebtedness or mortgage. After inspection, the owner is given his certificate of title or a certified copy of the title if the lending institution kept the original certificate of title. The post-completion process should take less than 3 months.
Conclusion:
Conveyancing in Tanzania is mostly done by lawyers because they know the law and the whole transfer process, among many other reasons. Although the process appears to be simple, it can be quite intimidating because of the large amount of paperwork involved and bureaucracy. The time for completion is usually set at 90 days if a mortgage is involved and 60 days if the transfer is by way of cash.
Disclaimer
This publication has been prepared for general guidance on matters of interest only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty, either express or implied, is given as to the accuracy or completeness of the information contained in this publication, and to the extent permitted by law. GERPAT SOLUTIONS’s members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision thereto.
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